Face it. Independent consulting is all about you. Your skills. Your abilities. The value you bring. It’s can be how you earn a living. So knowing how to price your services right is important.
Unlike being an employee, where salaries are defined and fixed, independent consulting rates are a mix of market rates (which are not always transparent), client’s needs and resources, and what you have to offer.
As an independent consultant, you will need to find out how to make the call and price your services. Call it right – and you and the client are happy. Call it too high – and you may not get the work. Call it too low – and you may not get the work. (Price is a test of credibility.)
As if that is not hard enough, adding to the complexity of pricing your work is a fair amount of psychological discomfort – you are pricing who you are and the value you bring. For me, that happens when someone suggests that I charge more, as I face imposter syndrome, wondering who am I to think that I might be worth that outrageous amount of money.
And so, there is no one “right” or “correct” answer to where your rates should be. Even so, there are some guidelines I can offer that will help you determine your market rates.
Tip 1: Remember that your price point must take into account more than just your time.
While it may be heady to think that your rate is $250 an hour, that rate must allow for:
- Taxes (there goes 25%)
- Insurance and benefits (typically another 30%)
- Your costs of running a business
- The value of all that went into getting your skills to their current level (degrees, certifications, work experience)
- The time it takes to market and secure the work
Tip 2: Unless you in an obscure niche, there is a market rate. You just have to find it.
When you’re trying to price your services, you will most likely use a number of sources to ferret out your market rate including:
- Google searches can yield interesting data. In addition to a basic search, you can also research people offering similar services to see if you can discover their pricing structure.
- Professional organizations may have data as well. And if they don’t have data, they do have members doing consulting in your field that you may be able to ask about rates.
- You might ask peers that are doing similar work about their feed structure. Some will share; some will not. But it is worth asking!
- Talk to a buyer. Think about the people in your network that are purchase services like yours. Have a conversation with them, not only about rates, but about how they vet potential consultants.
- I learned a lot about fee structures by sub-contracting my work. The firm I was subbing for set my rates and had done so for many projects, so they were very savvy to the market rates. In order to back into a rate, you’ll need to know how much they mark up your fees to the client, and this number can range from 25% to 100%.
Tip 3: Factor in the variables that impact your rate, and either drive it up or down.
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- Your experience. Just starting or little experience? Then you’ll price a bit below market. Lots of experience in the right areas? Then your price should reflect that.
- Your credentials. If you have degrees, credentials and certifications, you typically can charge a bit more than those who do not.
- The value you return to the client. Translate how what you do contributes to the bottom line for the client. The more directly you can link your work to more sales, lower costs, higher productivity – the more you are able to calculate a price that makes financial sense.
- Your past clients & testimonials. Having a breadth of experience across clients and customers adds to your value, as you have a broader perspective and understand different industries, companies and cultures. Even better is when those past clients sing your praises publically.
- Your consulting skills. The consultants that reach the point of being a trusted advisor or strategic partner charge the most. As they should. The ability to apply both technical know-how with excellent consulting skills with a high trust relationship is worth much – to you and to your client.
Tip 4: Do a sanity check – for yourself and your client.
As I price a project, I also do one last sanity check. I ask myself if I was the client, would the value of this project be worth the price I am proposing. If I can, I break the price down into a way that it can be evaluated. At times this is a per person cost (for coaching or skill development). At other times it is a percent of spend to the overall project costs (would I be willing to spend 4% of the budget on the services I’m proposing).
I do the same sanity check for myself, especially for large fixed priced projects. I’ll ask myself if I would still be happy with the compensation even if the project took longer and was harder than I had planned for. Is there any part of what I’ve proposed that feels like I am shortchanging myself to get to a price point?
Here is the bottom line – you have to start somewhere. My first rate just popped out of my mouth, but in reality I had been thinking about it for a bit, so start with your best educated guess. Then evaluate as you go.
Track your time and expenses. In my first years of consulting I tracked every minute and assigned it to a category. I knew exactly how much time went into each engagement and how that time was spent. Being that meticulous in the beginning allowed me to understand how much time I had to spend doing non-billable work in order to get billable work. I knew how long it took to write a proposal. I got smarter about estimating large projects because I had data.
You’ll also begin to get data as clients react to your rates. I’ve actually had clients say that I was under market. That is great feedback to hear!
A Final Tip on Pricing Your Services:
Remember that as your experience, skills and reputation increase – you can increase your fees to reflect that. And at a rate that is much more than the measly 1 to 3% your employer will offer. So if you are calculating your income potential for the long term, build in both ways to grow your professional expertise and also increased income due to that.
At LEAP, we are committed to helping professionals do what we’ve been able to, to build great income potential doing work that we love and in ways that enable us to enjoy life and work.
We offer a number of ways to help you on your journey to a career as a successful independent consultant. One resource is our Launch Series. In this six-week series, we teach you practical tips and tools we use in our own successful consulting businesses that will help you create a strong business plan that will grow with you.
