Keys for getting clear about consulting fees

Setting your consulting fees can be a huge stumbling block. If all this is new to you, you may feel your head spin when you start looking at coming up with a fee. If you’re also dealing with a career change, a career break, cultural or gender factors, things get more complicated. Fortunately, you can use clear models and recommendations to help navigate this new path.

Career and business culture influences how you approach fees
If you’ve never had to "sell" your services before, you may be a bit wary of naming a price. Perhaps you came from a field where the thought of a fee or price never crossed your mind — a non-profit, educational, human services, government or other background. Or maybe you were in a role where you simply earned a salary and you never had to think about how your earnings related to those of the business. You might even have come from a cultural background that shies away from talking about money under any conditions. If any of those situations rings true for you, it can help to study consulting fee models so that you understand the rationale for setting your rate. Otherwise, you may feel less confident, which may lead you to discount your rates, backpedal or even come across as a bit nervous.
 
Gender affects the mix
A 2006 Harvard Business School study, When Gender Changes the Negotiation, found that women perform on par with men when negotiating salaries in low ambiguity industries. Low ambiguity industries are those where salary expectations are more clear to applicants. Although consulting is included as a low ambiguity industry, there’s a big difference between applying for a job and attempting to win a consulting contract. Independent consulting and freelancing – where you’re on your own — may seem far more mysterious and ambiguous.
 
For many people, the thought of negotiating consulting fees sounds mysterious, overwhelming and indeed ambiguous. At Consultant Journal, I get a lot of email from readers who’ve stumbled on to my site late at night, while tearing their hair out over a need to get a proposal out the next morning. If you’ve never had to negotiate a fee for your services before, it can be intimidating. If you’ve made a career change, taken a career break, just started in entrepreneurship or never gone to bat for yourself before, you may feel like you’re facing several obstacles. But with a good roadmap, you can get yourself around, over and through those obstacles and come out on the other side.
 
Get confident by studying consulting fee models
Take the time to explore typical models for consulting fees. When you realize the value of each hour of your time, it can help you feel more confident about asking for a decent hourly rate or project fee. While you’ll eventually want to move on to solution-based fees that really get into the value you provide, most people start out with hourly rates – and many are happy to stick with those. But you’ll find there’s a range of models for determining fees:
  1. Doubling/tripling your hourly wage – if you’d make $25 an hour in a day job, charge $50 to $75 as a consultant. Likewise, if you’d make $60 an hour, charge $120 to $180.
  2. Using a daily rate for consulting – multiple an hourly rate by the hours in a day
  3. Setting consultant fees by the project – work out a fixed fee for each project so that your client need not worry about how much a phone call is going to cost or what the end amount will be
  4. Setting consulting fees based on performance and value added – if you do this strategically, you can make a good profit, but with no control over how your client implements or manipulates your recommendations, you may not see the results you want.
  5. Setting consultant fees strategically using real-life data – a combination of working days, hours, profit margins, overhead, bad debt,
  6. Charging what everyone else charges – this is a popular tactic, but does nothing to address the unique solutions you offer
  7. Moving to Solution-based Fees – this is more complicated and means you need a solid business and marketing plan behind you, but it’s the model that will leave you with the most profit.
Take the time to really evaluate and understand common ways of calculating consulting fees. Get into the models and take an in-depth look at each one. By taking the time to understand what goes into fee negotiations, you’ll feel more confident about presenting your fees to clients. You’ll also be in a better position to handle requests to defend your quotes or cut your rates.
 
Build a solid marketing and business plan
If you develop your business and marketing plan so that it’s in line with your unique qualities, values and target market, you’ll build expert appeal. Confidence comes from developing marketing programs and tools that help position you (and your business) as an expert who can solve real problems for clients.
 
Negotiate for all your stakeholders
The Harvard Business School study on gender and negotiation found that women do better at negotiating for others than they do for themselves. HBS recommends women think of themselves as negotiating for their departments, company or customers. As a prospective consultant, you can learn from that. Think of yourself as the owner of a business and negotiate for your business and all that represents. Whether you’re “just” starting out as a freelancer or running a multimillion dollar consulting firm, you still have stakeholders. They include:
  • You
  • Your family (kids, aging parents, close friends you help out)
  • Your vendors and service providers
  • Other businesses you support through your own business
  • People in your network to whom you refer business
  • People you could or do now hire as freelancers or contractors
  • People you could or do now hire as employees
  • Those you mentor
  • Charities you support with your time and money – if you’re starving, you’ll have less time to help out
  • All the people in your industry, profession or community striving to earn respect and a living
Look at the fit between you and the client
Whether you’re consulting, freelancing, contracting, gigging or just taking on side jobs, you’re working to solve problems faced by your clients. If you really want to solve problems for clients, you need to consider the fit between your business and the client. To deliver value for your clients and be in a position to solve their problems, you need to feel like you’re in a good relationship. If you instead feel undervalued – or that you’ve sold yourself short – you’re going to be in a bad relationship. Standing up for the value you deliver to clients means aiming for a good relationship with your clients. It also means you’re seeking sustainable relationships that will allow you to keep on delivering that value (while also paying your rent and groceries or, on the other end of things, growing your business to a size where you can help other people pay rent and buy groceries).
 
Focus on the value you create
If you enter every business negotiation with the idea that you’re selling yourself to the client, take some time to create a little distance from your business. Focus instead on how your business will create value for the client. If you keep the focus there, your fees should matter less. Moreover, you might want to take some steps to distance your business from “you”. When you start making decisions about your business, you may find that you feel a little more free to ask for fees that better reflect the value you deliver to clients.
 
Get support
Reach out to others who’ve been down this path before. Colleagues, mentors, instructors and coaches can help you feel more confident about your fees. Take a course, join a professional association and go to networking events. If you feel more connected to your community, you’ll feel more valued and more connected to the value generated by the work you do. And, like the Beatles song, you’ll get by with a little help from your friends.
 
If you’d like more information on setting consulting fees, check out our article on setting consulting fees or take a look at our Consulting Fees Guide.

Related to consulting fees:

Consulting Fees: A Guide for Independent Consultants

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