Consultant Charge-out Rates
Summary
Consultant charge-out rates often exceed the hourly salary due to additional costs like superannuation, office expenses, training, and overheads. This article breaks down how billable hours and company overhead impact consulting rates, explaining why the charge-out rate can be nearly double the consultant's pay to cover costs and profit. Understanding these factors helps Salesforce consultants and firms price services realistically and maintain profitability even with non-billable time and business expenses.
Takeaways
- Consulting charge-out rates cover salary plus overhead costs and profit.
- Billable time typically must be 80% or higher to ensure profitability.
- Company overheads include office, equipment, training, recruitment, and supervision.
- Simply doubling the hourly salary is a common but rough estimate for charge-out rates.
- Charge-out rates must exceed break-even to cover non-billable periods and profit.
If you have ever worked as a consultant or employed a consultant, you will have come across the huge difference between the hourly rate paid to the consultant and the consultant charge-out rates – the rate the consultant is charged out to customers. Typically, the consultant may be getting paid $50 per hour, yet their charge-out rate is $200/hour. Why the Discrepancy? Salary alone is not the only cost your employer has to pay. They also have to pay: Superannuation (401k) – in Australia, that’s 12% of salary. Office space for you Power, air conditioning, insurance Desk, computer, software licences, phone Training and development Partial costs of your supervisor (they may only be 50% billable) Recruitment costs Payroll system costs What is Billable Time? Billable time is time spent by the consultant working on tasks directly attributed to a client that can be billed to that client. A typical consultant can be expected to have a billable rate of 80% or higher.