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A Project Manager Salary of £26,000 per annum (net of tax) could increase to £85,400 on changing status from Employee to Independent Contractor




When a Project Manager Salary increases by a factor of 3 or 4 overnight... he's likely to have made the break and started to work on a self employed basis.

A key element of your decision as to whether to start your own consulting business will be your estimate of the impact of your decision on your income.

Depending on your current level of expertise and experience it is reasonable for you to expect your income after tax to increase by a multiple of between 3 and 4.

I set out for you here three examples of simple estimates of the potential increase in after tax income along with the supporting assumptions.

These numbers are averages and are based on my personal experience (operating in the UK, in the period 2001-2009) and that of some of my associates who also went independent but at different stages in their careers.

The three examples are based on a Project Manager salary, a qualified CPA salary and a Senior Consultant salary.



Estimated increases in after tax income: Employee v Independent Consultant


Example 1 - Project Manager Salary
An employee, currently earning a Project Manager salary of £40,000 (pre tax) and paying personal tax at an average rate of 35% will receive an after tax income of £26,000 per annum. Operating as an Independent Consultant he could generate fees of £132,000 (based on 220 chargeable days per annum at a day rate of £600). Business expenses and overheads are estimated at £10,000, leaving pre tax profit of £122,000. At an average corporate tax rate of 30% the business will retain an after tax income of £85,400 per annum - an increase by a multiple of approximately 3.3 on his original Project Manager salary.


Example 2 - Qualified Accountant (UK Chartered Accountant or US Certified Public Accountant - CPA)
An employee, currently earning a CPA salary of £60,000 (pre tax) and paying personal tax at an average rate of 45% will receive an after tax income of £33,000 per annum. Operating as an Independent Consultant he could generate fees of £187,000 (based on 220 chargeable days per annum at a day rate of £850). Business expenses and overheads are estimated at £12,000, leaving pre tax profit of £175,000. At an average corporate tax rate of 30% the business will retain an after tax income of £122,500 per annum - an increase by a multiple of approximately 3.7.


Example 3 - Senior Consultant Employed by a Big 5 consulting firm
An employee, currently earning a Senior Consultant salary of £80,000 (pre tax) and paying personal tax at an average rate of 45% will receive an after tax income of £44,000 per annum. Operating as an Independent Consultant he could generate fees of £275,000 (based on 220 chargeable days per annum at a day rate of £1,250). Business expenses and overheads are estimated at £15,000, leaving pre tax profit of £260,000. At an average corporate tax rate of 30% the business will retain an after tax income of £182,000 per annum - an increase by a multiple of approximately 4.1.




Taking a simple average across the Project Manager salary, the CPA salary and the Senior Consultant salary, the level of uplift is c.3.7x...

If you're a Project Manager who's restless for increased control of your time and your future and would have no trouble enjoying an increased Project Manager Salary then making the transition to independent working may be right for you.




What might your income be as an Independent Consultant?
Typically as an Independent Consultant you will bill your clients on the basis of a daily rate. This by definition will cap your earning potential - there are only so many days in the year.

Your maximum fees each year will be the product of the number of available working days, your daily rate and your utilisation (the percentage of available working days that you are able to charge to clients).

Let's assume for example:
  • You decide to work 48 weeks per annum (48 weeks x 5 days = 240 days)
  • Your daily rate is £950 ($1,657 per day)
  • You achieve an 85% utilisation on average through the year

Based on these numbers you would generate fees of: 240 days x 85% x £950 = £193,800 (approximately $273,000).


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Side bar
Your only options to increase your total billed fees are:
  • Increase the number of days you work in the year
  • Increase your average utilisation
  • Increase your day rate

For example, if you were able to be fully utilised for 52 weeks (very unlikely) and increase your daily rate by say 10% to £1,045 then your fees would be £261,250 (approximately $367,000).

The most effective and realistic route to growing your income is to work on developing your expertise and reputation and through this to gradually increase your daily rate.

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