Strategies for Setting Consulting Fees & Pricing Your Expertise

Strategies for pricing consulting services

In general, there are 4 pricing methods consultants can use to determine their fees: hourly, project-based, performance-based, and monthly retainers.

Let's take a closer look at each consulting rate strategy to help you determine which one is best for your business:

Hourly pricing model

Your consulting business can charge an hourly rate to manage your fee structure easily. With this model, you'll record the number of hours worked and invoice based on your hourly rate. The hourly pricing model allows you to bill only for hours worked.

Unfortunately, determining your consultant hourly rate is easier said than done. In most cases, it helps to consider your most recent hourly wage from a recent job with a markup to pay for overhead expenses like your consulting website, variable costs like travel expenses, freelancer fees, technology, and self-employment taxes.

You should also consider how many hours you want to work. Many become consultants to reduce the hours they spend working each week. You can determine how much to charge as a consultant by calculating your desired annual income and the number of hours you plan to work in a year. Then, you can calculate your hourly rate by dividing your desired annual income by the number of billable hours in a year.

For instance, let's say you want to earn $100,000 working only 30 hours per week. There are 52 weeks in a year, meaning you'll work a total of 1,560 hours annually. You'll divide the desired income by the total hours worked to determine your hourly rate.

$100,000/1,560 = $64.01.

In this example, your hourly rate is approximately $64 per hour.

Project-based pricing model

Consultants may also use a project-based pricing model in which they determine an overall budget for a particular project. Instead of charging per hour, the consulting fees are fixed for the entire project. This strategy requires you to have a clear idea of the overall scope of the project, calculate the costs involved, and determine your pricing structure.

One of the major concerns of this per-project rate model is that many first-time consultants tend to price themselves too low and end up working many more hours than anticipated because of scope creep or simply not understanding the effort required for the project.

Using this model, the more you work, the less you make per hour, and working too long can actually cause you to lose money and other valuable clients because of the fixed consulting fee structure.

Performance-based pricing model

A performance-based pricing model is another option for consultants who can measure the impact of their services. In these models, the client pays based on the performance of a campaign or specific project, incentivizing the consultant to work harder.

An example of this is a performance-based consultant fee structure in which individual charges are based on the number of brand mentions or articles placed in a publication.

The benefit of this model is that it makes consultants deliver tangible and measurable results because their compensation is directly tied to their performance. However, the major drawback is that it can be challenging to define metrics that reflect the effort involved in a particular project, task, or job.

When using this model, consultants accept a higher level of risk because of the potential for not reaching the assigned benchmarks.

Monthly retainer pricing model

A monthly retainer is a fixed monthly fee typically used when a business works with a consultant on an ongoing basis. Legal services, accounting services, marketing agencies, and personal assistants may all use this pricing model. Under this approach, the consultant and business agree on a set number of billable hours per month, with the consultant paid regularly.

The terms of retainers vary. For instance, some consultants may allow non-used billable hours to roll over while others don't.

The main benefit of this pricing model is that consultants have a predictable income and client commitment for at least one month. However, they may face scope creep if they're not careful because clients may expect more for their money.

What influences consulting fees?

Many factors affect consulting rates. You can set your pricing based on experience, industry averages, competition, demand, and overall project scope. However, rates vary from person to person, and what consultants are willing to convince companies they're worth.

A few factors you can use to determine your consulting fees include:

Experience

Consultants with more experience within a particular niche or industry command higher fees because of their expertise and track record. Clients are willing to pay more for industry professionals who can deliver results based on prior experience.

Industry averages

Every industry has a set of salary averages, and consulting in a particular industry means potentially earning more or less than another professional. Consultants should use industry averages as benchmarks and adjust their fees based on other factors, such as experience and expertise.

According to Consultancy.org, average consulting fees for independent consultants range from $50,000 to $400,000+ per year, with no ceiling for hourly rates.

Demand

How in demand your services are can also affect your fees. For instance, if your services are in high demand, you may be able to charge more if there's a limited supply of consultants with your specific expertise. Those with in-demand skills can command higher fees because there are fewer of them, and they're considered more valuable to their clients.

Competition

Competition also plays a role in how much you should charge. For instance, even though you might have in-demand skills, you can still have a lot of competition. More competition means lowering prices to convince prospective clients to choose your services over someone else's.

Project scope

Project scope can also help you determine consulting fees. In general, the larger the scope or more complicated the project, the higher your fees will be because it requires more work. However, the level of expertise and specialized skills required to complete the job will also influence a consultant's fee structure.

Tips for pricing your consulting business

Determining pricing for a consulting business isn't as straightforward as you'd think. While you can choose any rate you want, you should consider what prospective clients will actually be willing to pay.

Here are a few tips to help you determine the best pricing for your business:

• Know your worth. Industry averages can't tell you your worth as a consultant. Instead, you should understand what value you bring to clients by assessing your expertise, experience, and past performance. Knowing your worth will make you more confident when pricing your services, preventing you from undercutting yourself during negotiations.
• Don't undersell your services. It may be tempting to undersell your services to improve your portfolio. However, you shouldn't lower your consulting fees just to win business because your competitors may not have your expertise. Under-pricing can also diminish the perceived value and quality of your work while hindering profitability. In addition, pricing your services correctly now can help you avoid any awkwardness of sending a price increase letter when you decide to raise your rates.
• Take into account business expenses. Always consider the fees and costs associated with running a business and add those to your consulting fees. To ensure overall profitability, you should calculate overhead, marketing, equipment, insurance, and tax costs.
• Learn how to negotiate. Often, you'll need to negotiate with prospective clients to win their business. Having good negotiation skills can help you negotiate your fees more confidently without underselling yourself. While you should be open to negotiations, you should be careful of lowering your fees too much. Instead, you may be able to arrange other terms, like the project scope, to make clients more comfortable hiring you.

Find success with the right pricing structure

Finding the right consulting fee structure can help you win clients by influencing their perception of your business while increasing profitability. Your pricing strategy should align with client needs and budget while ensuring you earn enough to succeed as a business consultant.

When considering your pricing structure, remember the value you bring to clients. Showcase past consulting projects and sell services online with Mailchimp to demonstrate your expertise and attract more clients. With our tools, you can create a professional website or portfolio for your business that attracts and converts clients. Try Mailchimp today.