How to calculate your rates as an HR consultant

Going from being a salaried member of staff to a freelance HR consultant is an exciting step in your career. But once you go it alone you need to put some thought into how you’re going to charge for your services.

Too little and you risk being a busy fool, taking on lots of jobs for a small return, too much and you risk pricing yourself out of the market and being undercut by more competitive consultant prices.

So how do you decide what your rates should be? There are lots of factors you need to take into account such as the market you’re entering, your personal experience and work history, what sort of service you want to offer and if there are any areas you have specialist knowledge in. All these will have an impact on your service cost.

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Before you decide what you should charge consider what services you will be offering and to whom. Will you be focusing on SMEs who don’t have big HR departments and require extra or specialist support, or will you work more on a consultancy basis advising larger companies on specialist HR subjects?

Will you take on a set project for a set length of time or would you rather work on a retained basis with a number of regular clients? Or perhaps you’re happy to do both - in which case you’ll need to work out what to charge for either service.

Will you work locally only or will you be happy to travel across the country and will you work directly with clients or as an associate of another HR consultancy?

You’ll need to answer these questions to provide a basis from which you can calculate what to charge.

Different levels of HR consultant services

As an HR consultant, you’ll probably want to offer different levels of service depending on your client needs. Some will require you merely for a specific job such as writing an apprenticeship training contract while others might need you to carry out an entire HR audit or oversee their redundancy process.

You might decide to work on a retained basis offering monthly HR support such as running pay roll, dealing with staff resignations and new employee paperwork or you might prefer to have set packages which cover everything from full HR support for a business to specific service levels depending on which package they choose.

Factors that can affect HR Consultant prices

Various different factors will have an impact on how much you charge. First of all, you need to know how much it will cost to run your business.

What will your fixed costs be each month? Those are the costs which have to be paid regardless of how much business you generate e.g. rent, power, broadband. And what are your direct costs? Those are the costs you incur to deliver your services.

As well as costs, the type of customer you go after will impact your pricing. If you’re targeting SMEs, for example, they may not have the budget for all bells and whistles so you need to set your prices accordingly and set packages might be the answer.

Competitors can also affect pricing and it doesn’t hurt to look at what others are charging and for what level of service  – if there is stiff competition in your area, then you may not be able to charge as much as you would like unless you can add value and show your offering is different or unique from others.

However, if you’re an expert in your field you could potentially charge a premium because the advice you’re able to give could be highly sought after.

Finally, it’s important to consider how much profit you want to make. How much will have an impact on what you charge but you shouldn’t neglect to add profit.

After all, you’re building a business and whilst you’re probably going solo because you’re passionate about HR and want to add value to other people’s businesses you need to think about what value you add to yours too.

How to choose a suitable rate as an HR  consultant

A good place to start is to think about your current salary or how much you would like to earn a year. Once you know your target annual income, you can work out how many billable hours you intend to work, taking out time for holiday, a sickness allowance, days you might simply be too tired to work and whether you’ll work weekends.

You won’t be paid for every one of those hours – there will be business administrative tasks that need doing such as invoicing, quoting, networking etc so you need to remove those hours too in order to reach your total number of billable hours.

To reach your hourly rate divide your target salary by your total billable hours. This is the minimum you’ll want to charge clients but you may find opportunities to charge more. And don’t forget about profit as well.

However, simply using an hourly rate puts a limit on how much you can earn a year because there are only so many hours available! Consider offering a set price for certain services or pricing per job.

For example, if you say to a client it will cost you three hours to have a contract of employment drawn up at £50 an hour, they might not want to pay that much for your time.

However, if you say it’s £150 for an employment contract they might be more inclined to use you because they see value in your services and expertise, not the perceived value of your time.