One question that’s always out there for consultants and others who work for themselves, or even own small businesses, is how much should they charge for services. Truthfully, even seasoned consultants struggle with this question.
Price point is a problem because all of us want to get work and close contracts, and we’re perpetually battling someone else who wants to undercut our rates.
Just last week one of our members interviewed a friend of his who’s an entrepreneur. His friend had started a windows company and was doing really well because they built quality windows. Then one of the largest window manufacturers in the area decided to get “tough” and not only drastically reduced their rates but offered to pay for free advertising for any of their former clients who’d left. Within months my friend had to close down his business because he couldn’t compete with that.
So it’s a valid worry, and yet it’s not always the case when there are others who offer the same services for less money. Check out this video where the presenter is talking about why he paid $310 for a haircut:
Thus, another way of looking at pricing based on knowledge, talent, experience and, best of all, word of mouth advertising. That’s hard to beat, and if you can make yourself the person or business that people want to work with, you can pretty much name your price.
Still, I acknowledge that might not be enough information for you to figure out what to charge based on what you do, so here’s some things you need to think about, some beyond thinking about what you do:
1. How much money do you need to live on?
This is the major question you have to answer and it’s not as cut and dry as it seems. If you only want to make what you were making when you were working for someone else you might as well go get another job.
In essence, you have to make enough to pay your bills, be able to put some aside for those periods when you’re waiting for your next contract, marketing expenses, equipment and supply expenses, etc.
2. How many clients/hours do you need to make the yearly amount you’ve calculated for yourself?
See, I told you it wasn’t easy. Say you want to make $50,000 a year, and you want to make $50 an hour at a minimum. This means you’d have to work at least 1,000 hours a year. If your projects usually take 2 hours to complete, it means you need at least 500 clients a year; if it takes 4 hours you need at least 250.
Could you get away with charging $100 an hour? That would bring you down to 500 hours for 2 hours, which is 250 clients, or 125 clients for 4 hours.
Can you reach that? Do you need clients who need recurring services, which makes it easier because you need fewer numbers, or can you actually get that many client, even if the number is just 125? What figure does your industry seem to need?
3. The client’s ability to pay should be the least of your concerns.
This is a hard one to overcome for most new consultants because they want to get established.
Truth be told, you can’t expect to get everyone as a client, so you might as well shoot for those you believe can pay you. Being so exorbitant that you can’t get any clients makes no sense, but settling for an amount that you really can’t live on or sustain over the long haul isn’t worth it either. There’s nothing wrong with discounting here and there for whatever reason but don’t go into negotiations expecting to drastically discount your services.
4. Can you determine your value?
What makes one consultant worth $30 an hour and another worth $500 an hour? Two things: what you bring to the client and your own feeling of self worth. Let’s look at these.
On the first, you have to ask yourself what your typical clients are going to walk away with after you’ve helped them with whatever their needs are. Are you going to help them make a lot of money? Are you fixing something they need to make their life or work easier, or it’s a necessary thing? Are you offering them something they might not think they need so it ends up being more about you than them?
On the second, how well can you evaluate your own worth? Do you see yourself at an expert or an authority? Do you have a track record, whether it was while you were employed or as an independent, for solid performance? Are there a lot of people who do what you do, and if so are they better than you?
These are stepping stones to define for yourself, set a rate and start working from there. Of course, you can always look online at others in your industry who do what you do to see if you can find what they’re charging and modify yourself towards that. Just remember that, if you’re independent, there’s so many more things you’re responsible for that many of those who are employed don’t have to worry about.