How To Figure Out the Right Value and Price for Consulting Services
Launching your own consulting or coaching venture is a profitable deal but, at the same time, many consultants face the problem of finding the right pricing. The deal here is that by reviewing and establishing the right value-based price, it is possible to start making much more money. As a result, you are finally done with being an undercharged specialist. Charging less for consulting services especially implies to new consultants who just started out. Mainly they keep their charging fees lower for the purpose of overcoming entry barriers and building a solid base of clientele.
No doubt, the competition in the consulting business is huge. Young entrepreneurs have to pave their way competing not only with mature sole business sharks but with large global professional firms like Marsh & McLennan Companies, Inc. or some other consulting services. But competing this is not supposed to interfere with your own approach to building a profitable pricing structure.
Are you looking for some hints and tips for a better understanding of how to start evaluating your expertise correctly? Or you want to get some tips on how to approach others to convince them that your value is worth the money you’re asking for. Read this blog post and make notes. We hope that the information provided will be helpful and you’ll learn enough to get a better picture of how to set up your rates in such a way, so they’ll satisfy your prospective clients.
How to approach pricing for consulting services
No secret, most people draw conclusions and judge the level of your expertise by viewing a price list for services you offer to them. The problem here is in obtaining the correct perception that would estimate a value for your business in the right way. The first thing to do is to decide how exactly you want to be paid for consultations and expertise you provide — whether with hourly rates or be paid once for the entire project or scope of work you agreed to manage. This is especially important if you’re still developing a portfolio that would represent your expertise to the fullest extent showing the services you provide.
Second, trying to pitch yourself at the lower end to get a kick off with a consulting deal is a mistake. Keeping your pricing low won’t necessarily provide you with many offers or gain you a solid reputation. Of course, it doesn’t mean jacking up rates will make you look knowledgeable and experienced. Just try to align your rates according to your real expertise without keeping them too high or selling yourself short. Balancing between expectations of clients that they have about prices and setting up a decent price tag for the time you spend on projects is important.
What other factors are out there that impact pricing? Let’s cover some biggest ones and talk about ways you can consider to overcome these factors.
How to figure out the value-based pricing for a consulting business
What does the term “value-based pricing” mean anyway?
Basically, this is a strategy that helps to set up a correct value for your consulting services and aligns it in accordance with the value of the results you provide.
Let’s go over some important things that you need to think about while talking about how value-based pricing works in real life. There are some steps to take for determining value-based pricing correctly:
- Set up a conversation with a client asking them a good number of consulting questions;
- During this discussion a client should determine how much profit they expect to earn for their company after everything is resolved;
- Try to come up with a conservative number that satisfies you both and that can be calculated taking into account current sales, turnover rates, production numbers, etc.
- Do not provide your client with this number but make sure they are the one who makes an estimate instead;
- After they establish a number, evaluate and decide how your fee communicates with the ROI of the buyer.
As you can see from these steps, this process is quite challenging and will require not only doing some math but also being skilled in the communication and negotiation process. Finally, your commission is determined by the value you deliver and not by the amount of time you spent on the project after all. No doubt, having a good idea about the amount of time you’ll be spending on the project is a smart move too. That way you’ll make sure and decide whether this project is worthy to mess with at all.
How to calculate an average rate you will be charging by the hour
Although professional consultants do not recommend charging by the hour only, determination of an hourly rate will let you do precalculation of retainer rates. You’ll have a good baseline to start working from. There are simple calculations for determining an hourly rate, so do some math:
- Start with an estimation on the salary you’d like to see coming to your bank account;
- Take a number you came up with and divide it by a number of weeks you spend working (52);
- Now, go ahead, and divide a previous result again by a number of hours per week (40);
- Take a final number and mark it up by 25% or 50%.
To determine your own markup which will be able to fully cover the cost of your services, evaluate your tax status (which can differ depending on the type of business) and now think what expenses you’re going to be covering (such as benefits, taxes, etc.).
How to figure out retainer fees
What does it mean — working “on retainer”?
This is an ongoing process when you work with a client consistently and get paid in accordance with a set amount of hours receiving payments each month. Being paid with retainer fees can actually provide a stable income you can rely on more or less.
Once you decide that making money with retainer fees is a good fit, begin restructuring rates a couple of months in advance. Make sure to start doing this right after you get a full picture of the entire scope of work for the project you are going to be managing in the next couple of weeks or months. Since everybody eventually runs into clients who have no clue what they really want or need, don’t dwell on it. Try to avoid situations where you will be locked into a set of rates that won’t be able to cover the entire scope of the project and the amount of work you will be doing for this project.
To figure out how to set up your retainer fee, use the same approach as with calculation of project rates you charge by the hour plus add a percentage which will be covering expenses in case any unexpected issues arise.
How to communicate consulting rates without too much hassle
Figuring out all the rate fees and numbers is a halfway to successful consulting business. What else is there? There are quite a few things you need to take into account while negotiating rates with your client. Read carefully because this information will help to avoid awkward moments or situations when it can get even ugly in communication between you and a buyer.
No such thing as the same approach for every client. Since every client is different, make sure that you always leave some room for negotiation (just in case). You need to be fully aware that there always will be some things happening that you didn’t expect, so be alert but continent and patient at the same time. If somebody shuts you down right away – don’t stress over it because stuff like that happens.
Get a clear picture of what you’re going to be paid for before talking numbers. The trick here is to make the client go into details about their project first before discussing your rates. Whenever you get a question from a client – “How much do you charge?” Reply to this question with a following — “Let’s go into details first and get a good idea of what the scope of work I will be dealing with.”
No matter what — keep your cool and stay confident. Remember that you’re often going to be judged by the way you handle negotiations and by the way you represent yourself. So, projecting an image of a confidant professional who knows how to stand his ground can go a long way and build a positive reputation about you. The trick here is not to establish your rates presenting them as a question but to be convincing.
Don’t hold yourself back if you need to say “No”. The reasons for saying “no” to clients can be different. The two major ones are you don’t agree with the price they offer or think that a client won’t be a good fit for you for one reason or another. To reduce or relent rates to keep a client happy is rather a wrong strategy (although there are always exceptions), but you need to stay firm to get ahead and gain respect.
Flexibility in negotiations is a key to success. Not every client will be accepting your rates right away, so be prepared to do some talking and negotiate. Once you decide you want to keep this client and do business with him in the future, show some flexibility while negotiating. Here are some things that commonly occur and which are worth to oversee to keep a process of negotiation more effective:
- If a client makes a direct counter with another rate, compromise on this rate by keeping it slightly above your minimum. Draw conclusions depending on negotiation results.
- If a client believes that you charge too much and lets you know about it, ask him details regarding a budget and go further from there.
- If a client provides you with a quote that states rates he paid to other consultants for the same service, provide reasons why he should reevaluate those rates and what sets you apart from other consultants.
In consulting, such things as reputation and confidence come with time and practice. Even if you feel absolutely remote whenever it comes down to a process of negotiation rates and fees, don’t give up just because of this and believe in the value of your expertise. If you don’t really believe in your value yourself, it’s hard to expect that prospective clients will do it for you. So, building confidence is the key to success and, on the other hand, something that can’t be built overnight.
Another final advice is — don’t treat your rates like they’re set in stone and review them at least once a year. Look at them as they are dynamic and something that you can adjust depending on current circumstances.
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