One of the most difficult things to tackle as a new consultant is the setting of consulting fees for your services. There are however, many methods you can use to determine what your earnings need to be. Here are a few options to consider when considering pricing:
Financial Need Based Estimates
This should be relatively easy if you have prepared a comprehensive business plan. You should already know what you need to cover direct and indirect expenses, as well as making a profit. It is then quite simple to divide that by the number of billable hours you anticipate working every month.
Try to add a “buffer” to this though – you may not reach your target billable hours for a while, but your expenses will certainly still be there, and you will need to honor your commitments to suppliers, landlords and other creditors.
A similar approach, usually applied by solo consultants. Basically, decide what you need to earn every month to survive, or base the salary on a comparable corporate employee salary. Then add 20 – 30% to account for employee benefits. Simple.
A better way to price than the first two options, although requiring more work, this approach is based on first researching what your competitors are charging, and then calculating, based on that research, the average fee among them.
It’s a good idea to obtain fee information from various competitors, both from the well known, established end of the scale, and new, up and coming concerns, and of course, the more input data you obtain, the closer your average will be to the median rate.
Once you have determined this average, it is entirely up to you whether you use that rate as your fee, or slightly lower, however the latter may be a good idea, particularly during the startup phase! It is a sad fact that although price should not reign over quality, it very often does!
This is the last method you could employ when deciding on the consulting fees you need to set. It is a method that can be used in conjunction with all of the other methods, and basically, requires you to look at your client base’s spending capacity, and then adjust fees according.
For example, in the middle of a large, metropolitan city, your clients will probably be larger companies, with bigger budgets, and you could charge more accordingly. If, however, you are based in suburbia, or in a rural or semi rural area, companies employing consultants may be smaller, with proportionate budgets, and your fees should be reduced accordingly.
All of these methods however, share the common thread that market research and analysis needs to have been done, in some form or another. This makes each of them an educated assumption, rather than a shot in the dark. While it may be time consuming to carry out this kind of research, it does improve your chances of setting realistic fees.
Therefore, do your homework, research your market, and set your consulting rates accurately.