Welcome to another episode of The Retirepreneur Podcast. I'm your host with this week's executive summary for busy entrepreneurs building their second-act business. Today's episode is designed for maximum impact in minimum time.
It is great to be back. And today we're tackling a subject that is arguably the single biggest stumbling block for professionals leaving corporate life to launch their own practice. We aren't just talking about moneyâwe're talking about valuation. Specifically, why smart, experienced people with decades of success consistently undervalue their expertise the moment they hand in their ID badge.
It's such a strange paradox, isn't it? You look at the demographic we serveâpeople who have managed P&Ls worth millions, directed entire divisionsâabsolute heavy hitters. Yet when they step out on their own, there's this hesitation to ask for what they're worth. It's almost like imposter syndrome is just waiting for them in the parking lot on their last day.
It is rampant, and frankly, it's dangerous for the longevity of a business. The insights we're diving into today pinpoint a very specific culprit. It's not necessarily a lack of confidence, though that does play a role. It's actually a calculation errorâa habit we call the old math trap.
Okay, let's start right there, because logically it makes sense to look at your history. If you spent 30 years being paid a salary, that number is your anchor. You think, "I was worth $150,000 yesterday as an employee, so I'm worth $150,000 today as a consultant."
Exactly. And that is where the math goes so wrong. The default behavior for almost everyone is to take that old salaryâlet's stick with that $150,000 numberâand divide it by 2,080, the standard number of workable hours. Forty hours a week for 52 weeks. It's the standard HR formula.
You do that division and you land somewhere around $72 an hour. And to a new consultant, $72 an hour sounds pretty decent. It feels safe. It matches the paycheck they're used to seeing. But this is a fundamental structural misunderstanding of the difference between an employee and a vendor. It's a total apples-to-oranges comparison.
The data shows an employee's salary is really just a fraction of the total cost to the company. When you're an employee, you are heavily subsidized. You have what we call the invisible paycheckâthe employer's contribution to health insurance, 401(k) matching, paid time off, the laptop, the office space, the software licenses, even the coffee. HR usually estimates that benefits and overhead add another 30 to 40% on top of that base salary.
And that's just the compensation side. There's also the operational side to think about. As an employee, you get paid for all 2,080 hours, whether you're in a client meeting or fixing a paper jam. That is the critical distinction. As a solo consultant, you are now the IT department, the marketing department, the billing clerk, and the janitor. And none of that is billable time.
If you charge $72 an hour, you're only earning that when you're actively working for a client. If you spend 20 hours a week finding work and 20 hours doing the work, your actual income just got cut in half. So if you stick to that old math, you're not just breaking evenâyou're actively losing money compared to your corporate job. You're taking a massive pay cut for more risk. You're essentially subsidizing your client's business with your own retirement savings.
That is the harsh reality. So the goal of this deep dive is to shatter that old math and replace it with a formula that actually works for a retirepreneurâfor someone who wants a profitable business, not just a low-paying job they created for themselves.
Exactly. Okay, so let's get into the solution. The methodology here proposes a three-step process. Step one is establishing what you call a walk-away numberâthe absolute floor. And there's a specific formula.
There is. It's a simple equation, but every variable does a lot of heavy lifting. It's target annual income times 1.5, divided by 1,000.
Target income times 1.5, divided by 1,000. Okay, I want to push back on that denominator first. One thousand hoursâwe just said a standard work year is over 2,000. Dividing by 1,000 implies we're only working 20 hours a week. For a high achiever used to 60-hour weeks, that sounds light.
It sounds light until you live it. One thousand hours isn't about working part-time. It's about billable capacity. The industry benchmarks for solo consultants show that realistically you can only bill about 50 to 60% of your time, because the rest gets eaten up by the business of the business.
Business development aloneâjust finding the next clientâis a massive time sink. Then you have administration, invoicing, tax prep, professional development, and gaps between projects. If you build a financial model assuming you'll bill 40 hours a week, 52 weeks a year, you are building a model that guarantees burnout or bankruptcy.
So 1,000 hours provides a buffer for reality. It's about utilization rates. That makes sense. So 1,000 is a realistic capacity. Now the numeratorâtarget income times 1.5. I assume this isn't just to make us feel rich.
No, this is the protection multiplier. This covers the gap between your old corporate life and your new reality. The biggest component here, especially for the over-55 crowd, is the health insurance bridge.
This is a huge friction point for our listeners. If you retire at, say, 58 or 60, you're not eligible for Medicare until 65.
Exactly. And that five-to-seven-year gap is expensive. You're looking at COBRA, which is very pricey, or the ACA marketplace. For a couple in their early 60s, premiums can easily run $1,500 to $2,000 a month. That's $24,000 a year, post-tax, just to have coverage. That alone justifies a huge chunk of that multiplier.
Then add the self-employment tax. When you're an employee, your company pays half your Social Security and Medicare taxes. When you're self-employed, the IRS wants you to pay both halves. That's 15.3% right off the top.
Plus you need a profit margin. A business that only covers its owner's personal bills is a fragile business. You need retained earnings for a slow month or a new laptop. So the 1.5 multiplier isn't greedâit's structural survival. It's the armor your business needs.
Okay, let's make this concrete. Let's take a former VP of operations. She was making $150,000 and she wants to maintain that lifestyle.
Okay, let's run the numbers. Take $150,000, multiply by 1.5âthat gives us a gross revenue goal of $225,000. And we divide that by our realistic 1,000 billable hours, which gives us $225 per hour.
$225. That is a significant jump from that $72 old math number. It's more than triple.
It is. And here is the mindset shift: $225 is her minimum. That's the baseline required to keep her life and business solvent. It's not the market rateâit's her internal cost of doing business. That distinction is vital. This formula tells you what you need to charge, not necessarily what the market will pay.
Exactly. Which brings us to step two: researching your market position. Because asking for $225 or $300 an hour requires confidence. And frankly, a lot of older professionals worry about age bias. They fear they're aged outâthe gray ceiling. It's a very real fear.
But the data from MIT Sloan suggests it's misplaced in the consulting world. They found that a 50-year-old founder is nearly twice as likely to achieve high growth as a 30-year-old founder. That runs completely contrary to the whole Silicon Valley narrativeâthe hoodie-wearing genius.
What's driving that value for the older demographic? It's one thing: pattern recognition. That is the commodity you are selling. You aren't selling typing speed or coding hours. You are selling the fact that you have seen this movie before. You've navigated the 2008 crash, the dot-com bubble, the pandemic. When a client hires a senior consultant, they're buying a shortcut. They're paying to avoid mistakes.
That's a great way to frame it. You're selling risk reduction. A junior consultant might be cheaper, but they might take three months to figure out what a veteran can diagnose in three days.
Exactly. And that efficiency commands a premium. Butâand this is a big butâyou have to look for price comparisons in the right places. The materials warn heavily against the gig economy traps. Do not look at Upwork. Do not look at Fiverr. Those are race-to-the-bottom environments. You're competing with global labor markets where the cost of living is a fraction of yours. If you anchor your price there, you will lose. You are not a commodityâyou're an expert.
So where should we be looking for accurate benchmarks?
Look at boutique consulting firms. If a specialized firm in your niche charges $400 an hour for a senior director, you can come in at $300 or $325. You're offering the same level of expertise, but you're leaner. You don't have their overheadâthe marble lobby.
Exactly. You become a value option while still charging a premium rate. Another area you mentioned was fractional executive roles. That seems to be booming.
It's huge. Fractional CFOs, CMOs, CTOsâcompanies that can't afford a $300,000 full-time executive will happily pay $250 to $500 an hour for that same expertise on a partial basis. It lets them punch above their weight class.
I also found this concept of problem scale pricing really insightful. It shifts the focus off "What am I worth?" and onto "What is this problem worth?"
Yes. It separates your time from the value. Imagine two consultants. One is a generalist copywriter, the other is a crisis communications expert. They might both spend exactly one hour writing a press release. The physical work is identicalâthe keystrokes are the same. But the generalist is solving a "content needs to be filled" problem. Maybe that's worth $100. The crisis expert is solving a "our stock price is about to crash" problem. That hour of work might save the company millions, so the crisis expert can charge $1,000 an hour or more, because the scale of the problem is massive.
So the question to ask isn't "How many hours will this take?" It's "What happens to the client financially if this problem is not solved?"
Precisely. If the cost of failure is high, your rate should be high. You're pricing against the outcome, not the clock.
Okay, so we have our baseline from the formula. We have a market ceiling based on boutique firms and the problem scale. Now comes the hard part: execution. Step three is test and adjust. How do we actually know the number is right?
You have to treat your first 10 conversations as a laboratory. You aren't just sellingâyou're gathering data. And the most critical metric is your close rate: the percentage of people who say yes. And the rule you suggest here is extremely counterintuitive.
It is. Most people think a 100% close rate is the dream. If everyone says yes, you're a genius.
You think so? In consulting, if everyone says yes immediately, it means you are too cheap. You've left money on the tableâa lot of it. If the client doesn't even blink or doesn't ask to negotiate, you priced it too low. You actually want a little bit of friction.
So what's the sweet spot then?
You want a 40 to 60% close rate. You want roughly half the people to say yes and the other half to say, "That's a bit outside our budget." That tension tells you you've found the upper limit of what the market will bear.
That requires a tough skin, though. You have to be willing to hear no.
If you aren't hearing no, you aren't charging enough. It is that simple. And conversely, if your close rate is, say, under 30%âif you talk to 10 qualified leads and nobody buysâthen you have a problem.
Is that always a price problem?
Not always. It's often a positioning problem. You might be selling a crisis solution to a client who only thinks they have a maintenance problem, or you're talking to the wrong person. But if the value prop is clear and you still get straight zeros, then yes, you might need to adjust the rate down a bit to get some traction.
And once you have that traction, when do you raise rates?
You don't wait for an annual review anymore. You control the dial. A good rule of thumb is the rule of five. After five successful engagements where you delivered results and got a great testimonial, raise your rate for the next prospect.
Supply and demand.
Exactly. If you're fully booked, your time is now a scarce resource. Scarcity drives value. Raise the rate until demand cools off just a little bit.
There was also a tactic mentioned called the two-tier strategy. I like this because it offers a kind of psychological anchor.
This is great for testing the waters. Never just give one number. Offer a standard timeline and a premium or rush timeline, then put a 25% markup on the premium tier.
What does that do for the negotiation?
Well, for one, it makes the standard price look reasonable by comparison. It anchors their brain to the higher number, so the lower one feels like a deal. And if they choose the premium option, you just gave yourself a raise without even asking.
Smart. It's behavioral economics in action.
Okay, I want to pivot to the tactical rapid-fire section. The deep dive highlighted some specific gotchas for the 55-plus crowd that go beyond just setting the rate. First up: hourly to retainers.
This is all about cash flow stability. Hourly billing is a rollercoaster. As soon as you have established trust with a client, try to move them to a retainer.
How does the math work on that?
It's simple. If your rate is $250 an hour and they typically need you for, say, a day and a half a month, just propose a $3,000 monthly access fee. You're selling them availability, not just hours. It smooths out your income, and you stop tracking every 15-minute phone call.
Next tactical pointâand this is a big one for our US listenersâthe Social Security earnings test.
This is something a lot of people don't realize exists. This is critical if you are claiming Social Security benefits before your full retirement age, which is usually 66 or 67. If you claim early, there is a cap on what you can earn from your business, and that cap is surprisingly low. For 2024, it's $22,320. If you earn more than that, the Social Security Administration withholds $1 of benefits for every $2 you earn above that limit.
So if you land a big $50,000 consulting contract, you could temporarily wipe out your Social Security checks for the year.
Right. Now, important caveat: you don't lose that money forever. They recalculate your benefit and pay it back to you later once you hit full retirement age. But for cash flow today, it can be a real shock.
So you have to model that, or you delay claiming Social Security if you expect high business income. It's a strategic choice.
Which leads to the final point: tax structureâthe S-Corp election. Now, we aren't CPAs, and this is not tax advice, but what's the high-level concept here?
The concept is about saving on that heavy self-employment tax. If you're a standard LLC, every single dollar of profit is taxed for Social Security and Medicareâthat's the full 15.3%, the heavy hit we talked about. With an S-Corp, you can split your money. You pay yourself a reasonable salary, which is subject to that tax, but the rest of the profit can be taken as a distribution, which is not subject to self-employment tax.
So if your business makes $150,000 and you pay yourself a salary of $80,000, you save that 15% tax on the other $70,000. That's thousands in savings.
It's significant. It does require more paperwork and payroll costs, so it usually only makes sense once you're earning over $80,000 or $100,000 a year. But it is a conversation you absolutely must have with a qualified accountant.
So get a good CPA. That seems to be the lesson.
It is the best investment you'll make in your first year.
Okay, let's summarize. We started with the trap of the old mathâdividing your salary by 2,000 hours and why that leads to underpricing. We replaced it with the formula: target income times 1.5, divided by 1,000 realistic billable hours. We looked at the market, understanding that your experience premium allows you to benchmark against boutique firms, not low-cost gig workers. And finally, execution: using the close rate as a diagnostic tool. If everyone says yes, your price is too low.
The overarching theme here is confidence rooted in data. You aren't just guessingâyou are building a sustainable business model. The biggest mistake I see isn't a lack of skill. It's a lack of business acumen about their own value.
The mindset shift is just as important as the math itself. You are moving from an employee asking for a salary to a business owner offering a solution. And remember, companies are desperate for that solution. They're losing institutional knowledge every single day. They need someone who can come in, assess a situation, and fix it without handholding. That is what you offer. The rate is simply the fair exchange for that high-value impact.
So don't be afraid of the number. Run the formula, trust the experience, test the market, and get comfortable hearing no. It means you're probably doing it right.
That's your executive briefing for this week. If you found value in these insights, share this episode with fellow retirepreneurs and subscribe to the Retirepreneur newsletter at retirepreneur.com. Follow us for weekly strategic insights, and rememberâyour most successful chapter is just beginning.
Until next week, keep building.
