Do you know your worth? One of the hardest parts of consulting is setting your prices. If you price too low, you undervalue yourself and may take on excessive work to compensate, risking burnout. On the flip side, if you price too high, potential clients may walk away.
As a financial educator and content creator, self-employed for a decade, you might expect me to have mastered the art of pricing my consulting services.
The reality? Not so much.
Pricing competitively while staying profitable is tricky. But with the right approach, you can find the perfect price tag for your expertise. Here, we’ll look at the challenges in pricing consulting services and compare strategies for setting competitive rates.
Why Pricing Is a Common Challenge
Pricing is tough for several reasons. For one, there are no clear benchmarks. A salary-range search, while helpful for corporate jobs, won’t turn up much for consultants. Also, you might feel pressured to lowball yourself, to dodge competition from both fellow freelancers and big firms. When I was considering starting my own content creation agency, I lacked the resources to offer the same services as my corporate competitors, putting me at a relative disadvantage. Finally, it is difficult to balance client expectations with business sustainability.
Enter scope creep.
Don’t blink, or the requirements and expectations of a given project can balloon. As a result, you’ll be forced to juggle increased demands while coordinating multiple clients, projects, and deadlines. Each client can feel like a separate boss (in a separate silo). But somehow you’re the one who ends up feeling like you’re in a pressure cooker.
4 Core Pricing Models for Consultants
Comparing the pros and cons of each foundational pricing model, by project type, project scope, and time to completion, can help you find the right fit.
1. Hourly Rates: Setting an hourly consulting fee is simple, straightforward, and flexible. However, it caps your income. This might be best for short projects, or work that can be done in short chunks on your schedule.
When I started out freelancing, I was open to hourly rates — especially for mom-and-pop shops with tighter budgets, or for shorter projects, like copywriting. To standardize my monthly income and court projects with different budgets, I gave myself a base rate of, say, $50 per hour. From there, I was open to charging, for example, a small nonprofit $40/hour, while charging corporate clients $60/hour. This strategy allowed me to educate myself on the market rate for my services and price them accordingly.
2. Project-Based Fees: These flat fees, based on the scope and type of work, provide clarity for you and the client. Plus, with a well-defined scope, you can scale up the work. Otherwise, you run the risk of scope creep — and taking on more than you can (sanely) handle.
To steer clear of scope creep, outline the duties, tasks, and objectives from the get-go. The more specific, the better. For example, the client may start out with one idea, and then get excited and shift direction. As a consultant you always have the option to re-establish the scope and expectations and negotiate for proper pay.
3. Retainers: Retainers, typically paid in advance, require a certain amount of work in return for a set fee, equaling predictable, steady income and strong client relationships. However, they call for a lot of trust on both sides. The client will expect a deep level of investment and ongoing value, involving, say, a set number of weekly deliverables or the achievement of certain metrics.
4. Value-Based Pricing: This high-potential pricing model is based on outcomes delivered or perceived value to the client. You get to carve out a proposal and price your work based on what matters most to the client — and what sets you apart from the crowd.
That said, value-based pricing can be harder to pitch, and to calculate. This route might call for increased discussion. What are their priorities? How can progress and success be measured? Make sure both you and the client are meeting expectations.
Avoiding Common Pricing Pitfalls
Here are quick fixes to pricing challenges:
Scope creep. As mentioned, a project’s expectations, goals, or workload may exceed the agreed-upon scope. Clearly-worded contracts can help you avoid this additional toil and pressure. You can also point out scope creep to the client and discuss options. For example, you can say, “to stay within the agreed-upon scope, I can remove x or y, or we can keep things as is, and my rate will go up z.”
Underpricing due to fear of losing work. When competition is fierce or you are facing a dry spell, you may be tempted to lower your rates. While, at times, this may feel necessary, set some rules for yourself. For instance, maybe you charge less for shorter projects on an hourly rate, but keep your usual pricing for retainer projects.
Not factoring in expenses. It’s important to factor in taxes or insurance (e.g., health, professional liability or a business owner’s policy) to your rate. Don’t overlook the cost of doing business and charge the hourly wage you earned at your last job. Clients who regularly work with consultants and freelancers are fully aware of these additional costs, especially since you are sparing them the expense of employee benefits. So be sure to price accordingly.
Choosing the Right Model for You
When deciding on a pricing strategy, it’s a good idea to consider the project type, client budget, and your experience level. For example, if you’re a consultant in the first year of running your small business, start off with an hourly rate, then shift to a project-based fee as your confidence grows. Or, let’s say the client is an independent author who needs help with the book design and layout. If they don’t have a huge budget, you offer a set, project-based fee.
Remember: It’s ever-evolving. You can explore different models as you go. The beauty of working for yourself is you always get to decide, and learn and grow along the way.
Your Rates Reflect Your Expertise
Competitive pricing is all about demonstrating value. As a consultant, lowballing yourself will only cost you — and ultimately hurt your business. Whether you’re an army of one or a small battalion, understand and communicate what sets you apart from the competition while staying sustainable.
A challenge, if you are up for it: Review your rates this week. Then tweak them to reflect your expertise and market conditions.