How Do You Set Consulting Fees?
Executive Summary About How Do You Set Consulting Fees? By Stephen Pope
Business Tax Consultants
One of the most frequent questions I receive from those who are trying to start or grow their own consulting business is: “How and what do you charge clients for your consulting services?”
The ways of billing clients are numerous. There are hourly rates, by-the-job fixed rates, contingency or performance arrangements, flat fee plus expenses, daily fee plus expenses, and many other methods of charging for your consulting services.
1. Hourly or Daily Rate
Many consultants charge by the hour or day. Many hours will be spent marketing and in administrative and other functions, so this time is not chargeable to the client. As well, vacation time, holidays, sick days, and so on, can not be directly billed to the client.
Consultants, like other businesses, must charge enough to cover their overhead expenses and also earn a profit. If a consultant wants to earn twenty-five dollars per hour of working time, he (or she) might have to charge one hundred dollars per hour to the client. This assumes one half billable hours and fifty percent overhead and profit.
Your hourly or daily rate may be limited by what your competition charges, especially if you have not positioned yourself as different from them.
2. Fixed or Flat Rate
Some consultants charge by the job or a flat rate. For example, a tax consultant might charge three hundred dollars to prepare a tax return for you and your spouse, including an unaudited income statement for your business from information supplied by you.
If the consultant takes only one hour to do this, he grosses three hundred dollars per hour. Many consultants claim to make more on a flat rate than on a hourly basis. Advantages include being able to give a quote to the client up front and less disputes on price (as the total bill was agreed upon in advance).
To protect yourself on flat rate assignments, always limit the scope of your engagement to something that you can calculate easily.
Estimate the time required to meet with the client, learn about his business and goals, develop strategies and a budget, and prepare recommendations on how to proceed. Then, give the client a quote (perhaps in the form of a one page letter agreement or proposal). Upon acceptance of the offer by the client in writing, you may proceed with this phase of the project.
Some consultants collect one-half of their fee up front and half upon assignment completion for each phase of the consulting project.
If the client doesn’t like your recommendations, at least you get paid for the work you did. Perhaps you can charge him to prepare alternative suggestions.
If your website project was not broken into smaller steps or assignments, you could find that you spent way more time on the project than anticipated.
Breaking down a project into smaller assignments helps you estimate more accurately and limits your financial exposure.
3. Contingency or Performance Arrangements
Sometimes clients will ask you to become their partner. If you do, you are no longer an objective consultant.
What if your client asks you to do management consulting for twenty-five percent of the net profits? Will there even be any profit by the time he writes off his car, home office, entertainment, travel, wages to self and family members, and other expenses?
Some consultants charge a flat rate plus a percentage of ownership or profits for their services.
Fees based on contingency or performance arrangements are risky. Most consultants are better off charging a fair price for their services and leaving the risk of the client’s business to the client.
4. Value Based Fees
Sometimes consultants can justify fees based on their value to the client. For example, if you save a client one million dollars in taxes, your fee may be higher than normal to reflect the value of the services rendered.
You might pay an accountant or lawyer a fee of fifteen hundred dollars based on time for certain tax related services. What would you be willing to pay to legally save an extra million dollars in taxes? Ten thousand dollars, one hundred thousand dollars, or more?
However and whatever you charge, be sure that your fee is a good value for your client and also compensates you fairly.
Make Your Tax Consultant Happy to Reduce Your Taxes!
Executive Summary About Make Your Tax Consultant Happy to Reduce Your Taxes! By Chintamani Abhyankar
Tax losses are becoming more and more complex. Most of the people think that hiring a tax consultant is a better option as he will do some magic to reduce their taxes.
Admitting that there are many competent tax consultants to take care of your return, check what you take with you when you go to request him for preparing your return? Go to him with organized papers and let him work on them to give you real tax saving tips.
The box system
You may walk out of a store without small change but you should never walk out without a receipt. These receipts are very important because IRS is demanding documentation for every claim you make.
Once you grab the receipts, put them in a box or in a special file. After a couple of months sort them out into categories and put the checks and receipts in envelopes with the name of category written on them. So you will have envelopes for charitable contributions, medical expenses, property taxes, mortgage and so on. If you feel there is no category then keep such receipts in a separate envelope. Now it’s easy for your consultant to translate them into deductible expenses.
You can do all this work while listening to music and such light work will save hundreds and thousands of dollars for you.
Never give your consultant a bag full of unsorted receipts. It will waste his time and your money. Tax preparation is not a fun and your sincerity will make him happy. Try to minimize his pain.
What you want from your consultant is the key question. More interest you show in your approach, more proficient he will be.
There are some other ways to help your consultant
There are some other methods by which you can help your consultant to get better results. If you are having sale of stock or mutual fund, you should make the cost basis available to your consultant. So you don’t pay taxes on them two times.
The broker will take some time to send you the statements but then its well within the deadline of April 15.
If you wait until April, he is going to be very busy and may not be able to concentrate fully on your work. Also if your consultant wants some additional papers, you have sufficient time to get them for him.
You may be having certain questions which you wanted to ask your tax consultant. Leave behind the fear of tax audits
Many people feel that tax audit is worst then death! But with these preparations you have already reduced the chances of tax audit considerably. Actually what is the main purpose of tax audit? So for your claim of deduction of charitable contributions, the tax auditor is going to ask you the receipts of your contributions. You have already audited your tax return before IRS does!
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