What are you worth and how do you calculate it?
How do you balance market factors, business costs, and the value of your services and experience when setting consulting rates?
I hate talking about money. I really do. When I started freelancing, I dreaded the talk of rates and quotes. It felt like I had to evaluate myself and then convince others of my worth, or I was forever doomed to make less money. But pricing your consulting services doesn’t have to be a drag.
Here’s how to set consultation fees that keep you flush and your clients happy.
Editor’s note: This article was originally written by Allie Decker but has since been updated and fact-checked by Nathan Chan who is highly experienced in consulting. Nathan ran his own private consulting firm before starting Foundr Magazine and is an expert in the field.
How Much Should I Charge as a Consultant?
Let’s Talk About Pricing
1. Determine Your Worth
2. Calculate Average Hourly Rates for Consulting
3. How to Calculate Per-Project Consultant Rates
4. How to Charge Consultant Retainer Fees
Communicating Your Consulting Rates Without Crumbling
Surely you’ve wondered, “How much should I charge for my services?”
If you’ve ever studied economics, you know that pricing is relative. It’s a perception of value, not a hard and fast number. The same perception goes for services as it does for products. Your clients aren’t purchasing a tangible object, so it may feel harder to put an hourly rate to what you’re offering. But this invisibility factor can actually work in your favor.
Pricing is relative. It’s a perception of value, not a hard and fast number.
Consulting rate tip #1: Your hourly rate is all about estimating your value.
As a writer, I look ahead and evaluate how impactful my work will be for my clients.
Let’s use a recent ebook project of mine, for example. When I was asked for my rate, I consider how this ebook would be valuable to my client. With this ebook, my client would capture emails, generate leads, and bring in revenue from courses and products linked to my writing.
Exactly how many leads and how much revenue, I couldn’t be certain--but I knew that my ebook would provide more value than just a pleasant afternoon read.
Consulting rate tip #2: Your rate is a big part of how your clients perceives you.
Your hourly rates are each client’s first glimpse of your experience and value as a consultant--especially if you don’t have a large portfolio.
Because your fee is an expression of value, low consulting rates don’t necessarily lead to work, or respect. If your clients have been regularly hiring consultants or freelancers, they’ll be familiar with average consulting market rates. Pitching yourself on the low end simply to undercut competitors won’t always serve you well.
I’m not proposing that you jack up your rates just to make yourself look better, but there’s no reason to shy away from a higher rate that accurately communicates your expertise, knowledge, and experience.
READ MORE: The Complete Guide to Getting Clients for Your Consulting Business
Consulting rate tip #3: Pricing is an emotional process.
You and your clients will approach your rates with both emotion and logic, especially when you both own your own businesses. Your consultation fees are influenced by feelings: how clients feel about you, how you feel about them, how they feel passing along a prized project, how you feel about said project, and so on and so forth.
When considering your consulting rates, don’t discount your feelings. But don’t let them take over, either. We’ll discuss this more below.
Consulting rate tip #4: The services you offer aren’t the only factor determining your rates.
Although services you offer are front and center, you should also consider the value of your expertise, knowledge, and network. How are these components woven into your services and how do they elevate your value? How can they benefit your clients? This doesn’t only apply to consulting services.
As a consultant, you may be involved in other activities. For example, you also may want to know what hourly rate to charge for public speaking and other networking activities. Your experience in these outlying areas will all factor into your rates as well, regardless of what service you’re quoting for.
When I calculated my rates as a freelance writer, I thought about my background in marketing and planned how to build a great marketing strategy. Then, I considered my established writing process, which included premium proofreading software, a contracted editor, SEO optimization, and more.
Your consulting rate is also about your personality, work ethic, timeliness, organization, and ability to take direction and criticism. These are all components of your overall value as a consultant. Defining these intangible components isn’t easy, but they can add lots of value to your services and help raise your prices.
Consulting rate tip #5: Pricing starts from within.
Finally, pricing starts within your business, within your P&L statement, and within yourself. Before you do anything, you must consider the cost of doing business.
READ MORE: 100 of the Best Side Hustle Ideas and Jobs
If you have absolutely no idea where to start when setting consultation fees take a look at your life. What are your personal expenses? What are your business expenses? What kind of lifestyle do you want to build or maintain as an independent consultant? Answering these questions will help you set a minimum price--a foundation upon which you can build your consulting fees.
Also, take a moment to look ahead. What are your goals for your business and for yourself? Don’t discount your ambitions as a consultant and business owner. You have a right to live comfortably and thrive financially, too.
Consulting and freelancing give you absolute financial freedom. The sky’s the limit when it comes to income. But it’s up to you to establish that income and work hard enough to earn and then multiply it.
Now that we’ve talked about the nitty-gritty of pricing your consulting services, let’s dive into some actionable steps for setting consultant fees.
START YOUR SIDE HUSTLE: How To Use Existing Skills to Earn an Extra $1,000 From Home
How Much To Charge For Consulting: Setting Your Fees
The tips above paired with the processes below should help you settle on what to charge for your consulting services and formulate a consulting business price guide. Note that your pricing structure should be under consistent review, especially as you grow your skills and attempt to expand your consultancy. Return to these steps as you scale your business.
1. Determine Your Worth
Start by looking at the average consulting rates for your industry, or in other words, the market value of your specific service. When I was retooling my rates last year, I used a compensation database e.g. PayScale just to get an idea of the averages in my line of work.
Looking at market value for your industry gives you a good place to start and shows you what your clients may be expecting.
Next, look left and right at your competitors. Some consultants publicize their rates, but most will wait until clients call them to reveal any details. (You’ll see why below.) Because of this, you may have to “mystery shop” among your competition. Understand their pricing structures. Don’t copy them, but get a feel for where the market is at.
Third, take a hard look at your expertise. For this step, try to block out your other research and focus primarily on yourself. What training and experience have you had? What is unique about you and your background that could help boost your consulting rates? How well can you manage deadlines and meet expectations? These soft skills are just as important as your resume.
Finally, determine your business expenses and goals. These numbers help you set a baseline price. What you’re willing to accept is just as meaningful as what your clients are willing to pay.
READ MORE: Checklist for Starting a Consulting Business
2. How to Calculate Average Hourly Rates for Consulting Services
We don’t necessarily recommend charging by the hour, but you may want to structure your pricing this way if your consulting work involves meetings and a lot of in-person work. Determining an hourly rate is also an important part of calculating per-project or retainer rates, allowing you a baseline to work from.
To calculate your consulting hourly rate, determine what salary you’d like to make. Take that number and divide it by 52 (number of working weeks), then again by 40 (number of hours in each week). And finfally, take that number and mark it up by 25 to 50 percent.
For example, let’s say I wanted to make a gross salary of $60,000 per year. To calculate my hourly rate, I’d divide $60,000 by 52, which is roughly $1,154, then divide that by 40, which is $28.85. I’d then mark that up 40 percent, which results in an hourly rate of about $40.
That 40 percent markup would cover the cost of my expertise as well as business expenses like overhead, benefits, taxes, and more. These costs are different for everyone, depending on tax status and type of business, and require some calculation beforehand.
3. How to Calculate Per-Project Consultant Rates
Charging by the project is more aligned with the value-based pricing model I discussed above. Fixed fees create a more straightforward workflow (as you don’t have to be worried about tracking hours), but this structure can be tricky due to scope creep, and our tendency to underestimate how long a job will take.
Defining and reinforcing a predetermined scope of work is crucial when charging by the project. The best way to determine your per-project rate is to figure out how many hours you estimate the job will take. You can make an educated guess based on your knowledge of the subject and how long it’s taken you to complete certain tasks in the past.
Defining and reinforcing a predetermined scope of work is crucial when charging by the project.
This step can be tough for new consultants, so this is where industry averages come in handy.
For example, let’s say I was hired to write a feature article for a magazine:
- Research: 1 hour
- Review of interview transcript: 2 hours
- First draft: 5 hours
- Two rounds of edits: 2 hours
Total: (10 hr x hourly rate) + 10-20% for unexpected contingencies
It’s also wise to add a clause in your contract that any and all work outside the predetermined scope is subject to your hourly rate.
4. How to Charge Consulting Retainer Fees
Working “on retainer” means you receive a monthly fee for working with a client for a set amount of hours. Retainer fees can be wonderful for your consulting business as it’s income that you can rely on and plan for (a rare commodity in the freelancing world).
If you intend on providing ongoing services for a client and think charging retainer fees might be a good fit, consider discussing a change in fee structure two to three months in, after you’re really nailed down the scope of work. Some clients aren’t sure what exactly they need, and you don’t want to get locked into a rate that doesn’t cover the entire scope.
To calculate your consulting retainer fee, you would basically do it in the same way as project rates i.e. by the hour plus a small percentage to cover contingencies. Some consultants offer discounts for retainer fees as they’d prefer the consistent income over hourly or per-project invoices.
Now that you have your various consulting rates, let’s talk about how to communicate these to your clients with confidence and clarity.
START YOUR SIDE HUSTLE: How To Use Existing Skills to Earn an Extra $1,000 From Home
Communicating Your Consulting Rates Without Crumbling
If you want to know how much to charge for consulting, deciding on numbers is merely half the battle. The other half is communicating your prices with clarity and confidence.
The conversation about rates happens with every client, sometimes more than once. Sometimes it’s pleasant, sometimes it’s awkward, and sometimes it’s ugly.
READ MORE: How to Write a Consulting Proposal With The Best Tools and Templates
Here are a few things I’ve learned through my personal experience:
Every Client is Different
Some will approach me with a “set rate” saying that this standard rate is what they pay other freelancers. They’ll explain their project or position like a job offer and seem to leave little room for negotiation.
Others will start the conversation by asking what I charge. Some are open to some back and forth, while others shut me down right away.
The point is that you can’t always prepare for the direction each conversation might take you. The only thing you can do is equip yourself with confidence and patience.
Don’t Talk Numbers Until You Know What You’ll Be Paid For
Understanding exactly what the client needs (and how well they understand it themselves) play a major role in how you price, or whether you even want to move forward at all. Also, even giving the client a hint of what you charge may make it harder to change that rate if the project scope demands it.
If a client asks, “How much do you charge for consulting?” right out the gate, try to guide the conversation towards the project details. For example, you can say, “I’d like to get a good idea of the scope of work before discussing rates,” which leads me into my next point.
Confidence is Important
The way you sell yourself and discuss your consulting rates can affect your clients’ perceptions of your value, and confidence and assuredness can go a long way. When asked, don’t present your rates as a question. State your prices and be prepared to stand your ground.
But Compromise is Key
If a client accepts your rates as is, great! But, sometimes that doesn’t happen, and that’s okay. Guide the conversation into negotiation instead of turning down the project right away. And if you foresee further business with the client, try to be flexible.
When a client disagrees with your rates, a few things might happen:
- They directly counter with another rate. Compare this number to the minimum rate you’ve determined based on your costs and goals. If you’d like to work with that client, aim to compromise with a rate that’s above your minimum.
- They quote a rate that they’ve paid other consultants. This could be true, or it could be a tactic to get you to lower your rates. Take these quotes at face value, and use this as an opportunity to explain what sets your services apart. Remove the client’s focus from the dollar signs and to your overall value as a consultant.
- They simply say, “That’s just too high.” If the client resigns themselves immediately, don’t fret. Start by asking them what their budget is and go from there. Depending on what they say, return to options 1 or 2 above.
READ MORE: 5 Low-Cost Startup Business Ideas
It’s Absolutely Okay to Say “No”
If you aren’t willing to accept their rate or feel that the client wouldn’t be a good fit, it’s OK to say “no”. While you may be pitching the client, you are just as valuable to them as they are to you.
Many consultants make the mistake of reducing and relenting on rates in order to keep the client happy or land the gig. You’ll never get ahead or gain respect in this way. Good work demands appropriate pay, but the first person to enforce this has to be you.
Don’t Be Afraid to Negotiate
The truth is, rate negotiations is one big question mark. It’s likely that both parties are unsure what to expect and how to proceed, and it shows extreme professionalism for you to lead with confidence and patience.
Negotiations, especially about your value as a consultant, can be very intimidating. But the upside is that it can actually give you a very good idea of what each potential client would be like to work with. Observe how the client communicates, counters, and treats you through the process. Odds are that their collaboration style isn’t much different.
You have every right to back away from a negotiation and return to it later. This shows the client that you’re not brash and you approach important decisions with careful consideration. It’s perfectly respectable to say, “Thanks for chatting, I’m going to take some time and consider your offer/do some more research. I’ll get back to you.”
Don’t leave the conversation open-ended; set a date your client can rely on.
START YOUR SIDE HUSTLE: How To Use Existing Skills to Earn an Extra $1,000 From Home
Believe in Your Value and the Right Price Will Follow
It’s okay to dislike the process of establishing and communicating your consulting rates, but you shouldn’t have to give up business or money because of it. With practice, you can become confident in your value as a consultant and ensure your pricing reflects that. But that confidence starts with you.
When you believe in yourself, your talent, and your worth, slapping a price tag on it can become a lot easier.
How have you approached setting your consulting rate? Any questions on how to set the right consultation fee that we can help out with? Share in the comments below!
The post How Much Should I Charge as a Consultant? A Consultation Fee Breakdown appeared first on Foundr.
Link : https://foundr.com/how-much-to-charge-for-consulting
Author :- Nathan Chan
July 28, 2020 at 04:30PM
Foundr