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I have been working as an independent consultant for several years now. I've been fortunate enough that my business has grown to the point where i am considering hiring someone to share the workload. the item that I am having trouble with is, how to charge a client for the services. It sounds like a stupid question, but im a bit stumped.

For example, do I charge tiered pricing? i.e. if person 'a' works on your project, you will be charged x dollars. If person 'b' works on your project, you will be charged y dollars. Do I charge a single hourly rate and the only real difference happens behind the scenes?

I'd like to build a scalable model. At some point, I'd like for my organization to be 3-4 levels deep. But i understand in order to do that, I need to get my pricing model correct now. I sincerely wrestle with what's fair, both internally and for our clients. At the same time, I need ensure that I'm charging a rate that will help the business grow.

What are your thoughts on the topic?

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2 Answers

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I have just employed 2 developers after 4 years of independent work. I had a chat to them about how to do it. After some discussion we decide on a few options.

  1. Pay them a single wage, if you think you will have enough work to support them (including tax and superannuation).
  2. Subcontract the work out them at an agreed rate as an independent contractor, let them worry about their own tax, this way they are free to work on other stuff by themselves, if work gets tight (maybe talk to them about them bring their business into the mix as well)
  3. Pay them a base wage and a provide a bonus from each project based on contribution or something similar.

The last option we went with, which was a combination of 2 and 3. We all decided together that until the business is making enough profit to give each of us a wage. We would subcontract the work out amoung ourselves paid on the basis of contribution. Our base model looks something like this.

  • Remove any project cost (Stationary, printing, mainly small things that we required for the project, etc.)
  • 25% of what's left goes into a business account, this is used for bigger purchases (new printer, laptop, camera, etc.) as well as savings for later date/capital
  • The remaining 75% is split 3 ways based on contribution to the specific project. This could be split in 2 if only two people work on the project. If the split in uneven, remainder goes to the business account.

As for quoting for work, I would quote the same as you are now, because it seems to be working. Just make sure that it's enough to cover the costs of the second person. If it's more that the agreed amount you will pay the second employee, put it aside in the business account for a later date. So I think this would be similar to the fixed hourly cost you mentioned. I don't think you clients need to worry about what you're doing behind the scenes.

I hope this answers what you we're asking.

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I recommend charging a single hourly rate. This makes it simple for customers to understand your billing and makes it easy for you to move work around between employees to meet deadlines with no questions asked.

I've seen a single rate work very well at both of the consulting firms I've worked at.

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