Deciding Day Rates

So, early doors is one of the hardest questions – exactly how much is the right amount to charge as a day rate?!

Like many people, I’ve worked with a few consultants over the years and always had a fascination with the resulting invoices and what a) people charge and b) what organisations are willing to pay. I guess both of these speak to the fundamental curiosity of c) perceived value for money. And I’ve seen a whole spectrum so far!

Also, I’ll be the first to admit I’ve always looked at day rates and thought – “how much?! How can you justify that?!!” Part of my horror/fascination was always feeling that I only got a tiny % of that, comparatively, as an employed member of staff. And therefore, they must just be taking the absolute mickey. Full disclosure, I should perhaps also mention that I don’t think I’ve had the greatest experience with consultants generally. No huge horror stories, just never really coming away feeling like it was fantastic.

So, it’s an uncomfortable truth that I now have to look at exact question for myself and make my peace with the outcome.

So what am I trying to do?

My original goal when I started to think about this was establishing a day-rate I can use throughout the year to understand how to cost work. However, as I’ve scribbled more and more calculations and added more and more question marks, I think I realise my goals are actually:

1. Establishing a day-rate I can use throughout the year to understand how to cost work
2. Ensuring I bring in at least what I can in paid employment to try and maintain my/my family’s current finances
3. Bonus aspiration – try and do number 2 in less days than I do now. With two small children, I’d like to try and work only 3 days a week, and wherever possible, minimally over school holidays (remind me of this in 6 months’ time so we can all cackle at my naivety, okay? Okay)

But – how on earth do you approach it? I tried a few routes to see what the results were and here’s a walk through of where I’ve got to so far…

First Go – Benchmark Employment

First go – start with a wage because that must be a good benchmark, right? If my goal is to replicate at least a decent employed wage, then I’ll start there and see how that works. I’ve also got a complex about appearing greedy (see earlier point about my reaction to other people’s day rates earlier in my career.) So at least this approach is grounded in real life.

Well, if you start with a £40,000 job at 4 days a week, when you pro-rata it down, it equates to £32,000 annually. That breaks down to £2,700 ish monthly or £628 a week or £157 a day (if I keep to 4 days).
So a day rate of £157, right?

But before I committed on that one, I’d already started appreciating (and having to shell out for in some cases), things that an employer would otherwise take care of. By no means complete, but here’s some of the things that an employer covers that maybe you haven’t always considered e.g.

• Devices (laptop, phone etc)
• Digital services (Microsoft 365, cloud storage, Zoom account etc)
• Space/Furniture (desk, chair, laptop riser, or rates for flexible working spaces etc)
• Utilities (gas, electric, water etc)
• Liability (hello professional indemnity insurance! Potentially also contents, income protection etc)
• Marketing (website, web hosting, blog, social media etc)
• Support functions (HR, legal, admin, marketing, finance etc)
• Memberships (Chamber of Commerce etc)
• Training and development
• Holiday and sick pay

And don’t forget, that’s gross income because now you’re liable for the tax, national insurance and pension contributions that your employer previously sorted. I’ve also now appreciated that my employer added a generous extra % on my pension contribution, which, if I want to continue now lands with me.

While I’ve tried a basic cashflow for the year ahead, it’s clear there a load of costs that I can’t forecast well enough right now. There will also inevitably be quieter periods, or even stretches of time without work between contracts that you need to guard against. The bottom line is it’s not enough to simply break an annual wage down into a day-rate covering every available work day.

On top of that, arguably the key thing an organisation gets from a consultant is specific skills that fit a specific need. Most don’t need that support on an ongoing basis (to warrant a permanent paid role), instead they need a short-term specialist to support with a discrete piece of work. The level of efficiency offered in terms of sourcing, screening and initiating a consultant contract for a very focused time period adds a premium to the cost. Not least when you consider the lack of certainty that the consultant is facing in order to offer their availability to clients a year.

Verdict = £157 is definitely not enough

Second Go – Let the Internet Tell Me

Second pass – Google it! A few people/organisations recommend an approach of a basic salary with say a 30% on top to cover the additional costs (see Ellwood Atfield’s article). So if I take the £32,000 annual created earlier and add in an extra 30%, it gives me £41,600.

Now I want to be realistic, and keep at least 6 weeks holiday, which only leaves me 46 working weeks in the year. So at 46 weeks working = £904 a week, or £226 a day (for 4 days a week)

However, given my pension contributions alone (to match my most recent employment) would cost 12% it’s already squeezing that uplift down to 18%. I also went back to that earlier point of how unlikely it is to have consistent work and income through the whole year. So I’d likely need to revise my “working days” down considerably for safety. At the moment the figure only includes a standard annual leave allowance of 6 weeks not working through the year, equivalent to working 88% of the year. It feels safer, not to mention more realistic that especially this early on, I might be looking at more like….60%?!

Verdict = £226, but feels unlikely to cover costs

Third Go – Benchmark Real People

If in doubt, find out what everyone else is doing!

I’ve got a number of friends and family who have worked for themselves before or currently, and a number I was brave enough to ask directly.

Fascinating and enlightening, although it needs to be taken with a bucket of salt as the roles ranged not only in qualification and experience level but also across industries, demand etc. Since I’m going for non-profits as well, I’m also cautious how this affects the scale and there was a theme of people having a wider day rate scale e.g. £400 – £600 and offering non-profits at the lower end. I’m also conscious of starting out and needing to build a portfolio and reputation, while not undervaluing my services. Based on iteration 2, I’m not even making it into the bracket of all other freelancers I’ve come across so far, which does suggest it’s an undervaluation.

Also, as much as I’m suffering from imposter syndrome, I do recognise I’ve got over a decade of experience in this field, with some significant strings to my bow, not least senior management experience and national recognition for some of my work.

Verdict = arguably somewhere between £240 – £500 from my skill set, qualifications and experience.

Fourth Go – Benchmark on Real Work

Fourth attempt – calculated punt. Based on what I’d learnt from my research and calculations so far, I applied these in real life. Taking on a piece of work that equated to 3 days for £750 = £250 a day, and getting a total sum piece of work for £6,000, enabled me to work backwards planning the number of days I would offer for it, coming out at 15 days = £400 a day. So between these projects, the average day rate is £325. My plan is to track my work through these projects and keep it under review to see what the final figures come out as.

Verdict = £325 but its a very small sample size

Final Verdict

Final verdict then, seems to be that I’m going with £300 as a starting point, as a calculated punt of benchmarking against competitors, availability of funds/work, what I offer, attempting to replicate an employed wage and it boiling down to being a pilot period to see how this works out.

I aim to log the work I do and the income it brings over this year, and boomerang back to see if I was anywhere near on the money!