How to price your consulting services
I remember planning to leave my day job back in 2008. My soon to be wife and I had decided that I was going to step away from my full-time job and pursue my consulting work that had begun to take more and more of my nights and weekends.
I had read the 4 Hour Workweek by Tim Ferriss, thinking that if I wasn’t as good as Tim and only worked 20 hours I’d still be rolling in the cash.
I thought that if I charged $60/hr, that’s about $120k annually. I figured that would be enough to get the student loans paid off and have a nice comfortable life somewhere on the beach. I mean even at 20 hours/week I’d replace my income and be golfing a lot more.
Well, I was just a bit off. I was working far more hours for far less money. Revenue felt so sporadic, and jobs never felt complete. I quickly felt like I was chasing my tail and couldn’t get caught up.
What I know now is that only taking your income divided by an hourly rate won’t work out. There are many other factors in play, such as:
- Office Lease
- Growth Plans
And not to mention having to take time to market, sell, and manage the projects. You can’t be billable 100% of your time.
What I found out over the next few years is that to add someone to the team and grow my business I couldn’t charge $60/hr anymore. So I had to let clients go and pursue new ones at a higher rate, which was scary.
I just spent the last X months getting the client to trust me; now I have to start all over again!?!?
I failed to create a vision or plan of where I wanted my company to be. I just took work as it came in, did the best I could to get them back out the door and keep the client happy. It was a vicious cycle that never ended.
Ok, so enough backstory on that one. We’re here to talk about how to price your consulting services. The reason I went on that little rant is that you can’t just throw a number at the wall and hope you are going to hit the goals that you haven’t come up with yet.
To dial in on your pricing model, consider the following:
What is your three-year goal?
Use metrics like:
- Do you see yourself having a team or is it just yourself?
- Do you want to grow more of a traditional agency or a lifestyle business?
By painting what the future looks like you’ll know if you are on-track or off-track. Otherwise you’ll stumble towards something, and hopefully, it works out for you.
Can I work on an hourly basis or is it per project?
I’d encourage you to find a way to set your pricing on a per project basis. It may seem a lot less risk just to say I’ll charge you $100/hr, but I’d argue it has more downside than upside. If you can accomplish a task in an hour today and in two weeks you can get it down to 30 minutes you’re essentially cutting your revenue in half. Did the value of that solution drop in half? No, I doubt it did, so why should you charge less for it?
Also if you bill on a per-project basis, it forces you to think through all of the elements of the project in more detail. More detail on the front end leads to happier clients and projects that are on time, and on budget.
What is your competitor pricing?
Locking yourself to your competitor’s pricing is a dangerous move. You need to be aware of what someone will pay for your product, but you might be leaving money on the table.
For example, your research shows that copywriters in your area are charging $200 per article, what would prevent you from charging $300? I’m a firm believer in the results not the cost of the solution.
To be able to charge a premium you need do differentiate your service. What if you were able to offer a guarantee of “100% satisfaction or your money back”? Or what about promising a 48-hour completion of any single article?
There is risk involved, but if you can put a process in place to help you manage expectations, you can start to separate yourself from your competitors.
What are your startup costs?
Do you need to incorporate before you start selling your services? Perhaps it would be ok to operate as a sole proprietor until you have enough revenue to engage a lawyer.
Or you might be looking at an industry that does a lot of business with the government which would require you to carry a certain level of insurance and to be bonded.
The great thing about a consulting or service business is that it doesn’t take a lot of resources to get it going. Typically a laptop, simple website, some business cards, and maybe some project management software and you’re up and running. Not sure what you should be considering? Checkout my list of startup resources.
Getting your pricing correct early on is a great asset that allows you to gain momentum with your business. If you haven’t yet started your business and trying to figure out how to replace your salary, check out my new Salary Replacement Calculator.
Originally published at joshchristy.com on March 6, 2017.