In many sectors, consultancy can be a very lucrative career choice. Not only does it give you greater control over your working life but it also lets you set your own rates when it comes to charging for your services.
Many consultants often find it difficult to know where to set their rates. Not getting this right at the start can massively impact your earnings as well as how you position yourself in the marketplace.
You need to strike a balance between charging what you’re worth, while considering market conditions.
Think about the following when you start setting your rates.
Your Location & Living Costs
Where you live and do business can have a huge impact on your rates. In general, consultants based in cities or financial centers of the country usually charge higher rates. That’s because of property prices and the cost of living in these areas. Rents are high and affordable housing is in short supply. This article by Candea Development outlines the problems facing the property market in the country.
Addition Costs of Doing Business
There are a variety of reasons that people use consultants. A common one is that they don’t have the skills in-house or the budget to hire a permanent employee in this area. Many new consultants try and match the hourly rates of a typical employee, thinking it will be more attractive to a potential client. This is a mistake. Even setting your rates at many times the usual hourly cost, you are still giving value for money. The client doesn’t have to pay for recruitment costs, onboarding, tax, or benefits. They don’t have the same legal requirements. Overall, they are still getting a very good deal.
Additionally, you also have costs to pay. This includes things like business insurance, healthcare, pension contributions, and any software or equipment needed to do your job.
Last, but by no means least, people are paying for your expertise and experience. If you’ve come from an in-house career, you’ve probably racked up many years in your sector. Don’t undercharge for this, take advantage of it.
Types of Pricing Models
When starting out, you’re probably tempted to jump straight in with an hourly rate or day rate. If you’re charging high amounts for your services, this can be good for you financially, but there are ways to improve this even further. The most successful consultants move away from the time-for-money model.
Look at introducing rates for projects. For example, scope out a project and work out how long it will take you to do but also factor in how much value you’re giving to a client and put a package price together.
Alternatively, look at retainers for some clients, where you dedicate a certain amount of time per month to a particular client but with the added benefit that this is an ongoing commitment, meaning that you can estimate cash flow more effectively.
It’s very important that you set your rates appropriately as a consultant. Undercutting and undervaluing lead to problems for the entire sector, and eventually, clients will demand extremely low rates from everyone, making it an unsustainable career.
Know your value and charge what you are worth.