A common question from all those in consulting, and one I ask myself regularly, as it becomes really easy to under-price in order to get the job.
From time to time in the past I have done jobs for various bodies that I believe in, pro bono. I always thought it was my way of making a contribution, and that the effort was understood and appreciated.
Not so. In most people’s minds, things are worth what they pay, so a free consulting is worth exactly nothing, particularly if the recommendations are challenging and uncomfortable to implement. It is then very easy to just walk away as there is no skin in the game.
So, how do you go about setting your price?
Determine your hourly rate. Generally you can get a handle on the amounts that are the ‘going rate’ in the market, not just for your service, but for the range of services a business may need. For example, book-keeping is around $60/hour, a virtual CFO will be around $160/hour and a partner in a large accounting firm $400 plus. If you are selling accounting services, at least that gives you a context. More qualitative services like marketing have a similar range from the kid who can run your Facebook account for you, (not the copywriting, that should cost way more than a base rate) to the virtual marketing manager with all the skills of implementation at $160, to the widely experienced guru who will be $400 plus. Most shudder when that number is quoted, but why would a highly qualified accountant who looks in the rear vision mirror most of the time be worth more than a highly qualified marketing and strategic thinker who is looking forward, to the things that will sustain the success of your business?
Estimate the hours of a project. This always involves breaking a project down into its component parts, and making a judgement about the time each will take. The complication is always ensuring that the goal posts do not move. Agreeing the exact scope of the work up front is essential, and always hard, but scope creep adds enormously to the risks you face, and is present in almost every project I have ever done.
Provide the quote. Pretty obviously a multiplication of the rate by the hours, in most cases, perhaps plus a bit for scope creep and complications you did not anticipate. These are some of the considerations that play into the quote process:
- A fixed price will always be appreciated by the client, as it removes risk, so long as there are also guarantees of performance in place. A fixed price also enables budgeting, which is usually very welcome.
- Will the job lead to ongoing work? Often a key question in providing a quote, particularly for small firm like mine where a lot of time is spent prospecting. A flow of work that generates reliable revenue is enormously valuable as a means to keep the beast fed.
- Who will be doing the work? Often the system is that the really important and highly compensated partner or rain maker sales person does the selling and negotiation, then hands the job over to the gophers, whose time gets charged at the high rate. Clients are not stupid, they understand this process, and have differing attitudes to it, usually depending on the confidence the gophers create in the first meeting. In my case, I do all the work, bits where some specialist advice is needed, I provide some referrals, and my clients make the choice. I do not clip the ticket for the referral, unless I am involved in the project management, and then the added cost is absolutely transparent.
Actively manage and communicate the project progress. Managing expectations is a key success necessity, and to do this communication is essential. Usually about the time you are tired of the communication is about the time that it is sinking in. Mutually agreed KPI’s are important, they act as milestones, but often the qualitative understanding of progress being made is as, or more important than, the pre agreed KPI’s.
Tracking your time is a key activity, you need to know how you are going compared to your expectations, and while this is not for the clients sake, it is vital for yours and the long term profitability of your business. There are many tools around to track time, pick one that suits you, even if it is a simple note in a diary.
Know who your ideal client is. Maybe not the name, but the characteristics they display, the market they are in, the problems they face to which you have a unique set of solutions and relevant experience. Having this piece of thinking done will enable polite removal of tyre kickers and those who are not really ideally suited to benefit from the experience and knowledge you have.
‘Embrace’ your pricing. This may be the hardest part of the equation for most. Charge what you are really worth, name the number with confidence. Usually for services that is hard, and is based on the outcomes, not the cost. An expensive consultant that gets results is far better value than a cheap one that does not. At some point, the question of what success means to your potential clients business comes into play, as does the ability to pay.
It is inevitable that you will not get every job, and that you will need to keep a straight face as potential clients over-act a response your prices. You will also have to believe in yourself to the point where you can look people in the eye as you deliver the price and they over-react, and you need to be a good negotiator. Most people respond positively to a high price delivered with clarity and certainty about the outcomes that will be delivered. The first person, who has to be convinced that you are worth the price, is you. The second one is easier.
Guarantee an outcome. This takes a level of confidence that is pretty rare to be able to build as there are simply so many variables at play. However, if you are sure that by employing your services you can guarantee an outcome, you can charge almost anything you like up to that outcome, and most will see it as money well spent. Few will walk away from swapping 10 cents for 20. There is a lot of services marketing that involves an implied outcome, justifying a high price, but the explicit guarantee of success is not something I see much.
Leave it to them. This is a risky strategy, but one I use a bit on short term projects such as a workshop, where the investment of time is understood, there is a clear problem to be addressed that is right in your ‘hitting zone’, but they do not really know you. Giving them a ‘list price’ with the undertaking that you will leave it to them to assess the value of the time to them, and tell you the invoice amount. It removes risk from them, and underscores your own confidence in your ability to deliver value.
Your best marketing tool. We all know that satisfied, even delighted clients are the best advertising you can have. Referral business is the best business, and the easiest to get, as happy clients refer you to their networks as someone who really delivers value. When that value is delivered at a high price, so much the better.
As a final thought. Increasingly in a complicated world, we value simplicity in all things, and the response to your prices will be enhanced by simplicity.
Cartoon credit: Scott Adams and his alter ego Dilbert.