How consultants make money

Many consulting businesses are just one person. In 2024 the US had about 1.2 million consulting businesses with no employees, the Census says. On average one took in $60,339 that year, before its costs, and 59.1% took in less than $25,000. Some of these are side work next to a job.

Working full time, a consultant has to earn what a job would pay, and more. A management analyst (the Bureau of Labor Statistics' name for what is often called a management consultant) had a median pay of $101,860/year in May 2025, or $48.97/hour. About 14% of management analysts' jobs were held by self-employed people.

Three things push a consultant's rate far above that hourly pay. First, unbilled hours: finding clients, writing proposals and sending invoices are work nobody pays for, and time off isn't paid either. Our example consultant bills 1,200 hours a year, so the same yearly pay works out at $85/hour for each billed hour.

These numbers are our example.

Second, what an employer would add: at professional firms, pay and paid time off are only 77.7% of what an employee costs. The rest is insurance, retirement, bonuses and the employer's half of payroll taxes, which you now pay yourself. So the full cost of a median-paid analyst is about $131,100 a year. Third, business costs, $14,400 a year in our example. Added up, the example needs about $121/hour, roughly two and a half times the employee's $48.97/hour.

Our example numbers here are $131,100, $14,400 and $121/hour; the others come from the sources below.

There are two main ways to charge. By the hour (also called time and materials), the client pays for every hour worked. With a fixed fee, the client pays one price for a listed piece of work, however long it takes.

Most firms do both. At CRA International, a consulting firm, 17% of fiscal 2025 revenue came from fixed-price work and 83% from work billed by the hour. Its annual report says hourly billing is typical for lawsuits, work with regulators and financial consulting, and fixed prices for management consulting projects. Work with a clear list and a clear end, like a design studio's logo and a few web pages, suits a fixed fee. Open-ended work suits the hour.

The difference is who carries the risk. Say you quote $6,000 for a project you think will take 40 hours: that's $150/hour. If it really takes 60 hours, the client pays the same, and you earn $100/hour. Charging by the hour, the client's bill would grow instead. That's why a fixed fee usually includes a buffer for surprises, and a list of what isn't included.

These numbers are our example.

Two more ways exist. A retainer is a monthly payment that keeps you available. Some firms, such as Huron, a large consulting firm, also earn fees tied to results the client confirms: a bet on their own advice.

A sent invoice isn't money in the bank. US small businesses using Xero, an accounting app, were paid 8.6 days past their due date on average in the quarter to September 2026. That's why many consultants ask for part of the fee before work starts, and write a payment date into every contract.

Some places set rules. In New York, a client hiring a freelancer who works alone must put work worth $800 or more in a written contract; if it has no payment date, the client must pay within 30 days after the work is finished. Other states and cities have their own rules, or none.

Nobody holds back tax from what clients pay you. A client that pays you $2,000 or more in a year reports it to the IRS on Form 1099-NEC, but you owe tax on everything you earn either way. On top of income tax you pay self-employment tax of 15.3%: 12.4% for Social Security and 2.9% for Medicare, both halves of what an employee and employer would split. If you expect to owe $1,000 or more, the IRS expects estimated tax payments during the year, four times a year.

A solo consultant can only sell their own hours. A firm sells other people's hours too, for more than they cost. Firms call this leverage: a partner wins the work and checks it, a manager runs it day to day, and analysts do most of the hours.

Each junior hour leaves a gap. Say a firm pays an analyst $80,000/year and charges $125/hour for an hour of their time. Add what an employer pays beyond salary and spread it over the 1,600 hours a year clients pay for, and each billed hour costs the firm about $64/hour. That leaves about $61/hour toward the office, the people who sell, and profit. These numbers are our example.

These numbers are our example.

The gap only exists while the hours sell, because salaries are due either way. That's why firms watch utilization, the share of available hours that go to client work. At CRA International it was 77% in fiscal 2025. Design and marketing agencies work the same way: an agency hires designers, paid around $30.27/hour for graphic designers, and sells their hours inside its projects.