Ask HN: How to determine fair salary for consulting job? | Hacker News Reader

Ask HN: How to determine fair salary for consulting job?

6 pointsIrregardless9 comments

Hey HN, how would you go about determining a fair salary for a permanent position at a consulting firm? Would it be related to the hourly/daily rate they'll bill clients for your work? Some kind of salary + commission or bonus structure? None of the above? And is it normal to take travel time into consideration?

I've read a lot of articles on here about billing for independent consultants, but I can't seem to find anything about working for a consulting firm. This is for a small firm that serves a very niche market, so I'm not even sure where to begin looking for salaries to compare. Any help would be appreciated.

View on HN

Independant consultants are advised to bill on value-added. So for example patio11 consults on how to improve the conversion rate of visitors to a site. Using his light grey arts, he can go from 2% conversion to a 4% conversion. For a site turning over 10million a year he has just made them an extra 10 million a year.

So he can charge commensurately.

The question I would ask you is how does your prospective employer charge? Are they just billing hours and charging? Are they delivering projects that have clear value outputs like patio11? Is their profit related to the number of hours you work (bums on seats), or could you do a days work and move them from 2-4% conversion as well?

Now ask how does your prospective employer make its money - usually they charge the client X and pay you .6x and pocket the difference.

Their risk is not having projects to charge X and still paying you .6X.

So - you could do three things

1. take the usual salary of X - employee consultants tend not to get paid much differently to actual employees - so try glassdoor.

2. Are they open to you taking on risk - that is can you get .9X for the willingness to get 0X if no projects come in the door? You are then a freelancer, and they simply find the jobs.

3. Are you willing to take on that risk? If so you probably dont want to be an employee

Sorry, should have made it more clear -- all of their billing is hourly (although they'd probably be much better off switching to daily or weekly).

In your $10 million of value example, what would you say is a reasonable percentage of that to charge? It would be a bit more difficult to measure, but I think this firm could probably bill on a value-added basis as well.

Someone above suggested 33%. Personally I think that is wildly optimistic for any consulting engagement unless you do all the work and billing. And the washing up.

It of course depends - doubling conversion for any company will be valuable, but they have done the hard work getting to this point and will rightly resent essentially an equity share.

A range of 2-5% would be something bearable, and probably more so if presented as fixed sums, and increasing along measurable KPIs so instead of I get 5% of whatever happens, something like 20k fixed per week and 50k if user conversion hits 3% for project X and 100k if it hits 4% across all user categories.

Essentially you need to have a clear idea of what they want out of the deal, a feasible number that you can increase by, and slice of 5% of that.

Also

If they would be better off switching to weekly billing, why not tell them. If younare just paid as a cog in their system thays how you will get treated. If you think you can do a lot better, why not reduce your and their risk - work for them at a low (bearable) fee - but you get to lead a project and get bonus payments on hitting clients business kpi improvements.

This way you have some safe harbour of salaried job but also are incentivised to go all out for the client

Just a thought

For a site turning over 10million a year he has just made them an extra 10 million a year.

Now here is my question: From what I understand consulting is different from implementation. If you go into project management and supervise the process of implementation everything can be value based.

But what happens when you stick to a classic consulting perspective i.e. leave the implementation for others to do? Meaning when patio11 would pack his bags after running through his presentation and recommendations, what is he going to bill his value on? Based on "predicted" savings/revenue?

I somewhat fear that value based consulting draws the consultant into the nitty gritty of implementation, almost becoming a project manager of his suggestions for optimizations. And if somebody else screws up along the implementation process, it is going to stick with the consultant's reputation.

Can anybody comment on that?

I do not know patio11 but I am pretty certain he does more than present and run, and so can charge more. I get the impression from his blog that it is more a case of the client committing to a certain project (ie 250k worth of developer time, plus his fees, in order to increase metric x). He leads the project, enthuses the developers, puts the charts on the wall and basically earns his keep.

Three months later they have enough of his brain cells in their heads they can wave goodbye.

Personally I would love to sit in an armchair at the Diogenes club and have people come pay me for my opinion on what they should do. If that was ever a consultants role I think it is long dead.

Yours

Mycroft

But doesn't this lead to a culture of quick fixes? Meaning no long term perspective, but just squeezing out any short term quantifiable result while completely ignoring the long term impact of that?

Just imagine what would happen if this were about customer segmentation or something like that. A super short term focus would suggest a client to drop all contracts that are relatively unprofitable, even so on the long run these are there for relationship building. That would be disastrous for gaining larger contracts as these are mostly gained through building up a reputation by fulfilling smaller, less profitable contracts. But for the consultant there would be no motivation to bother about anything that does not result in an immediate benefit.

I always examine PRECISELY how much (money), the firm in question will profit by my input. Then after nailing that down as closely to accurate as I can possibly do...I currently charge on a Contractual Basis 33 and 1/3rd percent of the ACTUAL projected profit they will make. There are the few rarest of folk that will be straight up with you and tell you EXACTLY how much your services will benefit them....tho not always dependable (even tho they will swear on a stack o Bibles and whatever else that they are being Truthful and Open with you...you cannot always count on it to be Honest. So, bottom line is; do your homework, figure out as closely as you can based on your personal knowledge of THEIR business Models as you can, and then charge accordingly....as I said before...currently my rate is 33 1/3 percent of anticipated profit.

As in ALL things, you will only get what YOU think YOU are worth....do not expect others to pay you a nickel more than what they believe YOU BELIEVE YOU are worth. Good Luck !!! Much Success.

Regards, J

so in my imaginary patio11 example above - he makes them 10million in revenue (at say 50% EBITDA), he should send in a bill for 1.66 million (5m x 1/3)?

The market rate for a person with your skillset (which is only likely to include a commission or profit-share if you're expected to take responsibility for getting clients to spend more, or they can't afford to promise market rate)

The fact the firm might bill a client a large multiple of that for your time is irrelevant: they take on the risks and responsibilities associated with winning the business and overheads and probably add value to your time with some combination of reputation, proprietary data/software/methodology, other team members, training and support etc.

Reply on news.ycombinator.com