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 consulting rates that keep you flush and your clients happy.
What are you worth? How do you calculate it? How do you balance market factors, business costs, and the value of your services and experience when setting rates?
How Much Should I Charge as a Consultant?
As an independent consultant, you must answer all of these questions in order to know how much to charge for consulting and offer competitively priced services that also speak to your value.
Whether you’re an aspiring consultant trying to find your way, or an established consultant who wants to take your business up a notch, this article will help you get a stronger grasp on how to maximize your earnings and satisfy your clients.
Let’s Talk About Pricing
In this video, Sabri Suby, founder of King Kong digital marketing agency and instructor for our Consulting Empire course, discusses the underused value-based pricing method for consultants.
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 a number to what you’re offering, but this invisibility factor can actually work in your favor.
Pricing is all about estimating your value as a consultant.
As a writer, I don’t set my prices because I believe my literal words are worth that much. 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 my rate, I didn’t simply consider the words I’d be writing (almost 12,000, if you’re wondering); I consider how this book 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 to my client (and their clients) than just a pleasant afternoon read.
Pricing is a big part of your how your audience perceives you.
Your prices are each client’s first glimpse of your experience and value as a consultant—especially if you don’t have a large portfolio.
Because pricing 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 market averages. 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.
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 (which can feel a lot like being a parent). Prices 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.
The services you offer aren’t the only factor determining your pricing.
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?
For example, when I calculated my rates as a freelance writer, I thought about my background in marketing and editorial training. I also considered my business portfolio and how that might help me better approach marketing and ecommerce topics. Lastly, I considered my established writing process, which included premium proofreading software, a contracted editor, SEO optimization, and more.
Pricing 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.
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. (And sometimes, it ain’t pretty.)
If you have absolutely no idea where to start when setting consulting rates, 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 rates.
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.
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. 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 market value of your specific services. Depending on your industry and type of consulting, this value will differ. When I was retooling my rates last year, I checked out articles like this one just to get an idea of the averages in my line of work.
Looking at market value 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 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.
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 an appropriate 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). Then, take that number and mark it up by 25% to 50%.
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%, which results in an hourly rate of about $40.
That 40% 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. 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 $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 Retainer Fees
Working “on retainer” means that you receive a monthly fee for working with a client for a set amount of hours. Retainer fees can be wonderful for your business as they’re income that you can rely on and plan for (a rare commodity in the freelancing world).
If you plan on providing ongoing services for a client and think 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.
Calculate your retainer fee in the same way you’d calculate your project rates, 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 rates, let’s talk about how to communicate these to your clients with confidence and clarity.
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. (I’m just being honest here.)
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, “What do you charge?” 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 OK. 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.
It’s Absolutely OK 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.
The truth is, rate negotiations are 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 your 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.
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Believe in Your Value and the Right Price Will Follow
It’s OK to dislike the process of establishing and communicating your 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 pricing your consulting services? Any questions on how to set the right price that we can help out with? Share in the comments below!