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Calculating consulting fees

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Question:

Following up on the consulting question, I was asked to work as a consultant for some people opening a restaurant. They want me to design the menu, train staff, help hire and stay on until it can function on its own. They know that they would be taking me away from my restaurant, so they are willing to pay for that. My question is, how much do I charge for the entire job?

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Answer:

Last week, we addressed the question of consultants who are offered profit sharing or equity as part of a consulting agreement. It sounds like for you, those questions are off the table—you know you’ll be contracting for cash to help this restaurant get up and running. The question for you is, what is that worth?

First, your question raised a red flag when you asked about a price for the entire job. Restaurants are complicated creatures, and an on-time, on-budget new restaurant opening is a unicorn. My strong recommendation is to price by time rather than by deliverable. It could be a six-month project, but if construction delays or other factors make it an 18-month project, the opportunity may be less appealing.

It may seem obvious to price your time as a well-compensated manager. That is, if you think you are worth $120,000 per year, the obvious answer would be that your consulting services will cost $500 per day, $2,500 per week or $10,000 per month for a full-time commitment. But that figure misses a few key costs you should consider. First, ask yourself the hard question of whether helping this other group would threaten your own business with competition. If so, you may want to decline the opportunity, increase your pricing dramatically or explore an alternative business relationship.

Another key consideration is the opportunity cost of not having as much time on-site in your own operation. If you are an active owner, taking you out of your operation will add replacement costs for yourself. Even if you are not on the front lines day to day, there is value in your presence and oversight that needs to be considered. In addition, there may be consulting costs beyond your time—insurance, office support, transportation or other expenses you should consider.

My overall recommendation in pricing a project like this is to find a sweet spot that makes sense to you in light of all these factors. I find in my own work that that sweet spot means:

  • I’m priced high enough that the PITA (pain-in-the-ass) factor of doing the work is justified and I’m excited to do the work.
  • I’m priced low enough that if the client says, “Too expensive, no thanks,” I don’t mind losing the business.

More on setting consulting prices here.

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