I’ve always done it the same as iab, I learned this early on from the first place I worked. The first thing is to establish an hourly rate that includes living expenses, operational costs, equipment, IT costs, and profit margin. Divide that by hours per year and establish an hourly rate. Then estimate how long the job will take, add 30% to cover overage (always happens) and meetings and phone calls (those are hours too) then establish a flat rate that is the value for the project. I never, ever disclose my rate, but it is higher than all the above examples. Bill half up front, half on completion.
Here is an example. I’ll use round numbers for the sake of argument.
80k (salary)
40k expenses (facilities, equipment, IT, operations)
30k profit
$150k per year
divide $100k per year by 1000 hours (the average work year is about 2000 hours, but figure half of that is going to biz dev, marketing or in between time if on your own):
$150,000/1000= $150 per hour
That was just a simple round number example. Play with your salary, expenses and profit numbers and run the math again and you can see how the ranges develop. To develop an accurate expenses number you need to be good about tracking capital expenditures and applicable monthly bills.
Anyway, to your question on the retainer. I only did it once, for about 2 years. I did the same formula as the above, and just estimated how much time I would spend per week, knowing some weeks I would be over, some under. I tended to do well on average. You may apply discount if it is lets say a year contract and as such, guaranteed work, which minimizes your biz dev time.
This is all very true. When thinking about your current compensation, think of not your salary, but what is called “Total Compensation” which is your salary, plus bonus (if any), what your company pays in insurance, social security, and all other backside payments on you. That number is much higher than your salary.