Pricing your consulting services hourly is one of the worst ways to charge your clients.
You only have so many hours in a day. If you charge by the hour, the only way for you to earn more is to spend more hours working.
You can always raise your rates. But, at some point, there is a cap on how much you can charge by the hour.
Ultimately, clients don’t care about how long the engagement takes. If anything, they want it done as fast as possible. The faster you can do it, the faster they can get the result and outcome they desire.
Enter value pricing, where you charge your client based on the value you can create for them. When you switch from hourly billing to value pricing, you can charge exponentially higher fees.
However, many consultants find it difficult to discover the tangible value of their work. In many areas of work, there are many unknowns.
So the question is, when you don’t have all the answers, when you don’t know what you’ll find, or how long something will take, can you escape the hourly fees trap?
The answer is YES.
I recently spoke with Jonathan Stark, author of Hourly Billing is Nuts and host Ditching Hourly. We spoke about how to price consulting services where your service provides intangible value and when the outcome and ROI is unknown.
If you provide consulting in fields like…
- Research & Development
- Branding, etc
…then you’ll find here insights you can use to command higher fees for your next project that don’t revolve around the number of hours you work.
After finishing this article, you’ll know how to value-price your intangible consulting services.
Imagine that you’re a consultant and your firm provides research & development (R&D) services. You want to charge value-based fees, but you can’t guarantee an outcome for your services. The project could result in hundreds of millions of dollars in new revenue for your client — or flop. That’s the nature of the service.
Can you still value-price it? Yes.
First, your client must understand — and believe in — the value of R&D. You cannot convince them to find it valuable. If they need convincing they are likely not ready to make the investment without basing it on hours. You can only value-price clients who understand the value of what you can provide.
(Reminder: ensure that you’re talking with the actual decision-maker in the organization. They are most likely to understand the value and be willing to invest in the project.)
Second, your client must see you as the best choice.
You can create this perception through a combination of…
- Helpful and valuable content
- Track record
- Case studies
When your clients understand the value of what you can provide — and they think that you’re much better than the competition — you are able to charge a much higher fee — and receive it.
In a sense, you aren’t value-pricing the project — you are value-pricing your reputation.
You’re charging 2x-5x your competition because your client perceives your expertise as 2x-5x more valuable than your competition.
And even if you can’t guarantee an outcome (and nobody in your field can), they are happy to pay. They perceive your expertise as the best way to achieve their goals — and at minimum make real progress in the right direction.
How To Have a Meaningful, Value-Based Sales Conversation
Once the prior 2 conditions are met, you can have a meaningful, value-based sales conversation with your client.
During this conversation, you’re asking your client…
- Why they are doing this
- What it will allow them to achieve
- Why now
- What happens if they don’t do it
- Their end goal
This conversation will help you understand the value of the project. Combined with your reputation, you’ll be able to charge a premium for your service.
With any intangible service that has unknowns, get comfortable being honest. You can’t guarantee anything, and neither can anyone else. There are too many unknowns.
But you are an expert in your area — and you will help your client get to the outcome they want to the best of your ability. That is the guarantee that you can make.
Value-based fees begin far before the value-based conversation. It begins with the pre-sale: how your client perceives you before you have a conversation. But having this conversation demonstrates to the client that you’re focused on helping them achieve a specific result — a result that you’re known for and that you’re the best person for the project.
Action Step: Implement A Value-Based Pricing Strategy
For your next project, don’t charge based on the time you put into the project.
Have a meaningful conversation with your client about what’s important to them. Ask them about what this project means to them? Why is it so important? Ask them why they’re doing it now instead of a year from now. These questions will help you uncover the value of the project.
Then, propose a price that is based on the value you can help them create. And if your value is intangible or unknown, shoot for a price that is 2x-5x higher than your competitors.
If your client accepts, great. You’ll earn much more on this project than you would with hourly billing.
If your client declines, you know what you most focus on — being meaningfully different from your competitors. This means being more specialized and ensuring that you’re more often visible in the market you want to serve.
Retainer & Subscription Pricing Strategies For Freelancers and Consultants
An alternate approach is to use a retainer or subscription-based pricing model. This model works especially well for services where the value you create is intangible.
The client is paying you X amount — where X is much higher than the industry average.
They are comfortable paying this amount because:
a) They have the belief that what you provide can create value for their business, and…
b) You are meaningfully different from your competitors.
With these two elements in place, you don’t have to charge what everyone else is charging. You are bringing your unique value to their business. And since your client values your service, they understand the inherent risks — and that, as Jonathan says, “all profit derives from this risk”.
They’ll be more willing to invest more in you because of the value they believe only you can create for them. They perceive this value to be much higher than your competitors.
Learn How To Price Your Services & Command Higher Fees
Do you feel stuck pricing your consulting services? Are you concerned that you may be leaving money on the table with every project that you take on?
If so, we can help…
In our Clarity Coaching Program, we teach consultants how to position themselves as the trusted adviser in their industry — so you can price your services with confidence and earn exponentially higher fees for each project.
Click on the link below to schedule your FREE consulting growth session. This is a 1-on-1 call where we’ll explore your goals, current situation, and how we can best help: