Your consulting business will fizzle out if you don't develop a pricing strategy that meets your needs, while remaining competitive in the marketplace. You cannot ignore your competitor's pricing strategy, because prospective clients are comparing yours to theirs. There are three main ways to price your services: hourly rate, daily rate or per project.
Some professions do better charging an hourly rate than others. For example, a lawyer with a consulting business will have more success convincing a client to charge an hourly rate than a web designer would. The typical method for getting paid an hourly rate is to sign a retainer agreement with a client. In the agreement, the client agrees to pay you a specified rate per hour, in exchange for services outlined in the agreement. The terms in a retainer agreement include:
- Length of the agreement
- When and how you and the client can part ways
- Ownership of copyrights for the work that you create
The danger of retainer agreements is that you can fall in the trap of the Internal Revenue Service (IRS) classifying you as an employee. It's important to keep an eye on your minimum daily and weekly hours of work too in these agreements, so that you don't cross the line, and look more like an employee.
Hourly rates can be scary to clients, because they think that it's limitless. The concern is that you'll show up with a big bill when the deadline for a milestone or project completion hits. An alternative to an hourly rate is a daily rate. The client can hire you as a day laborer per se, once or for a number of days on a recurring basis. One way to decide what to charge is to find out what your daily income needs are. For example, if you need to make $250 each day, then you shouldn't accept any consulting work that would pay less.
You also have to factor in your overall business costs, plus additional expenses you have to pay to complete a particular job. Add the expenses to the salary you need in order arrive at your minimum daily rate. Compare it to market rates, so that you don't over price or under price your services. If your daily rate is too high, then you need to cut business or personal expenses, or both.
If you want your consulting business to be competitive, you should
try to charge on a per project basis. Most clients prefer a quote for
the project, because they too have to create and maintain a budget for
their expenses. They also feel as if they're getting a better deal with
per project pricing, then paying a daily rate. It benefits you because
you could potentially earn more money, by taking less time to complete
the project. You might even double or triple your hourly rate with this
You can use all three methods at some point in your consulting business, depending on what the client prefers and taking into consideration your business expenses and income requirements. However, you should decide which one to use primarily.
Daphne Mallory, Esq. is the co-owner of Mallory Writing Services and has written more than 100 articles helping home based business owners and entrepreneurs start and market their business. You can learn more about her here.