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Interim Management

Published on January 14th, 2013 | by Nigel Young

11

What Would You Get Out Of Bed For? How To Calculate Your Interim Manager Daily Rate

Whether you have just started out as an interim manager, or you are an experienced professional with several assignments completed, calculating your daily rate for an assignment is important. In this blog post, Alium consultant Nigel Young offers some tips on calculating an interim manager daily rate:

Strategies for Calculating Your Interim Manager Daily Rate

1. Rough guide

A long-held outline rough guide to daily rates is that you might request 1% of the base salary you would expect as a permanent employee – so for a £100,000 role, you might suggest a £1000 interim manager daily rate. Please note however that this is a just a quick and easy approximation. It is not watertight by any means and is heavily dependent on the nature of the role and previous experience and skills.

2. Take benefits into account

In thinking about rates more carefully, it is worth remembering that there are no additional benefits offered to you as an interim, so you will need to make sure you are compensated properly in your interim manager daily rate. You will receive no bonus, car allowance, pension contribution, life assurance, health cover, holiday pay, sickness pay or bank holiday pay. You’ll also have to pay Employer’s National Insurance Contributions. All this can calculate up to an additional 50% or more on top of base salary in a permanent regular job.

3. You won’t be earning every day

Consultancy companies have something called ‘utilisation rate’ which is defined as the proportion of a consultant’s time that is actually billed for compared to the potential maximum. Research indicates that for established interim managers this averages around 2/3 (or 65%) corresponding to an average work pattern of alternately 6 months on and 3 months off. Taking the number of potential working days as 227 (260 weekdays less 25 days holiday and 8 bank holidays), and a 2/3 utilisation rate, your likely number of paid days is going to be around 150 per year. The rest of the time you will be giving yourself a much-earned break before getting back into the market and finding your next assignment.

4. Length of assignment

Research shows that the average interim assignment length is around 6 months. If your client wants to commit to longer than this, then be flexible in reducing your interim manager daily rate. Think about it … if the role lasts 12 months, then your utilisation rate for that year will be 100%!

5. Location is a factor

If your assignment location is too far from home for a daily commute, you may wish to charge a higher rate than you would for one a short distance away. It is common for interim executives to stay away Monday through Friday, and some take on assignments where they only get home one weekend in four. It is reasonable to expect a higher interim manager daily rate in such instances.

6. Remember expenses

Client companies will expect to reimburse you for any business trips they ask you to go on. However, they may not realise the costs you may be incurring in getting to and from your new place of work on a daily basis, and possibly staying locally overnight on occasions. It is important to anticipate these in advance and make sure you don’t end up being out of pocket.

7. Cashflow and the Taxman

Running your own business can gives you some cash-flow advantages, especially in relation to tax demands. For example, you will be probably be charging VAT on your invoices and getting paid within 30 days but you may not have to pay HMRC for a little while longer. Also, your limited company will most likely be liable for Corporation Tax, but you may not have to settle this until you prepare your annual accounts. But don’t get caught out – the tax demand will arrive in due course, so do make sure you have the cash to pay it when it does!

8. How much you need to live on

In parallel with calculating your market rate, ensure that you also know how much you need to live on. You can then match projected income and outgoings to see whether you have a viable business plan. After all, that’s what you’d expect of your clients, isn’t it?

9. A closing thought

Finally, and an overall comment … be flexible with your interim manager daily rate! We are all operating in a challenging economic environment, so it pays to be aware of market changes and adapt your interim manager daily rate accordingly.

If you have questions on anything here, do please contact me or anyone else at Alium. We are always eager to help in any way we can.

photo credit: jamelah via photopin cc

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About the Author

With his excellent track record in interim management and industry sectors, Nigel is focussed on assignments in the Retail & Consumer sector which includes Food & Beverage, Personal & Household Goods, Retail, and Travel & Leisure.


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  • David Blackshaw

    Great points. It is amazing how many interim assignments are offered with day rates that when translated into annual equivalents using the accepted 1% formula are really ridiculous low given the experience and expertise that it usually required.

    However, I do not fully agree with no. 4. The longer the length of the assignment, the higher the rate should be (in fact, it should be J-curved). If an interim wants better job security, get a job with all the other benefits. Accepting a longer term assignment has a major opportunity cost attached to it (e.g. not being able to accept higher paying interim assignments that might pop up and not being able to have a portfolio career which is becoming more and more popular).

    Otherwise, great article!

    • http://liveandsocial.com/ Jonnie Jensen

      I think the problem often comes David when the person doing the hiring is used to looking at wages as an HR cost rather than a supplier cost

    • Nigel Young

      Thanks for the feedback here David, great to see some different viewpoints!

  • Nic Vine

    Stimulating blog. I have never heard of the guideline in point 1 (despite being an interim for 18 years), and wonder about it’s derivation.

    Interims are taken on because an organisation has an exceptional need (crisis, deadline, resource gap). Interims should be over-qualified/experienced for the role they take in most cases - so they start delivering immediately and surmount all difficulties. The exception might be a pure interim role such as maternity cover, although even there the interim should cope with minimal handover and be effective within days. It is therefore wrong to compare the cost of an interim with the total cost for an employee in a similar role.

    I have always taken the view that there is rate for the role, not for Nic Vine … and below a certain rate, the role is unlikely to be appropriate for Nic Vine. The rate for the role depends on industry, geography, and the business climate at the time. The best way to assess this, as with any business activity, is to be well-informed in the relevant market. This is where intermediaries, such as Alium, can be useful - love ‘em or hate ‘em, they should know what clients are prepared to pay and their incentives are aligned with yours.

    Connected with this, and picking up David’s note about point 4, I have two comments to add. First I think the initial assignment length is irrelevant to the rate, because there is no commitment to it, only a 1,2, or 4 week notice period - which is fine because interims are there for flexible working. Second, I have been extended in many of my assignments and I have never reduced my rate (a couple of times it went up), because my value to the client is higher, not lower - in my view reducing the rate (unless you move to a lower role) sends the wrong message.

  • Simon Gornall

    David, I’d be really impressed if you manage to increase your day rate for longer assignments. Most buyers I know tend to expect a discount for buying in bulk.

    There is a lot of downward pressure on day rates, as we all know. So one thing I always ask a potential client before agreeing terms is what the cash value of success is likely to be. Establishing that normally demonstrates the wonderful ROI delivered by experienced interims.

  • Aly-Khan

    Very much agree with Nic’s comments. The 1% rule is totally inaccurate, and I’d suggest that this is a very very poor bit of advice to give someone new to this area.

    I work across several functional roles, and there is a different rate for each one. There is a rate for the role, not the consultant. Rates reveal themselves to you with experience.

    I’d also suggest including some discussion about risk here: you can access a much higher level of effective day rates if you’re able to assemble teams and sell fixed price engagements, but you are at this point taking on much more financial risk.

  • Nigel Young

    OK, happy to be challenged so here’s my response.

    Firstly, I do say in point 1, “… for a £100,000 role, you might suggest a £1000 interim manager daily rate”, ie talking about the role not the consultant – so we are in agreement there.

    Also, in point 1, I do stress that this is a rough approximation, and not watertight by any means.

    Here’s the more mathematical approach, as covered in points 2 & 3. A £100k base salary permanent job will in most cases carry with it other benefits: eg car allowance (£7k); bonus (20% = £20k); pension (5% = £5k); family health insurance (£3k); life assurance (£1k). Add in Employer’s NI and the total cost of employment can easily add up to £150k or more. Clients need available interims - the market simply wouldn’t operate if everyone was on assignment 100% of the time. A good interim exec might budget on achieving a 2/3 (65%) utilisation rate, based on research conducted by various bodies. There are 227 working days in a year when you’ve taken off 25 days holiday and 8 statutory bank holidays, not allowing for any sick days. Applying the utilisation rate brings you to circa 150 paid days. £150k divided by 150 days = £1000 per day which is 1% of the £100k base salary.

    The above clearly flexes with the role and the organisation – it’s just a rough guide for when you haven’t got your calculator to hand! Many public sector roles don’t have bonuses but they do have generous pension schemes. Some employers don’t offer private medical cover or car allowances. Some potential bonuses are a lot more than 20%.

    My advice is to take your time when quoting your rate - ie don’t be rushed. Make sure you know what the right remuneration for the role is, so that you are treated fairly. It’s always best to get this sorted out up front.

  • albert

    An excellent track, but there is one additional dimension in the rate discussion: the actual value generated for the customer.

    Does anybody can provide any experience to agree on bonusses, profit sharing, revenue fees, etc?

    Thanks

    Albert

  • Andrew Gibbs

    I’ve
    only just found this thread whilst trawling the internet, so I’m joining it extremely
    late. Hope it’s OK if I just put in my two penneth.

    Ref
    No 4: Length of Assignment: I think the stated logic is somewhat flawed, for a
    number of reasons.

    a)
    Firstly, a longer assignment is never guaranteed to be longer. Assignments can
    be cut short for all sorts of reasons and through no fault of your own.

    b)
    Secondly, why should your time be worth any less, just because you’re supplying
    more of it? The idea of ‘discounts for bulk’ might be appropriate for cans of
    beer or Mars bars in a supermarket, but not for professional services such as interim
    management. Offering bulk discounts is not likely to convey a particularly
    professional image. Also, would a client be prepared to pay a much higher rate
    for a very short assignment? Probably not!

    c)
    Finally, treating your utilisation as 100% when you’ve got a 12 month
    assignment is flawed. Let’s suppose that your budget gap between assignments is
    3 months. So with every assignment, your fees have to pay for a 3 month gap
    following the end of the assignment. With an ‘average’ assignment of 6 months,
    you will have a budget gap of 3 months afterwards, so you’ve got a 6 month
    assignment in a 9 month cycle – hence utilisation is 6/9 = 67%. With a 12 month
    assignment, you’ve still got to allow for the 3 month budget gap afterwards, so
    you’ve now got a 12 month assignment in a 15 month cycle NOT a 12 month cycle,
    so your utilisation is NOT 12/12 but 12/15 i.e. 80% not 100%

    Another
    point not mentioned as a factor in determining rates, is profit. (OK I know it’s
    nearly all profit, technically, if you’re outside IR35, but that’s a
    technicality that doesn’t alter the argument.) Your desired rate should reflect
    your required ‘gross remuneration’, your other business costs such as employer
    NI, pension contributions, bank charges, accountant fees, various insurances,
    travel, phone calls etc., AND a profit margin, which may be e.g. 10% to 25% of
    total costs. You’re in business to make a profit, not just break even. This is
    perfectly reasonable, not least of all because you’re taking a very big risk in
    starting and running your own business, and if you don’t build in some
    contingency into the fees then you’re leaving yourself very exposed.

    Yet
    another point not mentioned, and this is arguably the most important of all, is
    the financial benefit of the assignment to the client. Let’s suppose that you’re
    going into a client where you reasonably expect to deliver a £1M p.a. cost
    reduction. That’s a lot of money, particularly if it’s an ongoing year after
    year benefit. I would suggest that you’re entitled to your share of the cake!

    • Nigel Young

      Thanks, Andrew. All valid points and ones that contribute to the discussion.

      The only thing I would say is that any interim executive is not operating in isolation. Usually there are other people who could take on the assignment, so you are in a competitive situation. Price yourself too low, and you’ll earn less than your potential and not as much as you would in a permanent role.

      But price yourself too high and you may miss out on opportunities.

      The keys are to listen, be market aware, and show a willingness to be flexible.

      • Andrew Gibbs

        Thank you very much Nigel. Yes I agree it’s a tricky balancing act and, despite my having been ‘at it’ for 20 years, I’d admit that I still sometimes find it difficult to decide on the right rate to quote.

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