Subject: [NEXTEL-1] Consultants’ Fees and Business Practices

From: Marcel <[email-masked]>
Date: Thu, 10 Apr 2003 15:16:55 -0400

Consultants’ Fees and Business Practices
Prepared by Bob Gauger, P.E.

January 2003

When a consultant is preparing a proposal or negotiating a contract, one of the
ongoing concerns is deciding how much to charge. In order to establish a fixed
price or a fee that is fair, yet competitive, consultants need to know what
other consultants in similar fields charge. In response to this need, the
Alliance of IEEE Consultants’ Networks (AICN) has conducted a series of regional
surveys and one national fee survey of their members. The current 2002 survey,
which queried more than 2000 IEEE consultants, was the most comprehensive fee
survey conducted by the IEEE or any of the other technical societies. More than
400 consultants responded.

These 400 responses included some data from consultants who were employed by
companies and others who were working as contractors (job shoppers). As the AICN
is primarily concerned with self-employed consultants who work as independent
contractors, it was necessary to sort the data in order to remove those who
worked more than half of their time as job shopper as well as those who worked
for more than half of their time as an employee. That left 333 who were then
labeled independent consultants. Tabular data are provided based on both the 400
all consultants and the 333 independent consultants. This separation was
necessary, as independent consultants need to charge higher fees to cover
marketing, taxes, and other business expenses.

The 2002 questionnaire consisted of fifteen questions covering the consultants’
primary fields of expertise, education, registration, organization of their
business, and billing practices, as well as fees and earnings. Although all
respondents provided equivalent hourly fee data, some regarded questions about
their annual earnings as private and did not provide that data.
The respondents covered a wide range of engineering experience, varying from two
years to 52 years in the profession, with a median of 24 years. Consulting
experience ranged from less than one year to 40 years, with a median of seven
years. Because most consultants charge an hourly fee, all data were requested on
a per hour basis. Approximately 24 percent reported having problems collecting
their fees. The typical consultant has a Bachelor of Science (BS) or a Master of
Science (MS) degree, while only 20 percent also have a Professional Engineer
(P.E.) license.

The Institute of Electrical and Electronics Engineers, Inc. – United States of
America (IEEE-USA)
1828 L Street, N.W., Suite 1202, Washington, DC 20036 ? Tel: 202.785.0017 Fax:
202.785.0835

Summary Results for All Consultants

The first table shows the equivalent hourly fees charged by all consultants
reporting. The results are shown for five arbitrary ranges of total engineering
experience.

Analysis of Fee Data for All Consultants Engineering experience Minimum Maximum
Count Average Median 1 to 10 years $20/hr $175/hr 48 $96hr $90/hr 11 to 20 years
$40/hr $320/hr 105 $111/hr $100/hr 21 to 30 years $25/hr $2000/hr 130 $139/hr
$110/hr 31 to 40 years $31/ hr $1000/hr 78 $154/hr $120/hr Over 40 years $45/hr
$468/hr 25 $145/hr $105/hr
The second table shows the reported annual earnings of these same consultants,
again sorted by their experience in consulting. The median of their reported
earnings are probably a better measure for comparison than their average
earnings.
Analysis of Gross Annual Earnings from Consulting for All Consultants
Engineering experience Minimum Maximum Count Average Median 1 to 10 years $3,700
$1,500,000 41 $98,348 $89,000 11 to 20 years $1,500 $1,050,000 97 $141,105
$100,000 21 to 30 years $1,000 $1,200,000 115 $197,908 $100,000 31 to 40 years
$7,348 $1,000,000 72 $125,767 $100,000 Over 40 years $2,009 $415,500 25 $110,544
$75,000

Similar analyses of equivalent fees were made based on the years of consulting
experience reported by all consultants.
Analysis of Fee Data for All Consultants Consulting experience Minimum Maximum
Count Average Median 1 to 3 years $20/hr $370/hr 94 $107hr $100/hr 3.1 to 10
years $25/hr $600/hr 177 $122/hr $100/hr 10.1 to 20 years $25/hr $2000/hr 95
$151/hr $120/hr Over 20 years $45/hr $1000/hr 30 $194/hr $150/hr

The analyses of gross annual earnings were also made, again based on the
reported years of consulting experience. All consultants were again used as the
database.

Analysis of Gross Annual Earnings from Consulting for All Consultants Consulting
experience Minimum Maximum Count Average Median 1 to 3 years $1,000 $300,000 85
$96,625 $90,000 3.1 to 10 years $1,500 $1,500,000 162 $144,893 $100,000 10.1 to
20 years $1,000 $1,200,000 88 $222,837 $125,000 Over 20 years $7,348 $5,000,000
72 $125,767 $100,000

As noted earlier, most but not all of the engineers were willing to report their
gross annual earnings from consulting. Eight or more engineers reported
consulting earnings of one million dollars a year or more. Many of their hourly
rates were considerably more than $500 per hour. Figures this high tend to
influence the averages and make the median values more representative and
probably better for individual comparison.

Summary Results for Independent Consultants
In order to obtain data more useful to the typical independent AICN member, the
data were scrubbed, eliminating any data from a respondent who reported
contracting or working for an employer for more than 50 percent of the
consulting hours. This reduced the count to 333 independent consultants.
Included with the independents were those consultants who had incorporated or
were working with partners.

An analysis of the equivalent fees charged by these independent consultants is
shown below. Again, this is shown for each range of engineering experience.

Analysis of Fee Data for Independent Consultants Engineering experience Minimum
Maximum Count Average Median 1 to 10 years $20/hr $175/hr 36 $99hr $100/hr 11 to
20 years $40/hr $320/hr 82 $102/hr $100/hr 21 to 30 years $25/hr $2000/hr 117
$143/hr $115/hr 31 to 40 years $31/ hr $1000/hr 65 $160/hr $125/hr Over 40 years
$45/hr $468/hr 25 $145/hr $105/hr

The next table shows the total earnings from consulting for these same
independent consultants.

Analysis of Gross Annual Earnings from Consulting for Independent Consultants
Engineering experience Minimum Maximum Count Average Median 1 to 10 years $3,700
$1,500,000 32 $162,040 $120,000 11 to 20 years $1,500 $1,000,000 79 $128,361
$120,000 21 to 30 years $1,000 $5,000,000 104 $125,246 $100,000 31 to 40 years
$7,348 $1,000,000 58 $130,196 $110,000 Over 40 years $2,009 $415,500 25 $110,544
$75,000
The same comparisons were made again, but this time based on the years of
consulting experience for the engineers working as independent consultants.

Analysis of Fee Data for Independent Consultants Consulting experience Minimum
Maximum Count Average Median 1 to 3 years $20/hr $310/hr 70 $107hr $100/hr 3.1
to 10 years $25/hr $600/hr 152 $117/hr $100/hr 10.1 to 20 years $25/hr $2000/hr
79 $159/hr $125/hr Over 20 years $45/hr $1000/hr 28 $194/hr $135/hr

Data showing their annual earnings from consulting was sorted by the years of
consulting experience and is presented below.
Analysis of Gross Annual Earnings from Consulting for Independent Consultants
Consulting experience Minimum Maximum Count Average Median 1 to 3 years $1,000
$300,000 62 $95,490 $88,000 3.1 to 10 years $1,500 $1,500,000 142 $134.891
$150,000 10.1 to 20 years $6,000 $5,000,000 72 $246,148 $135,000 Over 20 years
$15,000 $550,000 26 $135,596 $100,000

Comparison of the Results

The first observation is that average fees and median fees have not changed much
since the fee surveys conducted in 2000. Regional fee surveys taken at that time
reported at $80 per hour fee (based on a small sample size), as well as average
fees of $100 and $120 per hour. In comparison, this survey’s all consultants
data showed an average fee of $130 and a median fee of $100 per hour.

The number of consultants charging fees in the higher ranges made the results of
this survey unusual. The data show that six percent of the independent
consultants charged fees of $250/hr or more. And looking at total earnings from
consulting, approximately 14 percent of the independent consultants reported
earning exceeding $200,000 per year. A further study of the data showed that 2/3
of these high earners based at least part of their business on management
consulting.

At the lower end of the scale, there were 20 consultants reporting rates of less
than $50 per hour. Several factors may have contributed to that result. Many of
those respondents worked outside of the United States. And others were working
in software and writing, both of which may command a lower rate.

Ongoing Analyses

It is planned to present these data graphically in the next report. Data will
also be sorted by education, state, registration, and field of engineering.
These sorts will then be used to determine how each parameter affects
consultants’ fees.
###
http://www.ieeeusa.org/business/2002feesurvey.pdf

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