What Should I Charge as an Independent Executive?
The question of how to charge (and how much to charge) is one of the first questions we hear from executives who are transitioning from being an employee to being an independent executive.
The response to this question is, “It depends,” and it does. What is right for each client situation can depend on a number of variables.
Hourly versus Daily
Hourly. If a company is hiring one of the Big Four consulting firms (McKinsey, Booz-Allen, Accenture, Deloitte) compared to a small, boutique firm or an independent management consultant, there is a big range in hourly rates, which start at $350 and go as high as $1,000, depending on whether entry-level consultants are working on the project or one of the partners. Generally, there will be a blend of resources who vary in rates. For a smaller, boutique firm, rates decrease considerably and will typically range from $250–$400/hour. Working directly with an independent consultant, the rates will come down slightly from there, starting at $100–$350/hour. For more on how to determine your rates, be sure to read our book, How I Fired My Boss and Made More Money.
Daily and Monthly. Interim and part-time executives generally quote on a daily or monthly rate rather than an hourly or fixed-rate project fee. Whether the executive works eight hours or twelve hours per day, the client pays the same daily rate. The same applies for monthly rates, whether there are twenty-eight days or thirty-one days in a month; the client pays the same agreed-upon monthly rate.
Because independent executives are tasked with achieving specific objectives and timelines, they are far less likely to get involved in day-to-day politics and minutiae. Thus, they may accomplish in three to four days what a full-time executive will accomplish in five days. Clients can then compare the cost of an independent executive working three to four days per week to what they would be paying a full-time executive employee (including salary, taxes, benefits, bonus, etc.). The cost will be close to the same, but the independent executive will get the work done faster.
Experience Level of an Independent Executive
Your experience level and what you have traditionally made as an executive will influence the starting basis for your rate. Be careful, however, with smaller companies, as you may not be able to start at the same basic rate for them; they simply won’t be able to afford you.
Size of the Company and the Situation
We have discussed that potential salary level plays a factor in management consulting rates. Just as full-time salaries range based on the size of the company and the situation, so do consulting rates. Considerations can include both the company’s situation as well as the consultant’s situation. For example, a company turnaround will garner a higher rate than a project assessing a sales team. Some executives may also be willing to take less because they see an engagement as a fun challenge and are financially able to.
Length of Engagement
A project involving an assessment that will take two to three weeks will typically be quoted at a higher rate than one that will last three to six months. One thing to beware of is thinking that a full-time engagement for three months should be compensated at a lower rate than one that is part-time for three months. In reality, the fee should be about the same. Although there is more short-term income for the full-time three-month project, it might keep you from accepting another engagement for three to five days per week for more money.
We have talked to many executives whose usual fee is $2,000–$3,000 per day. That is reasonable when it is a short-term project or only a few days per month. In most cases, however, this doesn’t work with larger engagements. When a client needs an interim executive for three to five days per week for six to nine months, do the math on what it adds up to. Does the total amount seem reasonable for the job you are being asked to do and the value of the work? Step back and look at the math from a few different perspectives. What are their other alternatives and the costs associated with those? How do those compare to what you are asking for in fees? How reasonable is $3,000 per day for a $30 million company based on what they are asking you to accomplish?
Availability of the independent executive
How busy you are (or aren’t) can also factor into your fee equation. If you don’t have any work scheduled in the next month and not much in your pipeline, you may be more willing to come down on your rates if you prefer some work to no work. Conversely, most independent executives have no problem standing firm on their quoted rate if they are busy and have a steady pipeline at that rate. Why work for less if you have prospective clients willing to pay you more?
Your interest level in the engagement can impact your rates. We have seen executives decrease their rates for engagements they are very interested in, and conversely increase them when there are elements that aren’t as appealing, e.g., lots of travel or higher risk.