Are You a Consultant, CIO, CFO, CEO or Recruiter?

Then You Need To Know What Consulting Rates You Must Make or Pay


Do You Want To Make More Money On Your Next Job?


You Can Transform Your Life By Getting What You're Worth


Many consultants, especially SAP Consultants, independent contractors and other service providers, are very fortunate in that they are in high demand.  Their phone is ringing off the hook and their inbox is full of new inbound SAP consulting opportunities.  But there's a problem, and it is a serious problem.  You see, the recruiters that are calling you already know you're qualified for the job, but they just want to know the answer to one question - What's your rate?  

Putting Pressure on Average Consulting Market Rates

If you've been in this business for anything more than a day, then you know the dilemma you face.  No matter what number you throw out there, it's invariably more than the client has a budget for, at least that is what the recruiter will tell you.  However, you aren't really seeing the full story.  You see, your contract is most likely going to be with this recruiter, so it isn't a question of what budget the recruiter's client has; it is a question of what he, the recruiter, is willing to pay you, the consultant.  He will be billing his client whatever rate they have agreed upon.  In other words, your average consulting fees are not directly tied to what the end client is paying.  This is as true for an independent contractor as it is for a consultant.

Know Your Numbers When Calculating Your Consulting Rate

So the real question here is, what margin is the recruiter willing to take?  That's one of the reasons you never want to provide an answer to the 'what's your rate' question unless you know all your numbers.  You see, there are several villains in this story.  The first is, why didn't the end client just contact you directly?  What's the value add of the recruiter who is contacting you?   Unless he is a SAP Consultant, how is he going to evaluate your skills, as many try to do? Will he even present you to his client?  Is he and his company going to have any delivery responsibility?  Most likely not, and thus, in addition to trying to get you at the lowest possible rate, he will want you to have a variety of insurance coverages, which are very expensive and getting more so everyday.  

So, if for a job that typically pays $150 an hour or even $200 an hour, he is saying his client is only willing to pay $60 an hour, what is he really saying?  And if he is asking for an 'all in' rate what does it actually mean to you.  Do you really know what rate you must make in order to take the job and have it make financial sense.  Or will you end up taking a job that, if you do the numbers on it, means you are going to lose money for the first 6 months of a 6 month contract? For these and many other reasons, calculating consultancy fees can be challenging.


What Rate Must You Make to Take the Job?


You're not alone in struggling to find the consultant daily rate number that works here.  I've been there as well, in fact, on any given day, as a SAP Project Manager, I may well receive over a hundred calls and emails with jobs that someone thinks I might be a good fit for - all asking me what my consultancy rate is.  Others ask for project-based rate, which is even more challenging to provide.  I know, many of you might be saying, well then, you must be lucky, you must be making a fortune.  The truth is, I do ok, but there have been many times where I've taken a job, and been beaten down on my rate or in the much more common scenario, a job for which I am a perfect fit has come in, but I have taken a pass on it because the offered rate was far below what I am willing to work for especially when I factor in additional consultancy costs I would need to incur, usually in the form of additional insurance coverages or coverage limits I would need to meet.  I work in the SAP world, where SAP Consultant Rates and the demand for SAP Consultants has been high for many years, but where the story has always been the same, 'our clients have a limited budget, is that the best you can do' on your hourly consulting rate?  The only question has always boiled down to 'what's your rate' which is code for how low will you go?  


Historical Consultancy Fees 


What the consulting calculator SeesBut when I started in the SAP world, we flew business class, we earned very, very good consultant day rates and customers had to wait on us, because there weren't that many of us. Everyone thought we earned way too much, yet were more than willing to pay $400 an hour or more for someone from one of the Big 4 - just check their consultancy rate card out to verify. Most consultants were home on the weekends, if not Thursdays and people understood, you need to maintain your quality of life, just the same as any other employee of a client's company.  But then, the on-shoring of off-shore labor began to erode the concept of high-end business consulting.  Slowly, but surely, you found yourself flying cattle class and getting what you would consider small business consulting fees.   You were staying at the roach motels of the world.   You were picking up more and more of the expenses of working on a remote project while doing ever more paperwork just to get reimbursed.  Your consultant day rate was never based on the value you were delivering to your clients.  Clients also began to be more abusive toward everyone on your team.  

Why Your Consultant Fee Has Suffered

There was and is a tremendous amount of pressure put on consultancy rates by shipping the work off-shore, where the rates were often 10 times less than the on-shore consultancy rates per day.  But the skillsets were not and are not the same.  The only people to benefit from these rates were the consulting companies.  The client didn't really end up paying less and the off-shore consultants certainly didn't earn very much - they could have used a consultant fee calculator!  But the consulting companies did maintain and improve their profit margins - at the consultant's expense.


How Costly Can a Rate Mistake Be For You?

The Road to Getting Consultant Consulting Fees Right

In a recent Department of Labor (one of the key government agencies that supply such information) report, as reported in the New York Times, it was reported that the lifetime earnings for people who have entered the labor force since about 1967 have actually been steadily declining.  This, despite the fact of rising productivity and an ever increasing demand for highly skilled labor - means highly skilled consultants as well as just about every other job category are working at ever lower rates.  


Genesis of the Consulting Rate Calculator

We Needed a Framework to Calculate Consulting Rates

That's why we began to develop a consulting hourly rate calculator tool that tells us what rate we must make.  Our consulting calculator is what we use to negotiate our consultant rates with.  Our consulting fees calculator has been very, very revealing to both us and to certain clients to know that we would lose money on a project, not just on day one, but often times, for up to 8 months!  In other words, depending on the rate you agree too, your current location and expense situation and where you will be going to in order to deliver your project, you may well find, using the consultant calculator, that after all is said and done, that you actually lost money on the project, every. single. day.  That's why we use our consulting daily rate calculator (which also functions as a consultant hourly rate calculator) to establish a fact based consultant rate card - for all levels our consulting team.


Projects Keep Failing and the Rate of Failure is Increasing


Oddly enough, the skillsets demanded by the ever increasing complexity of the software have not been reduced.  Clients, especially U.S based clients, have become extraordinarily picky about who they will hire, but yet totally and completely focused on paying the least amount of money possible.  In addition, almost every company has attempted and keeps pushing to reduce the expenses they will cover for the consultants.  


As a senior SAP Project Manager, with a PMP designation and SAP ASAP certification as well as being certified in multiple SAP modules, I have consistently suffered from not having the consulting resources I needed to do my projects.   Through experience, I have seen how the price of consultants is set long before the project SOW (Statement of Work) is signed, with the rates often times pushed down by SAP itself, just to win the software deal.  Of course, the rate can't be open, but it has to be high enough to ensure you get the best available resources.  

Translation:  The rate was set for a resource that neither the consultancy bidding to deliver the project nor the client had a resource for.  They, the consultancy, were making a commitment that they could deliver a resource at a price that was totally made up and at best, based on a series of assumptions - that if you play along with, will mean you make less than you must make to take the job, unless you like to lose money!

I've also seen how projects will suddenly appear with dozens or even hundreds of recruiters attempting to fill positions, that were most likely known about months or even years ago.   Sometimes, it will be for an emergency backfill, because someone either left the project unexpectedly or more likely, was asked to leave, or was fired.   Sometimes, this is because the person didn't have the required skillset but more often than not, it was because they found someone even cheaper and they could increase their margins.

With a resource management approach like this, it is no wonder that Gartner is projecting that 100% of the SAP Cloud based implementations will fail.  This is not good for customers, but for you, the consultant, it is even worse.  Because recruiters, in addition to trying to push your rate to the absolute lowest possible point, will also be wanting a referral from your last project.  If that project went South because it was done on a shoestring, with the only focus being on lowest cost versus highest value, then you were not only working for far below what you should've been, you were digging yourself a reputational hole.  In our world, our reputation is the only thing we have.  Ruin it and ruin your career.


Why You Must Know Your Fully Loaded Cost Rate


Do you know what your FLC (Fully Loaded Cost Rate) rate is?  If you're a consultant and you work for a consultancy, you probably know what your FLC rate is.  After all, even when you work as an internal consultant for a company like SAP, you have to bid for projects.  The internal hiring manager will ask you what your FLC rate is, because he has to fill the slot with someone who helps him hit his number (meaning he must hit his revenue and margin requirements).   But if you work as an independent consultant or even if you are thinking about taking another job as an employee, do you know what your FLC rate is?  Do you know how to calculate it?  You'll need to know your FLC rate if you need to know how much to charge for consulting.   What if I told you there was a simple, semi accurate way to quickly determine yours?  


There is and it is called the rule of 1400.  


Just take your target annual salary and divide it by 1400.  This will tell you what your approximate FLC rate is.   You can download a copy of a spreadsheet we use to quickly calculate our own here.  So if you know your FLC rate, you can also estimate what your daily expenses will be using another rule of thumb ~ 22%.  Roughly speaking, you're going to need to spend about 22% of your daily rate on expenses.  So let's say you're charging $150 an hour which is roughly equivalent to $210,000 a year, you're going to spend about $308 a day on expenses.  In some places, this will be higher; others it will be lower.  

But let's say you take a much lower rate, say $750 a day.  Your daily expenses won't be covered if you use this rule of thumb!  Your airfare won't be lower, your hotel won't be cheaper, your car rental won't be cheaper and your food won't be cheaper.  You have to charge for expenses as receipted.  That's just to cover the expenses.  But if you're truly delivering high value, you need to charge even more for expenses.  You should also be aware that for companies such as SAP, they charge a handling fee, sometimes as much as 6% of the expenses, for processing your expenses.  You should too.  You never know when a major corporation will stiff you, like I have been.

And interesting exercise is to ask yourself, "self, how much do I have to charge to be worth $1,000,000  a year?"  Turns out, it is not as much you think, +-$715 an hour.  Wow, who makes that kind of money?  Lawyers, maybe.   But what about you?  What sort of revenue would you need to generate to be worth $1,000,000 a year to someone?  Well, if your client would be happy to make 35% margin on you, then you would need to bring in about $983 an hour or about $1,350,000 in annual revenue.  Now, most of you won't be paid $1,000,000 a year, no matter how much you bring in, but if you know that you will be bringing this much value to the company, perhaps you could make just a bit more.  Something to shoot for.

He Who Asks For More Is More Likely To Get More

“He who has a thing to sell and goes and whispers in a well, is not so apt to get the dollars as he who climbs a tree and hollers.” —Author Unknown

Now that you know just what's going on when they ask you 'what's your rate' and how much a mistake can cost you, you might want to know what you can do about it.


  That's why we developed a solution that:


  • Demonstrate's why you should never give a rate out of thin air, but instead, shows what rate you should be asking for and when.
  • Show's you how 60% of all consultants end up agreeing to work for less than they should, and how you can avoid this fate
  • Helps you to effortlessly get your recruiter to agree to a new higher rate by using smart negotiating techniques backed up with factual data
  • If you take 5 minutes to use, will give you instantaneous, Harvard Business Case class results with financial results that just keep accumulating to you over the life of your next project


You Now Have a Choice to Make


You can either keep picking up the phone and answering the 'what's your rate' question the way you have always done.  You can keep on giving up your margin on your projects, using your hard won skillsets, to a recruiter.   Or, you can keep this solution open and running all the time.   With it, you can determine not only what your consulting rate must be but as well:

  • Discover what is probably the single most important aspect of any project you're considering
  • Uncover the truth about whether taking that low, low rate really makes sense
  • Learn how to intelligently deflect high pressure tactics from often uninformed recruitment agencies.


Our Tool Is Free To Use


Our Consulting Rate Calculator is unlike any other online calculator you've ever used.   Our consulting fee calculator was developed by us for our own use and to our exact specifications.   Then, the MBAs got ahold of it and said, we can do so much more with this.  They were right.  What we are giving you here allows you to treat each job exactly as it should be - a business proposal.   With it, you can get a customized, comprehensive project proposal that tells you:

  • What rate you must make, based on your own personal goals.
  • How much money you are likely to be 'out-of-pocket' before you see any cash in.
  • Your own personal break-even point, a fancy way of saying how long before you cover your cost and start seeing cash back into your own pocket.
  • What your Cash Flow Statement will look like on this project.  
  • If you're a recruiter or an end client, you can use it to determine what rate you must pay in order to get the person you want.   
  • What various scenarios might look like to you from a financial standpoint.
  • Finally, it is a decision support tool that helps you take the emotion out of what is otherwise a highly emotional decision.


There is no charge to use this tool and there is no limit to the number of times you can run it.   As we provide contractor management services, or what you know as 1099 management services, and we ourselves often work as 1099ers, we want to make sure you are getting value from our relationship, not just from your first interaction with our company, but on an on-going basis.   

Help Me Calculate the Consulting Rate I Must Make


1099 Payroll – Payroll for Independent Contractors

1099 Payment Management Service Offering

As SAP Project Managers and owners of Hubspot Inbound Marketing and Sales Agency, we know the number of people who work as freelancers or independent contractors is increasing. Some industry experts even claim that freelancers will make up the majority of the U.S. workforce within the next decade. As a result of this shift, organizations may have to rethink their business model. Does it make sense, for instance, to hire freelancers if workloads increase or a project falls outside existing employee skillsets?  As part of our SAP HR practice, we are often asked to advise organizations how they can better manage independent contractors.  In addition to our organizational advisory capabilities, we have developed a 1099 Payroll Management Service for both Independent Contractors, consultants and temporary employees.  This allows us to offer 1099 payment services specifically tailored to the unique needs of the independent consultant market, and 1099ers in general.  

Paying Independent Contractors

Independent contractors are usually paid hourly or by the job. Where project-based work is concerned, freelancers may request an upfront deposit, followed by milestone payments. It is best practice to have a signed contract or a statement of work (SOW) that documents the terms of payment, timelines and project deliverables.  Our model is unique in that we can model just about any type of SOW and related Terms & Conditions and completely automated the entire procure-to-pay process, including online Time & Expense Sheet Management with client approval workflow capabilities to simple time-sheet and expense and receipt entry.  In addition, we offer direct deposit as per the SOW.

How Do You Benefit as an Independent Contractor Getting Paid via a Payroll System?

As an independent contractor, both you and your client have to ensure that you remain an independent contractor in the eyes of the IRS.  That's why both your client and yourself want to keep your payment clearly delineated as a business expense.  This helps differentiate employee payroll expenses and independent contractor expenses.   

The benefits of using a payroll solution include:

  • Quick, automatic payments
  • Maintenance of Accurate payroll records
  • Automatically generated Forms 1099-NEC and 1099-MISC
  • Comprehensive Payroll Reporting

How Do Independent Contractors Do Payroll?

Independent contractors generally report their earnings to the IRS quarterly using Form 1040-ES, Estimated Tax for Individuals. This covers both their federal income tax and self-employment tax liabilities. They may also have to pay state and local taxes according to their state and local government guidelines.


What is Form 1099?

If you're new to the world of independent contracting and consulting, you will need to know what a Form 1099 is.  A Form 1099 is a tax information return that reports income received outside of wages, salaries and tips. There are three different versions, each with different purposes:

  • Form 1099-NEC – reports how much a business paid annually to nonemployees, including independent contractors
  • Form 1099-MISC – reports a business’s miscellaneous payments (e.g. rents paid to property managers)
  • Form 1099-K – reports payment card transactions through third-party networks

Frequently asked questions about independent contractor payroll

  • Are independent contractors considered a payroll expense?

    As a rule, organizations generally don’t have to deduct taxes from payments made to independent contractors, they may consider them a business expense rather than a payroll expense. However, those that are already using payroll software to pay employees may find it more convenient to compensate freelancers from the same system.
  • Can you pay an independent contractor hourly?

    Yes, one of the most common ways of compensating independent contractors is with hourly pay. In some instances, this is done via a retainer, wherein a lump sum is paid at the start of every month for a certain number of hours. Marketing and Sales consulting firms as well as SAP consultancies often use this model.  Companies also have the option of paying freelancers on a project basis.
  • Can an independent contractor be paid a salary?

    Workers who receive a regularly paid wage, such as a salary, are more likely to be considered employees, not independent contractors. In fact, method of payment is one of the key financial criteria that the IRS looks at when determining worker classification.
  • Is it illegal to treat an employee as an independent contractor?

    Yes, businesses that misclassify an employee as an independent contractor can be penalized by the IRS, other federal agencies, and state and local jurisdictions, where applicable. They also may have to compensate misclassified workers for any unpaid overtime that should have been received during the period of the misclassification.

  • How many hours can an independent contractor work?

    Independent contractors are not entitled to overtime. As such, they typically work the number of hours agreed upon in their retainer or however long it takes to complete a project.

  • How do independent contractors do payroll?

    Independent contractors generally report their earnings to the IRS quarterly using Form 1040-ES, Estimated Tax for Individuals. This covers both their federal income tax and self-employment tax liabilities. They may also have to pay state and local taxes according to their state and local government guidelines.

  • What Information Do You Need to Use a 1099 Payment Management Payroll System?

    You'll need to provide completed and signed Form W-9, Request for Taxpayer Identification Number (Tax ID Number) and Certification.  You'll also need to provide bank for direct deposits and as well, the contract terms and conditions so we can set you up in our payroll system.  Additionally, you'll need an email address and mailing address.

    In certain circumstances, our payroll onboarding specialist may need additional information about tax deductions and any backup withholding.  You may also be asked to provide other tax forms, though usually what we have detailed here covers most circumstances.  As tax season approaches, you may also be asked to provide additional information or to verify information we have, such as expenses incurred to-date.


Bonus Offers


P.S.  Bonus Offer:  We can also  set you up with an absolutely free Hubspot CRM system, tuned to help you in your job search.  We think you will find that by using it, you're probably letting opportunities slip through your fingers.  If you're like us, you get inundated with emails and calls, and you know you should be doing a better job of tracking each of these potentially valuable opportunities.  


P.P.S Bonus Offer:  If you got this far, congratulations.  There has been a lot of information presented here.  But perhaps you haven't been receiving all the jobs we've been talking about.  Or maybe you're not even a SAP Consultant in the first place.  Maybe you are in property management and have to submit form 1099-misc and have income reporting information requirements. Perhaps you just a small business owner needing help with setting rates.  That's all right, because our consulting rate calculator works for any job, of any type, in any currency, anywhere in the world.   But if you want, you can send us a resume as well.  Sometimes, we have openings ourselves or hear of others we can refer you to.  

You might also like:

14 Remote SAP Consulting Mistakes You Don't Know You're Making

"This Consulting Rate Calculator has helped me get a higher rate with far less stress.  Before it was available, I was guessing what rate I needed to make."


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