Six steps for consultants to establish their fee structure and rates
For consulting firms and consultants across the globe it is one of the chief operating decisions to be taken: establishing pricing structures and hourly rates. Consultants typically struggle with striking the right balance between value-added and remaining competitive – ask for too much and advisers may lose out to cheaper competitors, ask for too little and clients may take advantage of their services or see them as inferior. Sona Jepsen, Global Head of Consultant Relations at Fidelity National Information Services (FIS), provides her take on steps consultants should take in order to establish an optimal fee structure.
Discovering what other firms charge and how they structure their contracts can be difficult. Most of our assumptions are based on hearsay: “Firm X charges $600 an hour and sends in junior consultants” or “Consultant Y is absurdly expensive.” This second-hand knowledge is often outdated – if it was ever true in the first place – muddying the waters of compensation even further.
Not only that, but for many of us, asking people for money just feels wrong, even if our work merits every cent. America has been built on a culture where discussing money feels taboo – even bringing up compensation out loud is a violation of trust. These conversations are critical for consultants, however, and the sooner they’re over, the more quickly the awkwardness passes and the real work can begin.
I have learned a few things in my time as a consultant that don’t remove the anxiety of this process entirely, but they do help me put one foot in front of the other and ask for appropriate compensation without putting off prospective clients.
Establishing a consultancy
I have worked with consultants who use sites like Salary.com to estimate compensation, as well as others who believe that their title of “founder/CEO” means they can ask for whatever they want and have people lining up to pay. Unsurprisingly, neither approach works all that well. Despite all the data we now have available online regarding compensation and salaries, generic sites are an unreliable method of determining your rate. Consultants are driven not only by what the market is paying, but also by the wide variety of contributions they make to their companies and clients. Two similar consultants working for similar companies can command very different rates, depending on their projects and roles.
Flexibility is key for consultants establishing compensation, just like it is in any other aspect of the job. Sometimes, reducing a fee makes sense to get valuable experience or land a valuable client. In other cases, doing so would devalue your services and set you back in building a reputation. It’s all about finding the right balance.
Just like in a regular job interview, however, consultants shouldn’t lowball themselves from the beginning. The rate should cover necessary expenses first, then take time and experience into account – with some wiggle room to match what the client is willing to spend on the service. Balance fairness with attainability to find the sweet spot between the number of clients demanding your services and the price you’re willing to accept.
Clients are often willing to negotiate on things besides price, so learn to get creative if the client’s budget doesn’t match what your service commands. The more flexible you can be, the more clients you will have, but don’t sacrifice your reputation or pricing just to land one more client.
How to determine your consulting rate
Once you feel confident in the services you provide, it’s time to determine your actual asking price. Follow these six steps to determine what your professional time is worth:
1. Walk through the particulars of each job.
What is the client asking you to do? What daily work will this entail? What are the final deliverables? Who are the decision makers? Evaluate everything about what you’re being asked to do, determine whether the requests match your strengths, and seek assistance or training for any demands you may need help meeting.
2. Assess the current life stage of your business.
Are you just starting out and looking to establish your name and brand? Are you growing and hiring? Or are you preparing to sell? Each of these stages changes how you should price your services and position yourself, both within your firm and in the marketplace. Someone just starting out shouldn’t charge premium rates to find her first few clients, while someone experiencing rapid growth shouldn’t accept low-paying contracts and eat the opportunity cost of taking on bigger clients with that time.
3.Study the trends more carefully.
Do your research, even if scouring online resources on others’ rates is more of an art than a science. What are other consultants advertising? Can you discover what similar clients have paid for consulting work in the past? You might discover pricing tiers in your search, which do you feel you belong in?
4. Be flexible, within reason.
If a client is willing to keep you on for a long period of time, it might make sense to be more flexible on your rate in order to benefit from the length of the contract. Some companies could surprise you with creative compensation plans beyond pricing. Listen to what they have to offer, but don’t let perks or nonmonetary compensation take the place of actual payment.
5. Aim a little higher.
Most of my clients come back to me with a counterproposal after my initial offer, so don’t be afraid to put out a number you feel might be too high. If the client believes you are the right person for the job and recognizes the value your services provide, it’s fine to negotiate. The more jobs you take, the clearer the understanding you will have of how much to charge for each contract.
6. Be open to unconventional offers.
Early in my career, I had a client company offer introductions to its association members and let me come speak to them. In return, the company paid less than my asking rate, but the networking opportunity it offered led to seven additional contracts that year and made me significantly more than that single contract would have provided on its own.
Follow these steps to determine your fee, and remember to make adjustments from time to time as your business grows.
