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.