Curious to hear from you … What resonates? What’s missing? What questions does this bring up?
The basic question is, “How do I set my rate?”
1. Start with research.
Some resources to look into:
- Google. Try keywords of your profession + consulting + rates or “fees” or something like “how much do _____ consultants charge?”
- Talk to consultants in your line of work about what they think you could charge. (I’m happy to share about rates for Coaching and Organizational Effectiveness / Development via email.)
- Talk with the people who hire your type of consultants about rates.
- Read the rest of this blog post (yay – you’re 13% done already!)
2. Know the types of pricing approaches you can use in a contract.
Sometimes the type of pricing structure is predetermined by the client or industry. Nonetheless, here are the common types of ways to structure cost and pricing in your contract.
- Hourly or Daily rate – Set a rate then charge for each hour / day you work
- This is a good method when you’re not sure exactly how much time the work is going to take and you want to make sure you’re compensated for the time you work.
- Pro: Get paid all the hours you work.
- Con: Clients pay the price when consultants abuse this model.
- Mitigation: Put in a “Not to Exceed” clause in the contract. This can also be called a “ceiling” on a contract.
- Project based or “fixed price” – A flat rate for an engagement.
- Pro: You know how much you’ll make. Client knows exactly how much they’re going to pay for the finished work.
- Con: You may underestimate how many hours are needed when you contract and don’t get paid the extra hours you work.
- Mitigation: Put in a clause stating if uncertainties emerge that significantly impact the scope or complexity of the project in a way that requires you to increase the level of effort over X% of the assumed amount for this pricing, you may re-contract with the client.
- Used when a client wants to maintain access to you for a certain number of hours a month.
- Pro: You know how much you’re going to get for a number of months out, and you get paid it regardless of whether the client utilizes all of that time. It’s also helpful to the client because they can budget exactly how much they’ll be paying you for the coming months.
- Con: The client ends up taking more risk here. Sometimes clients may want to utilize the hours for the sake of not losing them, even if it’s not the most high-impact work to be done.
- Mitigation: Consider agreeing to roll over a percentage of unused hours so they can use them on more meaningful activities, if your bandwidth allows you to do that.
- Hybrid approaches
- You can mix and modify the approaches. E.g., You can do a retainer and refund 25% of any unused hours to alleviate some of the client risk. Or do a fixed price, and charge hourly for any additional hours that are out of the scope of the contract.
3. Factors in setting your rate
- Market rates (see #1 above)
- Scope of work
- Is the project especially difficult, complex, or quite straightforward?
- Can it lead to more work?
- Does it require travel?
- Will it be mind numbing, or make your heart sing?
All these factors about the scope may lead you to offer a higher or lower rate and price on a project.
- Client budget – Know your market, clients, and their budgets.
4. Doing a sliding scale
You can set different rates for corporate, government, and nonprofit clients. If you take on pro-bono clients, consider if they’d be willing to help introduce you to other prospective clients, or writing a brief testimonial afterwards to help grow your business.
5. Some potential mistakes
- Setting your rate too low
- This can be tempting to do to get the work, but can lead clients to take you less seriously. It also makes it harder to manage your practice / business if you’re struggling to generate enough cash flow. And it is difficult to convince clients to pay you more once they are used to your lower initial rate.
- Setting your rate based on your previous salary (dividing your salary into an hourly rate)
- This may seem logical at first blush, but I strongly advise against it in most cases. It’s better to set your rate based on the factors in #3 and #4, and #7 (below).
6. Keep the big picture in mind
Don’t let perfecting your rate structure get in the way of launching your business, growing it, or doing the work you love. Make sure it’s high enough that generates the revenue you need, is comparable and fair to what’s in the market, fits the client’s budget, and aligns to the scope of work. You can adjust your rate structure as you go.
7. Maintain focus on the “WHY,” not just the “WHAT” of the work
The more value you provide to a client, and the closer your work is to what truly stirs their heart, the less of an issue your rate becomes. Simon Sinek explains the principle behind this well in this video. Sometimes you are doing work that is truly transformational and compelling, and you simply need to find a way to communicate it to the client. And at other times, I offer you to ponder whether there is a higher level of value you can provide to the client – which will not only help them be more successful and happy, but will help you in your business as well. How can you deliver the most service and benefit to your client? When you let that question drive you, many more opportunities open up.