What’s your right rate?

A challenge faced by every consultant is setting their rate. A few of us are in the business for charity (or so it would seem), but most of us consult for a fee to live at a reasonable standard.  As mentioned in a number of my other blogs, there are two distinct classes of consultants:

  • commodity consultants – skill set for hire at the going rate
  • value-based consultants – rate based on value delivered to the client

So let’s do the easy one first. Commodity consultants. Your value is essentially public, you can check Payscale, enter your qualifications and see where you stand against the full time employee and contract markets.  Your client’s also can use the same tools to see how much they should be paying. Rates vary by location and is fully supply and demand sensitive. Lots of consultants available with your skill set, the rate goes down.  The following is a sample based on rate to client.

Rank IT Skill IT Jobs Hrly. Average

Annual Average

1 Sr. Developer 25.80% $ 53 $ 105,000
2 Analyst 21.88% $ 27 $ 54,250
3 Business Analyst 10.55% $ 39 $ 78,750
4 Project Manager 8.01% $ 61 $ 122,500
5 Specialty Consultant 7.60% $ 49 $ 98,000
6 Java Developer 5.03% $ 53 $ 105,000
7 Tech. Architect 4.63% $ 63 $ 126,000
8 C# Developer 3.77% $ 53 $ 106,750
9 .NET Developer 3.12% $ 56 $ 112,000
10 Administrator 2.36% $ 24 $ 48,125

 

The selection criteria for getting these roles is generally technical qualifications and years experience.  (College/University, Certifications etc.) If you work through a recruitment agency they will take usually 18%-30% (*) of that amount for sales, marketing and administration expenses (and profit). The net result will be that  the contract rate will be more than the Full Time Employee rate paid in your area, but not by much. You are a commodity consultant. The days of standard consulting rates being 2 times salary went away with the .com bust. Commodity consultants are currently plentiful and competing with off-shore rates, so the resultant rate to you reflects that reality.

(*) You may want to read Levitt and Dubner’s  Super Freakonomics before thinking this fee is too high. Look up “pimpact” pg. 38

Value-based Consultants

When I client hires a value-based consultant there are specific expectations of work, deliverables and value that the consultant will bring. Some engagements are time and materials but more and more the engagements are becoming deliverable based.

Historically, I or the firm I work for has averaged $600,000 to $850,000 annually for my billable time and I am not the most expensive IT consultant around. Firms like McKinsey, PWC  and others, the discussion with the client starts with $250,000 to engage. There is no hourly rate in discussion, just a discussion about the value they will bring and expectations surrounding the deliverables. Doing the math on one such engagement I was involved with, the firm was averaging per resource rates over $750 per hour.

Are they worth it?

The answer is yes. If the client went out and recruited a team to look at the same problem, it might take 6 months to find the right resources and the very real risk they may not know enough to hire well.  They will have a ramp time and by the time they develop a common approach, vision, methodology, do some research a year has gone by. When you hire McKinsey, they already have the world-class experts, the research and intimate domain knowledge that you can leverage. They can accomplish in 2 months what it will take the client internally a year+ to do. It is not the resource cost that will ever be the client’s issue, it will be the slow ramp and execution time of an internal project  that prohibits them from seeing the business-value of the change or solution they are wanting to implement. If you want a change made to an ERP system, do you call McKinsey? Of course not, but when you’re  a retail bank that just purchased the assets of a sub-prime lender and need to rethink your loan and risk management systems approach? Yes. The value is evident.  Certain value with Time and Risk Mitigation.

In my blog Just because you are necessary, does that make you valuable? , we discuss some of the differentiators between commodity and value-based consultants.  With a specific reference to what your prospective client is trying to accomplish, how do the following attributes make a difference?

  • quality
  • productivity
  • domain expertise
  • track record
  • intellectual property
  • organizational depth & other backup resources
  • communication abilities
  • analytical and design capabilities
  • teamwork capabilities
  • availability
  • consistency
  • durability
  • flexibility
  • familiarity with client tools and processes
  • etc.

What does it truly mean to your client that you can reduce risk, produce higher quality, do it faster with better proven results?

Let’s look at that chart again.

Rank IT Skill IT Jobs Average Average
1 Sr. Developer (MOSS) % $ 125 $ 250,000
2 Analyst (Domain Specific) % $ 100 $ 200,000
3 Proj. Manager with Domain Experience and Same Tech % $ 150 $ 300,000
4 Project Manager (above + 10 yr track record) % $ 200 $ 400,000
5 Specialty Consultant % $ 150 $ 300,000
6 J2EE specialist with 10yrs BEA/Websphere % $ 150 $ 300,000
7 Enterprise Architect % $ 150 $ 300,000
8 Specialty App/Solutions Architect % $ 300 $ 600,000
9 Program Lead/ Chief Architect % $ 350 $ 700,000
10 MOSS Solutions Architect % $ 125 $ 250,000

 

So why is a Senior Moss Developer worth $125 / hour versus a generic Senior Developer at $53.  The value based consultant will be able to explain why having 1 of him or her results in faster delivery, less hours, less rework, more quality, more delight in the end-users, faster implementation, better adoption rates and the project will end up costing the client LESS because he or she is better value and they will see the benefits faster.

So why is a Specialty PM  worth $150 / hour versus a generic PM  at $61.  The value based consultant will be able to explain why having 1 of him or her results in faster delivery, less total project hours, optimized methods and processes, less rework, more quality,higher productivity team, better requirements gathering, less risk, faster implementation, better knowledge transfer, lower operating costs and the project will end up costing the client LESS because he or she is better value and they will see the benefits faster. 

A common practice today is for larger SI’s to only present blended rates to the customer, mostly because they are not properly equipped to have a value discussion. You will find large SI contracts currently quoting $90-$125 / hour blended and Off-Shore components in the $50-$70 / hour blended.

So my advice to you is this. Understand your value, very, very well. Understand exactly what benefits the client will gain from your involvement and don’t back down from the value discussion. Prove to your client why you are worth $150, $200 or $350 per hour. It’s about value unless you’re a commodity.

Ask me how many commodity consultants I will ever hire for one of my projects? Answer: Zero. I am looking for value.

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3 Responses to What’s your right rate?

  1. Richard says:

    Ian – we don\’t know each other well – but you have insight that is rarely seen in the industry, especially when it\’s so eloquenlty laid out. I have much to learn from you in that regard. Looking forward to more of your posts!Richard

  2. Pingback: Infinite Shades of Grey – A year later and a little greyer | Infinite Shades of Grey

  3. Pingback: The World’s Most Expensive Consultant | Infinite Shades of Grey

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