Setting fees

A common problem for freelance technical authors, specially when starting a business, is deciding how much to charge. Many people, including so-called 'experts', suggest 'as much as the market will bear' or 'find out what your competitors are charging'. That's a vague method of costing.

According to The Chartered Institute of Marketing, a good rule of thumb is the 1% rule (www.cim.co.uk/MSDirectory/ViewArticle.aspx?Id=8&cid=1). On average, most consultants have around 100 fee-earning days a year, so their daily rate should equal 1% of an equivalent salaried role. However, that doesn't account for the cost of running a business.

To put numbers into the equation, some people suggest basing one's fee on an employee's salary, and adding a mark up to account for employer's costs such as National Insurance and administrative costs. However, that's not sufficient, because it doesn't account for all factors.

In the STC 2002 conference proceedings, Christopher Juillet discusses the issues to consider in the article The Meter is Running: Setting Consulting Rates for Independence (www.stc.org/confproceed/2002/PDFs/STC49-00051.pdf). Christopher's article contains the best formula for calculating fees that I've ever seen. The high-level view is:

daily billing rate=daily labour rate+daily overhead rate+daily profit

The article describes in detail how to calculate each of the values. Christopher has asked me to point out that the numbers in his article are out of date; use your own numbers. (Christopher can be contacted using chris@juilletlaw.com or www.juilletlaw.com. The old csi.com email address is no longer valid.)

Whether you charge by the day or whether you charge a fixed fee for a job, it's worth taking the time to do the calculation because:

You will know for sure whether your rate is leading you to profit or to ruin
When a potential client says that your rate is too high, you know that that's not true, and you will be able to walk away from the contract.

Download an Excel spreadsheet (blank-consulting-rate-calculator.xls) that uses Christopher's formula.