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I gave my rate to my client with a simple breakdown as requested. I listed out the components of my rate:
The client is ok with 1) and 3)
But he wants a further breakdown of 2) Benefits (incl. vacation, sick days, insurance, etc) I am just using a very conservative and typical rate for benefits.
Is this request typical? How should I address it?
Don't ever break down your rates, especially not using words like benefits. It opens you up to awkward questions from your clients (like you just found out). If you break them down, you just give clients ammunition to try and get you to come down in your rates.
You do not have to defend your rates, to anybody (except maybe yourself). They are what they are.
But now that you have:
I'm surprised they have the slightest interest. I wouldn't ever provide such a breakdown to a client. Assuming they are not trying to create an employment relationship with you, they should simply not need to know. How you apply revenue to your costs is entirely the business of your consulting company, not the client's company.
Most likely, they're just trying to see if they can push you to reduce your rate.
I've been asked to provide some strange information to companies I have subcontracted through; one wanted previous year tax returns, among other things, and I politely pushed back, indicating that this was not relevant to them. For direct clients, I've mostly been asked for things like a W-9 form (tax ID), a proposal, business license documents, proof of insurance, and/or a draft contract.
The best course of action would have been not to provide any breakdown of how your rate is applied and say that you are covering your costs and trying to price at market rate (or on some percentile of the range of market rates) based on the scope of the project and your expertise.
However, considering you have already diverged from that path, I would recommend saying that you've based your rate on a number of factors, and the benefits portion is an allowance based on the number of billable consulting hours you expect over the course of the year across all your clients. You will apply those funds as necessary; the operational costs can, and do, change.
I don't know with absolute certainty if I'll work 1400 hours this year or 2000, so I use a rough estimate of my expected hours and work against my current annual health and business insurance costs. My insurance companies don't charge me based on the number of hours I work. I include some provision for planned and unplanned downtime, but it's still a bit of a guess. Explain that you're already providing an unusual level of private information about your operational costs, and that additional detail borders on creating an employment relationship. Having a blurry line between "employee" and "contractor" is very much a no-no for independent contracting or consulting, and neither you nor that client wants to go there.
You can provide a "breakdown" of the expected costs for different phases of the project, but your company's internal cost structure (and you are running a company if you are consulting, even if it's a one-person shop) is simply not something you normally disclose. They should be focusing more on your statement of work and deliverables, or they're not really using you as a consultant.
