Part 1 of a series
Are you diving into the world of consulting? Determining your hourly rate is tricky, especially for those new to the world of consulting.
Here is a list of questions to help you begin to establish a rate that meets your financial objectives while keeping your client’s budget in mind.
What is your specialization, and how rare is your skill set?
Two very important factors that influence how much you can charge for your services are your specialization and the scarcity of the services you provide. If you are one of a select few who have your skill set (and you can prove it via customer testimonials, certifications, and specialized training), you can charge more for your services. Keep this in mind as you develop your practice. Generalists are a dime a dozen. If you want to maximize your income potential, specialize in one area of digital marketing services, and do it better than anyone else.
What is the average hourly rate for your services in your local geographic area?
Base your rate on what your local market will bear. Don’t overprice or underprice the market, unless you have a very specific specialization or you are just starting your business and have a need to prove yourself to prospective clients.
What is the age of your business?
As stated earlier, young businesses might want to set their prices at the lower range of the local market. Older businesses, with testimonials from well-known brands, might consider charging above the mid-range of the local market.
What are your financial objectives?
If you’ve determined your annual financial objectives, you can do some simple math to determine your hourly rate. If your objective is to earn $100,000 per year and you plan on taking two weeks off for vacation, you can start by equating an hourly rate as:
$100,000 / 50 weeks per year = $2,000 per week
Assuming you work 40 hours per week, your hourly rate is $50 per hour.
Keep in mind some of the factors above to determine if this figure should be adjusted upward or downward. Remember to consider and account for billable hours per week – not all 40 will be billable, or you may need to work additional hours to manage administrative and business issues to achieve 40 billable hours in a week. Also, factor in your expenses. Many consultants, regardless of industry, double or even triple the base hourly rate to get a net figure to charge customers. If this rate does not equate with what the local market will bear, or with your experience level and your level of specialization, you may need to adjust accordingly.
As you determine your rate, it is important to remember not to devalue your business or yourself. Be prepared to justify your rate. Ways to justify include providing references, white papers, and examples of your success stories. Your clients should be your biggest advocates. Don’t be afraid to ask them for references when you are trying to acquire new business.
The only time you should consider reducing your rate is if you believe the prospective client is trying you out before committing to a much larger budget and will provide you with a steady income in the future. If clients push back with regard to your rates, offer them additional services at the same rate, rather than devaluing your service. Another option would be to offer a reduced rate only if the balance of the bill is paid in advance. Be flexible, yet steadfast.
Pricing is a lot like marketing itself. The best results usually come from a deep understanding of your market and testing different things in order to come up with the perfect mix. Good luck, and enjoy the ride.
How did you determine the rate for your consulting services? Share your experiences in the comments below.