How to set your daily rate
One of the first things you need to do when setting yourself up as an interim manager is to calculate a suitable daily rate to charge your clients, taking full account of your changed status.
As a salaried employee, you worked for approximately 220 days in the year after taking into account weekends, holidays and bank holidays. However, as an interim manager, you will probably work and be paid for fewer days than this and you need to take this into account when computing your daily rate.
Make sure you calculate your daily rate at an early stage - opportunities sometimes arise very quickly, and you should always be ready with a rate that is sufficient for your needs.
The extra costs of your independence
When you were a salaried employee, your employer had extra costs over and above your gross salary, which you will now have to pay for out of your total fee income. These fall into four categories.
- Those items that will now have to be paid for out of your net salary, such as:
- Private health insurance
- Company car
- Pension contributions
- Accountant's fees
- Computer equipment, broadband etc
- Office stationery, telephone etc
- Annual professional indemnity (PI) insurance
Out of your gross salary you will continue to pay income tax and employee's NI (together known as PAYE).
Calculating your daily rate
You need to start with the amount of money that you require to live on (possibly, but not necessarily, your old gross salary). To that you should add all the above extra costs and divide the total by the number of days in the year that you anticipate working in order to arrive at a daily rate. You could refine this by producing one rate for short assignments and another for longer assignments where the number of days is more or less guaranteed.
In your own mind, always remember that your daily rate includes an amount for employer's NI contribution, which has to be paid to HMRC (along with the tax and employee's NI contribution that you have always paid).
Be quite clear how much of your daily rate will go to you and how much will go to the government, since it is counter-productive to grumble about it later on!
It is important to be realistic about the number of days in the year that you are likely to work. On average interim managers work approximately 160 days, though this could be lower for less experienced interims. Having done the calculation, also be realistic about the fee you propose to charge, particularly if this is your first assignment and you have yet to prove yourself.
The Interim Hub runs a one-day workshop on becoming an interim manager, in which advice is given on calculating your daily rate.