Consulting Fees and Rates: How Much Does a Software IT Consultant Charge?

ALEX MELNICHUK

Published: 12 Mar 2020

Expertise

When it comes to being an IT consultant, one of the first things that come to mind for those who are just starting out is how much they should charge. After all, they need to make sure that they are making money without putting off potential clients.

Fortunately, there are some ways to make sure that you remain profitable without seeming to overcharge, thus helping to make your business successful.

In many cases, the consulting rates that experts in the field of IT would depend on what they have to bring to the table. However, it is not that simple, especially if you are dealing with clients who might not be that familiar with paying for such services.

As such, the best thing that you can do is to find a balance between what industry standards have set, your own experience and skills, and what your target clients might expect.

A Closer Look at IT Consulting Fees

IT Consulting Fees

Consulting fees in the IT community are not that different compared to pretty much every other industry. It is money you are paid for the services you render, which could make a huge difference in helping a company break through a market or improve their bottom line.

The big difference compared to this and what you commonly get paid as a regular employee has to do with your knowledge, experience, connections, and expertise. It has nothing to do with how many hours you can work on a fixed schedule, as allowed by the company.

There is no need to overthink the fact that you deserve to be paid if you are sharing your expertise, either. You have something valuable to offer and companies or individuals want it. All you have to do now is to give it to them with the consultant hourly rate.

Unfortunately, too many fledgling consultants make the mistake of being too accommodating to their first clients, thinking that it is going to be more useful to them in the future. While this thinking does have merit, if you charge far too little for your consulting fee, there is a risk of your services getting taken for granted.

You need to remember that you are essentially conducting a business deal when you are setting a consulting rate and your client agrees. It is never a good idea to shortchange the people that you have business dealings with but you should not allow them to walk all over you, either. In many ways, your consulting fee represents your pride when it comes to your job.

You know how good you are and you know how much companies can benefit from what you have to offer. Why shouldn’t you get a high rate of payment in return from what you are providing? It is only fair compensation given the services rendered.

Accounting for Consulting Rates by Industry

There are certainly the consulting rates by industry that you are going to want to keep in mind when you are setting your own fees. These are basically the standard that consultants are expected to adhere to if they are offering their services. However, this does not necessarily mean that you need to follow it to the letter.

This goes doubly true for when you have some unique and valuable insights that are not available to anyone else. Industry standards with regard to consulting fees only ever apply if the consultant is also just limited to that standard. Basically, it’s only for those with common abilities.

If you have skills, expertise, and experience that you know will allow your clients to grow and become profitable more than anyone else, there is certainly nothing wrong with charging more than the average consulting fees.

Whereas other consultants can only really provide their clients with advice and insights that are already known among other professionals in the same field, what you can offer could change the game. Obviously, this only works if this is exactly what you have to offer. Otherwise, you will need to stick to the standard industry consulting fee.

How Much to Charge for IT Consulting Fees

How Much to Charge for IT Consulting Fees

How much does a consultant make? There are a lot of things that could go wrong with you deciding how much you should charge for consulting fees, one of which is not having any idea of how valuable your skills, knowledge, and experience are.

As such, your first step in this process should be to get to know your own value. From there, you can move on to the following suggestions:

  1. Researching standard industry rates.
  2. Choosing which area of specialization to prioritize.
  3. Deciding what type of consultant, you will be.
  4. Coming up with your fee structure.
  5. Factoring in relevant details.

Industry Standards – The first thing that you need to do in order to determine your consulting fee is to do some research into the standards of the industry. This basically just means the average that consultants are paid based on the services they provide. However, it is very important that you put some thought into dividing them accordingly.

You can do this based on the pay structure, whether it is hourly or as a package deal, and what exactly you are paid for. After all, consultancy is not an all-encompassing profession. You also have to specialize, whether it’s in the type of consulting you are doing on the field that you have expertise in.

Try not to miss any details here since they will be relevant for deciding your own consulting fee later.

Area of Specialization – Since you will be an IT consultant, you should already know which relevant fields are in demand today, so you have to make a decision as to what you will specialize in. You can focus solely on cryptocurrency, for example, or you could expand that to the greater blockchain industry.

If you are more specialized in security or data analytics, there is that too. Choosing from among the available IT fields is necessary because this is how you will be able to justify your rates and decide on your fee with less hassle. This is particularly important if you are aiming to be a business development consultant.

If you decide to back something of a jack of all trades, not only will it become a lot harder to come up with a reasonable consulting fee, you will also be unable to provide the right services. Of course, if this is something that you really want to do and you already know how much to charge for consulting, then that would be entirely up to you.

Consultant Type – There are generally two types of consultants. There is the Strategy type, which basically involves coming up with ways to approach markets, consumers, and trends. Then there is the Management type, which is intended to look into a company’s or business’ internal structure to make it more efficient.

Both have pros and cons, not to mention different skill requirements. In the case of Strategy consultants, you need the ability to see market trends and predict them. You also need to be able to grasp changing market landscapes so that you can outmaneuver the competition. Those are just to start with.

Management Consultants have a narrower scope of responsibilities, but they are no less important. The job will mostly involve looking at the current system of the client company to identify weak points. Depending on the situation, you might need to suggest a complete overhaul of the IT department if that is what is necessary.

Naturally, both types will also come with different average IT consultant hourly rate offers. However, the most important point to remember is that you should stick to what you are good at. Overreaching for the sake of money will only hurt you in the long run.

Fee Structure – Now that we have laid out the groundwork, it’s time to discuss more technical aspects of deciding what your consulting fee is going to be. To start with, there is the fee structure to think about. This is basically the form with which your consulting fee will be paid and the most common of them are:

  • Hourly – You get paid by the hour for the IT consultant cost, which is common enough in projects where the timeline is not easily fixed.
  • Project-based – A wholesale arrangement where you are forced to finish a project to your client’s satisfaction within a given time-frame since you lose out if you take too much time.
  • Performance – The quality of your work will be judged and you will be paid based on that.

Those are just the most common fee structures that you will need to take into consideration. Depending on the client, though, this could change and you could be dealing with entirely different arrangements. However, at least you have offers on hand whenever you speak with potential customers.

Relevant Details – With all of that said, you will now need to take all of those details into consideration in order to come up with your software development consulting rates, along with your own experience and expertise.

More years in the field typically mean a higher pay than what industry standards have set. When combined with your own reputation, skills, and field of expertise, your consultancy rate go up even higher.

You might also need to do some experimentation depending on the circumstance. The longer you offer your consulting services, the more you will understand exactly how much you should charge clients.

Pitfalls When Deciding Consulting Rate

Pitfalls When Deciding Consulting Rate

Now that you have the necessary steps for deciding your IT consultant hourly rate, the next question would be what you should NOT do when doing so. First of all, don’t base your rate on what other people you know have already done.

You may have acquaintances who have also become consultants and it is tempting to ask for their advice on the manner. This is not exactly the wrong move, but basing all of your decisions on that one factor alone can be a fatal mistake. There is a reason why it was not included in the section above.

The next mistake in determining your IT consulting price is being too modest about how much you charge. It’s important to make a favorable impression on your client, but it would be better to do that with your capabilities and skills rather than your rate.

Businesses are willing to pay what you are worth but they will start to question you if you ask for less money than you should. If you do this, you should at least add certain stipulations or conditions that would even things out.

Finally, there is the issue of overcommitting. This is particularly pervasive with project-based consulting fees since you are only being paid for the amount you agreed to at the beginning. If the project drags on for too long, is more complicated than you initially thought, or requires more personnel, you will get the short end of the stick.

Do your homework first before you agree to something you can’t fulfill.

Giving Discounts and Special Rates

Giving Discounts and Special Rates

On the matter of offering cheaper services to clients than what your consultancy rate should be, you can actually do this on the basis of discounts and special rates. You can offer these to VIPs or to companies of which you really want to get on the good side.

Just don’t go overboard and start offering it for dirt-cheap, though. No matter how good the business prospect might be, a 70% discount should only ever be reserved for very special circumstances. Otherwise, you might be operating at a loss and your business will start bleeding out faster than you can stem the flow.

Conclusion

So, how much does a consultant make in the IT industry? This depends entirely on the standard average and the consultants themselves. The best IT professionals who have years of experience under their belts would definitely be able to ask for more money than what is commonly charged. However, this hinges on the necessity of being able to capitalize on that, in the first place.

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