When you run your own business as a consultant, your income has the potential to vary wildly. Compared to a 9-5, this is a significant departure in how to run your financial life.
You can also find yourself in a situation where you are getting work, but it is of the $25-50 an hour variety, with no clear way out of the valley of low priced freelancing.
I’ve had two people contact me regarding the plan I outline in Tex-Mex Consulting to raise out of the valley into the $150+ hourly rate. Their chief complaint: it seemed like a fair bit of work, and would take time to come to fruition.
Yes, building a business paying you $200,000 a year isn’t easy.
No, there are no magic beans.
The good news: you don’t have to drop your income at any single step of the way. It’s all growth and increased revenue.
Most businesses have to wait months to see money. This is not true for consultants.
You’ll make money every step of the way. You can raise rates on every new prospect you get, with zero risk. Until you start hearing “Your rates are too high” on a frequent basis, your rates are too low.
Let’s look at each segment of a typical raising-your-rates journey. Each of these segments assume a 1 person consultancy, so no outsourcing/subcontractor costs, and a 30% tax rate.
Segment 1: $50 an hour - $80,000 net
Segment 2: $75 an hour - $105,000 net
Segment 3: $100 an hour - $140,000 net
Segment 4: $125 an hour - $175,000 net
Segment 5: $150 an hour - $210,000 net
Segment 6: $7,500 a week ($250 effective rate)
Segment 7: $10,000 a week ($333 effective rate)
Segments 6 and 7 have maximum income in the $275,000 -> $360,000 range; your max net income is limited by the number of available gigs. I can easily fill out 160 hours a month at $150, but on average only book 2-3 weeks at $10,000 a week.
At full capacity, $150 an hour and 2.5 weeks at $10,000 a week end up at the approximately the same monthly income: $24,000. The trump card for weekly: the week or two off each month.
I can spend those weeks booking new gigs and working to increase my expertise and network. All things that will pay dividends in the future. Once you’re paid for the hour, all you’re left with is the cash.
How I use these high rates
Over the last 6 years, I have strategically raised my hourly rate from $65 an hour to a weekly rate of $10,000 (hourly effective rate $333). My goal with raising rates has always been twofold:
- Work as little as possible to enable writing books, software, and contributing to open-source
- Provide for the family, with the ability to work from home, enabling me to take part in caring for our youngest son (he has hemophilia).
You can obviously do whatever you like with your increased hourly rate. In a video interview for Tex-Mex Consulting, Steven R. Baker relayed a discovery of working all the time: he was working to much. “I realized when my son asked if we could go see a movie, I’d calculate how much that movie would cost me based on my hourly rate. I had to stop doing that.”
Dumb, stupid growth
You can move from the $50 segment to the $100 segment by simply raising your rates and talking to the clients about the benefits of your solution rather than the cost of it.
To graduate from $150 to the $10,000 range, you’ll need three things:
- a professional network
- a demonstrable expertise
- a niche which makes the expertise useful
In Tex-Mex Consulting, I teach networking, expertise, and nichification in a no-fluff, easy to read book. You should consider purchasing a copy and signing up for my free email course: 8 Ways to Change Your Freelancing Job into a Consulting Business.