One of the most pressing questions I get from new entrepreneurs is, “How should I set my consulting rate?”
While there are no hard and fast standard “industry” rules, I’ve found that above all else, you need to take your value, the market value for your service, your overhead and your expertise into consideration. You also need to be flexible for your prospects, e.g. leave room for negotiation.
Having said that, I also advocate that you never sell yourself short! If you start out of the gates with fees that are too low, you’ll have a hard time justifying raising them later. And justifying your value, too. Same goes for fees that are too high.
1. Review this easy calculation method: To help you get a good handle on how to customize your fee schedule based on your unique situation and business, you can easily work out your rate using this proven formula.
You can also use this calculation for weekly, 3- and 6-month engagements.
2. Always modify fees for “market value” or the going rate: Be sure to “adjust” the typical range of fees that consultants in your specific industry charge so you are in the ball park. Here you want to do some considered research to get an overall picture of what the market will bear. You can also ask other consultants to see what their rates are and what their value proposition is in order to determine how your rates compare. (Approach this diplomatically, of course, as those consultants can be your competition!). Adjust this rate upward or downward based on your relative level of experience and how much value you know you can provide.
3. Solo-entrepreneurs have an advantage: Big consulting houses such as Deloitte, McKinsey, Aon Hewitt, Price Waterhouse, etc., may bill out anywhere from $400 to $700 + an hour as they have a big team approach. Remember that your value as a solo-entrepreneur or boutique consulting firm is that you have deeper and more senior expertise that comes without the big overhead costs.
My caveat? It’s best to quote by the project (overall project price) rather than an hourly rate (which will quickly diminish your value and set you up for time-trapped burnout). However, hourly rates can work well in retainer situations where you make yourself available to clients so many hours per month.
Alan Weiss, author of The Consulting Bible: Everything You Need to Know to Create and Expand a Seven-Figure Consulting Practice states that: “Value trumps Fee.” He maintains that if you’re discussing price and not value, you’ve lost control of the discussion. Every buyer would love to reduce price, but very few want to reduce value.
The Gospel: You will never be successful in this business charging by a time unit. It is unfair to the client and inequitable for you.
According to Weiss:
Value = Tangible benefits x annualized benefits + Intangible benefits x Emotional impact + Peripheral benefits FEE
This is best for your clients because:
By doing your due diligence in research and calculating a realistic, practical fee, you’ll position yourself well for getting new clients, and keeping them.
One other related item: I recommend from the start that you ensure you maintain your billable hours just as you would in your “day” job. What I mean by this is try not to let other distractions and less important administrative or detail tasks take away from you being productive and working on your highest, revenue-producing activities. This will also go a long way to keeping you focused and your bottom line where it should be – supporting you and your business to grow and be profitable!
© Kim Chernecki 2016
Kim Chernecki helps high-performing freelance executives, consultants, coaches and other experts, land lucrative corporate contracts. She is the creator of the Land Corporate Contracts Fast-Track System, and is a top-rated sales performance executive, facilitator, coach, advisor, speaker and strategist. A 25-year entrepreneur, Kim has consulted with executives from 100+ leading North American and Fortune 1000 companies and has, herself, started up and helped grow 10 businesses and business divisions. She’s closed millions of dollars in corporate contracts, and provides powerful strategies and proven formulas to help her clients do the same.