For some good links on how to determine your rates check out these links.
- A Guide To Information Technology Consulting Rates
- Independent Consulting and Back Office Services
- Consulting Rate Worksheet
Here is how I came up with my rate
Choose a target billable rate – for this demo we will say it is $65 an hour (going rate in the Chicago land area).
Determine your current hourly rate. This is your salary divided by 2080, total number of ‘work’ hours in a year. Now you have a baseline for what you make now, including benefits.
Now that we have our rate, we need to determine how much all our expenses are going to cost and subtract them out.
- 401k matching – lets say your company will match up to 3k a year (and you get the full matching). At 3k a year, this is worth $1.44 an hour off your billable rate.
- Health insurance (cost if you had to buy it own your own) – lets say you need to cover you and your family, this could cost you about 5-6k a year. At 6k a year, this is $2.88 an hour off your billable rate.
- FICA (Social security and Medical tax) – As a employee, your company will pay 7.65% for you, while you pay the other 7.65%. So, at 7.65%, this is $4.97 an hour off your billable rate.
- Vacation/Sick/Holiday time – I assume that I am going to take 3 weeks vacation, 2 weeks holiday time, and 1 week sick time.
Time to figure out your ‘actual’ rate after expenses
65 – 1.44 (401k matching) – 2.88 (Insurance Cost) – 4.97 (FICA) = $55.71
So, that $65 number is really more like $55. So, if your salary rate is not at least $10 an hour less then the ‘actual’ consulting rate, I would say that it is not worth the effort. For me, I don’t have to worry about insurance (on wife’s plan) and my company does not have any matching, so the only subtraction I have is the FICA expense.
So my actual rate calculation is really
65 – 4.97 = 60.03
Via Derik Whittaker