Establishing rates 1

[Jeff1450]

I am courting my first customer. I am going with a hourly rate (I have a rate in mind).
The job is to review their manufacturing process and increase the efficiency. I will renew quarterly. This business is located in Michigan with an annual gross 80-90 million.
Any ideas out there as far as a fair rate for this type of work?

Thanks

 

[zdas04]

The gist of the answers to this question (and it has come up many times, use search to find it) is always--here's how I did it, you have to figure out your own way. Some are really complex. Some are tied to observations of established firms in the area. Some are simply anal extracts. I set my rates high enough (using an outrageously complex formula) that I didn't expect to get many calls for menial tasks. It worked better 5 years ago than today, maybe I should have raised my rates in the intervening years.

David

 

[GregLocock]

To make a meaningful difference, it's got to be say a 5% reduction in their cost of doing business.

To avoid scaring them off, make your fees one tenth of that.

So your cost for the whole project should be 90 million*5%*0.1= Half a million dollars.

There, that was easy.



Cheers

Greg Locock

SIGlease see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[GregLamberson]

If it is only to review their systems, doubt they'll pay $500K. If so - do you need a partner?

Not sure what the going rate is in Michigan, but for short term consulting I kind of have a slding scale depending on how much work there is. It's not set in stone and will vary slightly with the client, but my last one went something like this:

• USD $200 per hour for aggregate consultations of 10 hours or less per calendar month
• USD $150 per hour for aggregate consultations of between 10 hours and 40 hours per calendar month
• USD $125 per hour for aggregate consultations of more than 40 hours per calendar month

What you may want to do is set up in your agreement that you get a percentage of any increase in effeciency (i.e. reduction in costs or increase in profits), on a quarterly basis.



Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website:

http://www.oil-gas-consulting.com

 

[Jeff1450]

Thanks for the tips. It put things in perspective.
Jeff

 

[ProEDesigner00]

Jeff

I am located in Michigan and do mechanical design. I would be willing to contribute to your efforts if you need them

Norb

 

[PHovnanian]

What's your deliverable?

Using your 10% of the savings 5% formula, the customer should be getting design drawings and specifications to implement your proposed solution, plus engineering support for construction. 10% is a rough, ballpark estimate of a project engineering cost.

If you are just delivering a report with proposals, you should expect a small fraction of that. If you anticipate receiving the potential design contract, you might want to discount that even further, or credit the proposal fee toward design services.