Daily Rates for Consultants And What You Need To Know

I spoke with a consultant the other day, we’ll call him Terry. He had a question for me, “what should my daily consulting rate be? I’m a manufacturing consultant.”

My answer, “I can’t tell you.”

Terry: “Why not?!”

Me: “Because I don’t know.”

Terry: “What? Really? Why don’t you know? Isn’t there a standard rate?”

Me: Well Terry, there is a standard rate. A standard rate for people that don’t know what they are doing. And a standard consulting fee for those that do know what they are doing. Which one are you? Tell me more about you and your business and then we can get into more details…”

When the problem you are solving is causing a lot of problems for the client, and if your solution is valuable you can and should be setting your rate using value-based fees.

Terry went on to tell me how he’d been in the manufacturing industry for 20 years. He had worked with some of the top companies. And now, he was going out on his own and wanted to know what to charge.

From what Terry told me it was clear he could definitely help the companies he was going after.

So there wasn’t a question of whether a need existed…

…Whether he was solving a problem that existed…

There definitely was.

But I still couldn’t tell Terry what he wanted to know.

Actually, I should clarify. I could offer him a range of what consultants charge and go on with my day, but I didn’t feel comfortable doing that.

Here’s why…

You see, if I did. Terry would potentially be leaving a lot of money on the table.

I could say, “Terry, you can probably charge $250 an hour without much trouble.”

Instead, I asked Terry to tell me more about his prospective clients. How big of a problem was he helping to solve?

Was it a $1000 problem, a $100,000 problem or a million dollar problem?

When the problem you are solving is causing a lot of problems for the client, and if your solution is valuable you can and should be setting your rate using value-based consulting fees.

With this approach, Terry could go from making $3000 on a project to $25,000 or more.

Give thought to what problem you are solving for your clients and how much your solution is worth to them.

When you’re talking in dollars and cents, this definitely makes sense : )

If you’re looking for more detailed information on understanding, setting and increasing your consulting fees, check out our Consulting Fees and Pricing Guide. It’s guaranteed to help you earn more as a consultant.

  • Quick addition Michael – you also need to be able to deliver different or better results than your competitors.

    Value based pricing only works if your client can’t walk down the street and find someone offering to deliver the same value for a lot less.

    Ian

    • Good point Ian.

      As a consultant, as long as you convey the value that you’ll bring to the project in a way that clearly demonstrates you have the ‘right’ solution to your clients problem…you’ll find that rarely does the client go price shopping. Especially if you’ve taken steps to establish your authority and build trust along the way.

  • James

    Great post and very helpful I find.

  • BRAVO….my fees have followed those principles for over 10years; probably because my largest client was DeBeers–who best understands the market in terms of supply & demand ; )

  • Rumaizon

    I think the biggest challenge in charging for our work is when we need to create that perception of value around the service we are offering. Most of the time clients doesn’t even know that the problem exist. So there is no need to fix something that is not broken! Justifying your fees is harder then.

    • Rumaizon – you may be talking to the wrong people. Typically you’ll be brought in to help solve a problem the company is already aware of – they may not know the source of the issue – but they know something is wrong. I’d suggest spending your time working with clients that know there is an issue rather than spending time trying to convince a prospect they have an issue.

  • NigelJames

    The reality about fees is embedded in part of the original response – ‘it depends’
    It depends on a whole range of factors, some of which you can influence, some you can’t.
    I have been a consultant for a long time, working in many countries and have dealt with large multinationals and small businesses. It is very rare for me to be without work. In a perfect world I would always go for the approach of helping the client to understand the nature of their problem, the size of the prize (whatever it is it will invariably come down to $) and importantly the robustness of what you as a consultant can deliver. Even with this there are still many organisations, big and small who have a fixed idea of how much they will pay consultants as a daily fee basis and experience tells me that it is almost impossible to change their perspective.
    It is worth noting that manufacturing is one of the more difficult areas since there is typically a cost control drive – and consulting is initially seen as a cost rather than an investment.
    One of the things that seems to work is the point ianbrodie makes – differentiation. What can you do that nobody else can do as well – hang that onto change management and all of the associated challenges and you have the core of something that will typically work at least with larger clients

    • Nigel – thanks for sharing and the thoughtful response. This is definitely the case with larger organizations – regarding having a set fee they pay consultants for a daily rate.

      What everyone should keep in mind is that if you can move away from a ‘set’ daily rate you will be able to put the focus on the value you can deliver to the whole project…and most companies don’t have a menu of what they’ll pay for every kind of project under the sun.

      This ties into the point that Nigel and Ian are making…don’t get lumped in as a commodity that has a set price. Focus on value.

  • Bharat Mimani

    There are 3 different things – Cost, Price and Value. Cost is what you incur, price is what you charge and Value is what you deliver.
    Unfortunately, most of the clients (and people) that I meet believe they are the master of all trades and Jack of none. Most of them have diluted their core area of expertise, hence they miss out on creating value further. Instead, they now concentrate all their efforts in judging the costs of every other entity, in their endless & relentless quest to lower price.
    It ultimately takes two like-minded individuals to focus on the mission – creating value for their respective clients. The extreme stress due to cost-reduction and price-wars results in a downward spiral of value.
    The silver lining in this dark cloud is that those who accept this fact are the ones who survive & thrive in the long run. If value is delivered, each client in the value-chain would happily incur the price. If there is no value, then no amount of ultra-cheap prices can help for long.
    The going is indeed tough initially, but once you get going, whoa!!!!