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Introduction

What should you charge for your consulting services?

That is usually the first question a new consultant asks. It really should not be the first question but skipping over all the other business questions to get straight to price is very natural.

For one thing it is the biggest unknown when starting out as a consultant. You begin with a reasonable idea of what service you are going to offer. You might have a handful of potential clients to reach out to for those first few weeks of revenue but knowing exactly what to charge for your services just seems uncomfortable.

One reason it feels difficult for many new consultants is because it feels like there should be a correct answer. As if someone out there is the magic figure which is precisely what you should be charging and exactly what your clients are expecting and happy to pay.

This leaves you in an uncomfortable position. A deep sense of uncertainty coupled with a sense that there is a correct answer. And the very real problem that if you under price yourself you will at best lose some income but at worst, and far more likely in the early stages, run out of money and close your business.

And on the flip side if you charge “too much” you might lose out on clients or precious deals. The thought of losing potential business is a really tough one to deal with in the beginning.

So there's this conflict between feeling like you're supposed to charge the “right' amount, or feeling like you have to be competitive on price but if you take a look around you will see that in reality the market is all over the place.

There are competitors charging fees for what you do that border on obscene and at the other end there are some insane consultants who effectively charge barely enough per hour to pay for lunch. In fact there are many service providers who do some very complex and valuable consulting for no fee at all.

For example you've got mobile optimised sites given away free, sold for $2-$10 per month, $250-$500 setup and $100 per month or even $1,000+ set up and $250 per month. You’ve got fitness and diet consultants with hourly rates ranging from 10 hours free (on the hope you will return), to $10-$30 per hour right up to hundreds per hour for one on one consulting.

There’s some free legal advice and then there are the big firms requiring 7 figure retainers.

None of that really helps you get comfortable with fee setting. It is the same in every single industry, product or service out there. You can even buy premium salt for $50 a pound!

Understanding the Price Spread

Within all markets there is a spread. In fact this spread is driven in part by a law of nature the Paretto Principle or 80/20 rule.

What this really means is that within all markets and industries there is a segment (20% in fact) that will pay more for any given product or service. What this mathematical formula also tells us is that the ceiling is near infinite, the rate people pay isn’t linear and as you move up and down the scale the increases and decreases in price are by factors of 10.

The 80/20 rule also tells us that 80% of all profit in a market is driven by this top 20%. The remaining 80% account for only 20% of the revenue.

The 80/20 rule and the application of it is a great topic for study and discussion but far too complex for this short article. But there are a couple more things that are worth pointing out before getting back into the core topic of pricing your services. 20% of the buyers of products or services will get 80% of the benefit from those products or services.

80% of consultants will fight over 20% of the market share while 20% of consultants will have 80%. 80% of consultants will be stuck with low fee paying clients, 80% of consultants will also be stuck with clients that do not get great benefit from the products and services they consume – because 80% of the businesses out there a struggling to make money in 20% of the revenue pool.

Again there’s no time to delve deep into the 80/20 rule in this article so for now you’ll have to take it at face value. Just keep in mind this is a natural law. It is never wrong. And the effects of this principle filter down from the macro level all the way down to the micro level.

In other words you cannot escape the effect of this principle even if you are a solo consultant working from home with small and medium local businesses.

The take home point of all this is most consultants struggle at the bottom of the heap with a triple-whammy problem: asking too little money of the business owners who have the least amount of money and who are least likely to benefit greatly from your service.

So you see it is important to at least understand this dynamic exists, the 80/20 rule and the market spread, before going in and setting your fees.

The Pricing Paradox

Here is why asking the question “how much should I charge” is not the ideal question. As already discussed in the market spread and 80/20 rule section the market is willing to pay any price you care to set. That is a hard concept to take in, especially if you are used to being an employee. Someone will always gladly, without question pay more than someone else if for no other reason than it was more expensive and therefore more exclusive. Buyer psychology is an interesting beast.

The problem is that it is all well and good to set high fees, (and as you’ll see the premise of this article is that you should do exactly that – and there’s very reasonable justification beyond the money for doing so) but clearly not everyone can or will pay those fees.

Many consultants set high fees and then go out and sell to market only to close no deals and end up very discouraged. And if you are a logical thinker who is just getting started you will have the very same fear that will happen to you if you go and pitch high price consulting deals. That is a very rational fear to have.

The trick is most consultants or business owners when presented with this problem look at the wrong end of the stick. They assume people are not buying because the price is too high for the market, and to a degree that is true, but the reality is this: if you have an issue getting people to pay your fee you have a marketing problem not a pricing problem.

Messing with the price isn't going to help you get where you want in this situation.

It is like a two way valve, in order to make your desired income you need to set your pricing and stick to it and in order to get the price tag you set you've got to get picky and selective with who you sell to. Neither of those things feel intuitive or easy or logical when you start out.

So potentially you have to problems to contend with. First the issue of setting the right price for your service and then secondly potentially a marketing problem if you have trouble winning business at those rates.

Today we will address the pricing problem because that is the one to get sorted first. The take home lesson is to understand that if you later have an issue closing deals at that price avoid the temptation to lower your fees. That is not the real issue, address your marketing. In most cases dropping fees to try and win business will put you out of business. It is what most consultants do and most people are wrong.

Ideally you're not going to hang out at the bottom of the pricing heap. That is obvious right? But likewise just because there are consultants charging 10 times, 100 times or a thousand times what you might consider reasonable that doesn’t mean you are going to shoot for the moon.

Another common approach for those aware of the spread and the need to not charge too low is to go somewhere in the middle. This is safe territory and it is not a bad strategy. Keep in mind that somewhere in the middle usually means just below the premium service providers and 10 to 100 times the price of the low end providers. But even shooting for somewhere in the middle isn't exactly the most strategic way to set prices is it? It is a little like throwing mud at a wall and seeing what stick not always the most intelligent approach.

You will learn a far more strategic approach to setting your fees and by the end of this article you should have a complete and clear understanding of what you should charge and the confidence to go out and do it!

The “But I am new!” Myth

Another issue to contend with especially when starting out in consulting is these false beliefs that because you are new you somehow aren’t worth as much. Or that because you’re consulting practice is new you have to do a bunch of work free or run some heavy discounts. It's easy to get caught up in that mindset - “if I only do enough cheap or free work to get my foot in the door I'll eventually land some good deals”.

Yes, it can work (sometimes) but:

  • It works far less often than you'd like to think.
  • While you're doing the free/cheap work you're at enormous risk of starving & going out of business.
  • It is totally unnecessary - there are clients out there reading, willing and happy to pay you very well for the work you can do for them today. So why suffer through it?

One thing that many find out the hard way is that you might lose out on more deals as a consultant because your prices are too low than any other factor.

It's a little crazy to think about. I lost more business through being too cheap or doing too much free consulting than anything else when launching my practice. It wasn't my marketing, it wasn't the services I sold although those things can be important - it wasn’t my education or experience or ability to network…it was price.

In fact it took a very kind prospect to point out to me that in order for me to still be around to serve them in six months I could not possible charge as little as I had quoted them. I multiplied my quote by eight and they accepted immediately.

What You Will Learn Today

There are countless books, courses, workshops, tools and tactics for working out price. This article is not the only method and once you are established, stable and profitable then further research into pricing is recommended.

What you will get from this article is a very straightforward and logical method for establishing a baseline fee and also some very effective methods for getting maximum return from your client contracts.

You will also learn a great method for taking all the confusion and guesswork out of quoting fees to prospective clients which works 90% of the time. This method has your prospect tell you what they are willing to spend before you mention your fee. Often what they are willing to pay is a lot more than you were intending to ask for so there is a lot to be gained from using this method.

Core Concept: Charge More

“You must decide to make a lot of money, to refuse to “walk across the street” for less than your rate.” – Dan Kennedy, master marketer and expert consultant.

If there is one bit of advice that should be given to consultants it is simply this: you must accept the fact you need to charge more. Better than 90% of the time new consultants grossly undervalue their service, sadly the majority get stuck there either earning a marginal amount or going out of business.

For some the issue is a moral one, many have it in their head that charging more is somehow unethical or unjust. Frankly that is something to either get over or really consulting probably is not the career path for you.

Money is neutral - people are good or evil and that is something to leave for you to ponder if that is a hang-up for you.

You can and should decide to charge more than 80% of your competitors in your marketplace. That we learned from a brief look at the 80/20 rule and it makes sense to shoot for that market segment in the top 20% which actually drives 80% of all the revenue in the market.

From a marketing perspective having higher fees also helps to screen or filter leads which are not likely to be good to work with. Some obsess with getting a high volume of leads to speak with and pitch but it is far more efficient to have fewer leads with a lot of the less ideal candidates pre-screened by filters. Charging a high fee is an easy and effective filter for removing the less serious prospects.

Common advice is to use free or very cheap offers to land the first few clients or as a way to attract new business with the intention to sell them higher priced services later. This can work but usually does not, in fact people tend to assign a value to something based on the cost and if the price is low or free that is usually the label you get tagged with making higher ticket sales more difficult without a good marketing plan in place.

Most who take this advice get stuck on a hamster wheel churning out low cost services and do not get the chance to implement marketing strategy and an effective way to get those additional sales in place.

As a rule of thumb cheap or free services should be limited to things which are entirely automated or outsourced. If you need to touch it, it better cost decent money. When you are starting out the temptation is strong to just close a deal, any deal, to get by. Avoid this temptation unless there is no food to eat or power to heat your home today. The spread is there and the market is willing to pay higher fees so try not to shrink away. It is time to be bold.

There are other great benefits to working with higher fee clients.

High paying clients generally work harder, implement faster/more which gets them better results and makes you look good.

Obviously they have more money to pay you for additional services plus have more ideal client friends in their social networks.

High paying clients usually have positive momentum in their business. As they say success breeds success. You can ride this momentum to create bigger and better wins. Sometimes there's a gem in the rough crowd on the low end of the market but sadly you'll more likely end up trying to help someone bail water out of their sinking ship. It is draining, excuse the pun, and not positive.

You just don't have to subject yourself to that.

Fallacy of Free

The problem with free and cheap is that you're attaching your price tag (the wrong price tag) onto your work. It is based on your assumed market value of the work product. You could say you are selling at your cost price not the actual or potential value of what you do for the market. If your value is too low you'll simply attract and work with those for whom what you do doesn't have any value.

That's a little META but I think you get what i mean.

If you charge more you'll appeal to clients who value what you have to offer highly and can see themselves benefitting from your services. In fact great clients already know that they'll make more profit investing with you than they would doing things on their own.

It's not even a hard sell, unless you're scraping the pricing barrel.

Hard to sell “I can make you an additional $10K per month through this system for $10 per month” - snake oil. But “I can make you an additional $10K per month with this system for $5,000 to set up and then $1,000 per month to test, tune and maintain” - that actually sounds a lot more credible.

As they say if it sounds too good to be true it probably is not, well if you're price sounds outrageously low then they are thinking “what's the catch this sounds suspicious”. If your prices are suitably high they are thinking “there's the catch, it's going to take a lot of money, but darn that sounds good!”

And as a good consultant who knows how to position yourself and present deals you know you're really going to demonstrate that hiring you is going to be a profitable exercise and you're time is really free in the end because of increased revenue or reduced expenditure.

If somehow you are selling a service which neither increases revenue or reduces expenditure, even if it requires a bit of bridge to connect those dots, then selling your services is going to be difficult.

And seriously, not being confident to charge more is a 1 deal problem (just like having no experience is a 1 client problem). The worst case to asking for more they say no and you have the option to drop the rate. It is always easier to go down than up in price negotiation. Going too high to begin with won't lose you deals but going to low might cripple your odds.

Once I had a client say “you have priced yourself out of the market!” - That was his strong reaction to me quoting a high fee; it's the strongest negative reaction I have ever received. In the end we closed a deal and it was at the rate I originally quoted. And we both knew there were much higher charging bulls out there and he had the option of going with the budget operators and getting cheap results or paying more and getting a better service.

Other Benefits of Higher Fees

Having higher fees has some other benefits like:

  • You can only really under promise & over deliver if you charge enough to give you the freedom to do that. Most new consultants are in the uncomfortable position of undercharging, over promising and then under delivering because they run out of time and money.
  • Non-Billable Time: Don't forget that there's also time you don't directly bill for, not like a job, often you're not billing clients for quoting, for presenting options or initial pre-sales conversations. You are not billing them directly for accounting time and any administrative time. Of course you need to cover that stuff in your fees, that's what real businesses do. If you work with real businesses they get this too.
  • Higher perceived quality and value in the market place.

Value Based Fees

The cost of your services should reflect the actual or potential value of the results to your client. Many consultants, and most businesses, do not base their pricing on the value to the end customer of the service provided.

It is more common to use a cost plus profit margin model where a fee is based on what it costs to deliver the service and then a multiplier (for example 30% - 100%) is added to provide profit.

At face value that makes good sense and it does provide a framework to use. And it does work to an extent, after all that’s really how many product businesses work. The smarter ones also do a little price testing to see if they can charge a little higher and make more profit per sale or charge a little less and get more sales volume on a lower profit margin.

The problem with this is that while that method might find a suitable price point that the market is willing to pay it still, by in large, completely ignores the value the end customer might place on the service. This shouldn’t be confused with the standard market price a customer might be conditioned to expect.

Cost plus margin is OK, although still not ideal, when selling commodities when it comes to soft services like consulting then it is entirely inappropriate.

The main reason it is not appropriate is because there is no correlation between a cost plus margin model and the value delivered to an end customer. That value is also customer specific; some clients might gain marginal benefits from even the most amazing service delivered. Other clients can increase their profitability (or gain other positive result) orders of magnitude higher than the cost of the service. For example some business efficiency or marketing consulting for a small pizza restaurant might increase their profits by 10%. If they have an annual turnover of $500,000, 10% increase is an additional $50,000. That very same advice, effort and service delivered into another business with turnover of $5,000.000 providing the same 10% increase in profits equates to $500,000 in additional revenue.

So if you charged $10,000 to deliver your service the first business nets and extra $40,000 and might be very happy, it actually represents a pretty good deal. If you also consider that the work done might add the same, or increasing, profit year after year then it becomes a very good deal for that business. Add to this the increased value the business now holds if it goes to market and the owner should be over the moon. But the larger company has ten times the financial improvement. If you charged them the same amount of money for that service, well that is beyond a reasonable deal. In fact the same amount of time and effort in the second business would justify at least $100,000 fee and even then the astute and entrepreneurial business owner would recognise that is a bargain.

Now that might sound like an overly simplistic example. In some ways it is simple but mostly for the sake of easy math and discussion. The truth is that there are plenty of businesses that fit into the latter category, higher potential return, and there really is no great difference between consulting with the two. In fact the greatest difference is that working with a more profitable and slightly larger firm is more likely to yield results faster and with less effort than working with a very small business.

The point here is to demonstrate that the same service can have wildly different values depending in the results it can provide for a particular business. And if you believe that the amount of work and effort and, even in many cases, skill required in making these changes vary significantly between a $500K, $5M or $50M business you would be mistaken. That is not to say there are not differences, of course there are, sometimes these differences work in your favour namely faster results with less effort.

You might not have the confidence to go after large companies with big pockets; there is a certain intimidating factor about doing that. The point is not to go and land a whale client but really to emphasise how wildly different the results can be and how it makes no sense then to simply base your fees on any cost plus margin model.

So as surely as going after broke clients with no money is a recipe for failure so is paying no attention to the value of your services in the hands of a client.

As a consultant you should not be valued based on the hours of work you do, the complexity or the results of your work. You should expect to be compensation relative to the value those results bring to your client.

Price has nothing to do with the amount of work and effort, experience or credentials. There are some professional consulting organisations and certification programs who will try to argue differently but the fact is in the real world clients do not really care about the details. They don’t care about the time involved, how hard or easy it is to do, you have a special skill they need to solve a particular problem and as long as hat problem is solved as promised then you can be rewarded handsomely.

Forget about all the little details, go for big picture, big benefits - that's what you're selling and that's how you should set your price.

You will find as a consultant that there are some things you can do in an hour or two that you can charge thousands of dollars for. That’s the benefit of this thinking and pricing this way. You should also feel very happy and good about taking the money because it is a great trade. As long as you are driving more value into the client than you are getting out of it then everyone should be happy.

Likewise there are some things you could spend days working on and nobody would pay a single cent for your effort. If you are in business to make money and improve your life then it would be highly recommended to focus as little attention as possible on these activities!

So the guiding principle here is to set fees based on the clients’ value not yours. This brings up another very important consideration. If in discussion with a potential client you can see that the value to them of the service really is not high enough then that is an indication to you to stop following that lead. There will be better ways to serve them that take less time and energy on your part, do not be afraid to recommend other service providers or even books and courses that might better suit their needs.

How to Establish a Baseline or Standard Service Fee

After that discussion on not using your costs to determine fees and instead using the value that the client receives as a benchmark I will now contradict that stance a little bit in setting your baseline fees.

The reason is that you do need a place to start before heading into the fray. Blind guessing won’t work and using the current market spread might not give you the figures you need personally in your business. So without talking to a client it is a good idea to set a baseline or minimum fee. A set figure that represents the least amount of money you will charge and a framework for figuring out how much any particular product or service should cost.

It is important to point out first that this baseline figure might not be the same figure you would actually present to a client. In fact it would be recommended to always present a fee that is above your baseline, providing room to move, or use the technique later in this article to get your client to tell you exactly how much they are willing to pay and then use your baseline to come up with possible service packages.

A fast way to set you baseline is to establish a minimum dollar per hour figure you are willing to consult for. Perhaps you already have a figure in mind, if so now is the time to check it and if you are like the majority of consultants now is also the time to multiply it by at least 2 times.

For the sake of easy math let us assume a 40 hour work week and a fairly standard 50 work weeks in a year – giving you two weeks off each year for vacation. This yields an annual available work hour figure of 2,000.

The next step might seem ludicrously simple and borderline ridiculous because here you will decide how much you want to earn in a year. It sounds too easy, and some argue that it is absurd to randomly pick figures out of thin air like this but in reality it works. It also is a mental exercise which will help you see the value of your time very differently if you really take it on-board.

Basically you next determine how much you would like to make each year and divide that by the number of available work hours which in this case is 2,000. If you plan on working less than use whatever figure makes sense for you.

For example for a $100K per annum consulting business you need an hourly minimum of $50 (100,000 / 2,000 = 50).

$250K = $125 per hour, $1M a year = $500 an hour.

The figure you are striving for is up to you but before you dial it in you need to consider a couple of things:

  • You are very unlikely to fill all 2,000 billable hours.
  • Most people aim too low shooting for around the $100K mark, for some reason $100K - $120K seems to be a comfortable spot for people to go. Experience, not backed up statistically, shows that you should at least shoot for $250K or $125 per hour. This provides a buffer for non-billable hours while still providing a good income plus it is far more exciting.
  • If you have an OK marketing plan and work with the right prospects you will also notice that price resistance is the same at virtually any figure. In other words, assuming a prospect can pay in the first place, it is just as hard to get them to part with $50 as it is with $500. This means that ultimately it is the same amount of effort to get paid either figure but it is a lot easier to sell 200 hours at $500 than it is to sell 2,000 hours at $50.
  • Do not forget, even as you use your desired income level as a benchmark, to consider how much value you can truly drive into a client especially over time. Can you deliver $500 worth of value into a client business with an hour of your time? Most consultants can if they really think about it.

Of course if you already recognise the value of what you do and wish to earn what you are truly worth then you might be looking for much more than $125 per hour (a figure that is still very budget priced for consulting and professional services by the way) and if that is you then well done!

If you sell standard services or service packages the next step is to go through what you sell and calculate the amount of time to deliver that service. Keep in mind the time involved in pricing, marketing, quoting, presenting, travel, meetings, follow up as well as delivery.

Doing this you should calculate the amount of time required to deliver any particular service. Next multiply that time by your minimum hourly figure and you have a baseline fee. If you already had some figures in mind it is very likely your new figures are higher. If the new figures are lower then go back and set a higher minimum annual income until you do have a figure which is higher than your current mental comfort level.

If you plan on doing project work where time involved changes on a client by client basis then you really need to make sure you can estimate the time required accurately and use your baseline hourly rate when making pricing calculations.

It would be best to never share this hourly breakdown with your clients. A good practice to get into is always bundling items on any quotes or invoices and never providing time based breakdowns or line items. Some clients will not like this approach initially but it is best for you to keep those aspects of your business confidential. At the end of the day the client is not paying you an hourly rate and so time based breakdowns should be irrelevant.

An example: A marketing consultant has talked to a prospect and his proposal will involve 1 day of consulting (max 5 hours, no breaks) to talk about the details of what he will implement (note you should charge for scoping out the work), after this consult he will know everything needed to put together a simple email follow up system to help the client capture leads on their website and build some relationship with them.

Next he will write a series of emails to go into this automated follow up system, build a standalone landing web page, build an email opt-in form and give them the HTML code for their web developer and then set up a back end email delivery service. That is extremely straight forward for the consultant and comes to another 2 hours work.

Then he will book a half day consulting day to review stuff, schedule implementation by them and discuss how they plan to evaluate over the coming couple of weeks. Let's say that's another 2 hours.

That is 9 hours of work and at the consultants chosen baseline rate of $500 the fee is $4,500.

To the client $4,500 is pretty reasonable for a professional to come and do stuff that could help them make another $50K to $100K. Everybody is happy with the figure. Remember if your prospects all think that your fee is too high something is wrong with your lead generation/ positioning / promotion and not with your pricing. Set your pricing first and then fix your marketing so you always hit your price.

Using dollars per hour to set a baseline fee gives you a lot of flexibility in quoting your services and building packages to sell as projects.

You could use your baseline fee as your pricing and approach prospects with this figure but there is an extra step you should consider which can significantly increase your revenue.

Back to the example: Using this baseline method a figure of $4,500 was calculated for the project but this figure should be your minimum or floor. What that means is you should be striving to always sell above this minimum baseline and only falling back to it if you need the room to negotiate. Wise consultants pitch high so there is room to go down if needed, not so wise consultants go in with the minimum figure and either lose out on potential higher fees, get forces to negotiate down or are forced to accept extra work for the same dollar figure.

If you go in at a higher rate you have the opportunity to get paid more than your minimum, have some room to negotiate down if you need to or have the option to deliver more value (add some extra stuff in) without compromising on your minimum rate. One trick to employ is to always stretch your quotes to a point you are no longer comfortable. And then you should aim to get comfortable with that higher price point. If your baseline is already pretty comfortable add 25%. Always set a fee just beyond your comfort level, remember you can always come down but they might say yes!

If the baseline figure you have just calculated already feels like a stretch then add 10% to the figure when quoting to give some margin for negotiation and still pushing your boundaries a little.

The real money is made outside your confidence zone. Expanding your confidence zone comes from operating out of current comfort zone.

How to Get a Client to Tell You What to Charge

Once you have that baseline figure in your head and you have a 5 buffer in place you could happily present that price to clients. However there is a technique which is very good to apply before you get to the stage of creating a project scope or quoting a fee even for a standard service.

This technique will allow you to:

  • Always come with a price the client is willing to pay.
  • Never waste time putting proposals and quotes together for clients who cannot afford your proposed service.
  • Maximise your revenue potential per client.

You have your baseline figure tucked away and you can always pull that out at any time if needed to quote on a project and close a deal. But before you get to that point here is a technique you can use early on in pre-sales discussion with your client to have them tell you exactly how much to charge before you put a proposal together. This allows you to tailor custom packages that fit within their budget and also make sure you go too far over or under their expectations. It also allows you to protect your baseline by only including as much work within a particular client project as their budget allows. Otherwise there is a risk of a savvy client trying to get a high value service offering that you happen to pitch negotiated way down on price to a level that meets their budget. That is not such a strong position to be in, much better to go into the discussion with something that is on budget and works perfectly with your baseline rates.

The technique is a simple conversation and a few questions. The assumption is you have had at least a very broad and general chat about what it is they want to get out of the relationship and some basic expectations are there. It is usually best to have this conversation with a prospective client before discussing specific tools, systems or dates etc. That level of detail is good to save for your proposal.

To demonstrate the technique it is useful to do so with an example conversation between a prospect and a consultant.

The prospect as some point will ask “what's your price?” or some variant of the cost question.

Clients often want to get to the topic of cost far too early in the sales process so it is recommended that you push answering that question out a little - patience pays off. You instead would ask them a question which reframes the conversation changing their focus from a money focus to a goal, outcome or benefit focus. A good question might be “what are your expectations of the outcomes of us working together?” or “what outcome or goals would you have for a project where we work together?”

Usually they will say a few things, and it would pay to take notes and make suitable noises of acknowledgement. Active listening is a great practice and also note taking will allow you to present any solutions you want using language they use and situations and expectations that they raise themselves. Clients often forget they have told you these things and in those cases it certainly makes you look very perceptive when you speak back to them the thoughts in their own mind. Either way it is good practice.

At this point they have invested at least a little mentally and emotionally in goals, outcomes and benefits by talking through their goals and issues with you. It is important to know that all buying decisions are based on emotion and later justified with logic so it is always crucial to have your client reach an emotional state every time a decision is required.

At this point you would make a statement and ask a question like this “my price is typically based on the work that we are doing and the scope of your project what's your budget?”

Notice that is bad grammar but it is a good sales technique. The question is prefaced with a statement which leads towards the concept of scope but ends with a direct question about money in terms of their budget.

This is what is known in Neuro Linguistic Programming (NLP) as an embedded question. Phrasing questions in this way serves to bypass the critical thinking part of the brain which in most sales conversations is on high alert in the case of the prospective client. Bypassing the critical thinking part of their mind with a scope question when they were expecting to talk money lowers the natural mental defences and it is at that point that you sneak in with the money question “what is your budget?”

The key now is to stop talking and listen, in fact ideally you should not utter a single word again until the client speaks first. They should break the silence, periods of silence can be very uncomfortable for people and it is an old sales and negotiation technique to leverage silence in order to maintain control of a discussion. However breaks the silence first loses some control.

50% of the time the client will give you a rough number straight away. Whatever that number is write it down and think about what you could do to fit in that budget. If the figure is obviously way to low now is the best time to thank them for their time and indicate that you unfortunately cannot offer a service at the price they are looking for. You might get them to reconsider.

People rarely give the highest figure they are able to pay for anything so there is a chance that the client could afford to raise their budget to meet you where you need to be. And you could certainly justify the extra investment in terms of value that you are able to deliver them. However you will also know if the original budget was even remotely close to what you need to see, while clients will often not disclose their full buying power the figure they do provide is usually within 50% to 75% of their maximum.

If the figure is on the low side but close to something you can work with you could say “OK, good, I think I can put something together within that budget” - and by within budget we mean with that figure as a minimum. When it comes to making a proposal add 25% to 50% to their budget figure and present that as one of the options. Also consider presenting an option at 2 times and another at 4 times their budget figure. They are not likely to jump at the higher priced options but it will help demonstrate that the lower priced service option is just that, the low priced option.

Soon we will discuss packaging and how you can leverage this low end figure to sell a “no brainer” higher package.

While 50% of the time the prospect will be able to provide a budget figure right off the bat the rest of the time they will say something like “I have no idea”.

If that is the case you would say “that's OK, how about you just give me a range. Just a ball park figure so I can build a service package to suit your budget.” Again we put the ball back into the clients court, we do not want to show our cards here and disclose or baseline fees unless absolutely necessary.

90% of the time those who were not able to answer with a fixed budget will give you a range. For example our pretend client might say “between $4,500 and $6,500”.

If that is the case you now have a great indication of where there ceiling is for paying for services. Keep in mind that they likely did not give you the full extent of their capacity to spend with you so concentrate on the top end of the range and make sure you present an option that exceeds the top end figure by 25%. In the case of our pretend client that means $8,125 ($6,500 x 1.25).

Of course they might not accept that price but you have plenty of room you move down to their budget range.

So now when putting together a proposal you are going to provide a package which includes enough of your time and resources to meet the high end of the budget range using your baseline fees as a guideline.

The idea here is that if you go into negotiate with fixed pricing you might miss out on opportunity to get more revenue per client and also miss out on the opportunity to drive even more value into that clients’ business. If you think about how much extra benefit you can bring a client at $8,000 as opposed to $4,000 you can see that both parties benefit in the bigger deal.

A word of warning: the concept here is to establish the maximum spending power of the client and then provide an option which maximises your billing but also provides them maximum value in your relationship. You must not use their higher budget as an opportunity to sell your regular service at a significantly higher margin. You might like to make a good margin on the trade but if you sell apples at wildly different prices to different clients that is not good for long term business.

Pricing Models

Now you have a baseline fee figured out it would be a good time to talk briefly about the options you have for pricing models. By that I mean how you structure the payment terms and other commercial arrangements.

There are a huge number of options when it comes to brokering deals. Some move more risk onto your shoulders and therefore open up more opportunities. Some are simple to understand and implement and others are far more complex.

The Pricing Model You Should Start With

Service X for $Y

Service X for $y is the flat consulting fee model. It is essentially the scenario we have been talking about up to this point.

It is straightforward and providing you set clear expectations and scope projects properly in the beginning this model provides little room for ambiguity and undue risk for either party.

These factors do make it a great option for a fresh consultant and it is a safe option. There is however another closely related model which can open up significant increases in revenue per client without too many headaches.

One golden rule which most consultants should adhere to is: you must be paid upfront before any work is done.

Service X for $y + $z Per Month =

This option is a flat consulting fee plus a retainer. And as simple as that sounds it is a powerful way to multiply your revenue by 5 -10 times per client. On top of that it helps flatten out your revenue by providing some regular monthly income to buffer you against the feast or famine nature of some consulting businesses.

This is a very common business model too few consultants take advantage of this option. That is a shame because it is just so darn easy to do.

If we return to our example sales conversation with the client to add a monthly retainer option is as simple as having this little conversation: “$8125 for this package is great, we can work within that budget. Based on experience (note: doesn't have to be your experience if you're new) most of our clients find it's better for them if we stick around and help after the project is wrapped up. So rather than getting everything set up that first month and working great and then handing it over to you and your team and risk it not getting attention it needs - you're all so busy - or not getting the tweaks made to optimise our clients find it better if we stick around ad help out with a small monthly maintenance component.”

That is a very easy conversation to have and the client will either say yes, no or maybe so the risk to you in extending the offer is pretty small. Some consultants make a retainer compulsory as part of doing business with them. It may be better to test the waters with this as an optional extra a conservative estimate would be at least 20% of your clients will take up a reasonable retainer.

Of course you need to think of something that is truly valuable to them in exchange for that retainer but again keep your baseline in mind. The best option for most consultants would be to add more professional service or access to you as a retainer. For example $250 for 30 minutes phone consulting with you every 2 weeks. Or some form of useful monitoring, reporting and analysis. It really depends on your service.

Do not undervalue access to you as a basis for a good retainer. You are the expert and your time is a really valuable thing for them to have. You provide extra confidence and certainty which in many businesses is priceless, simply knowing there is someone to call if help is needed.

The worst case is they say no to the retainer. It is not likely they would kill a seal because you offer an optional retainer. And of course they might say yes in which case that is excellent. If they say yes and you are charging a $500 per month retainer fee that would be another $6,000 in revenue per year.

If you don't yet have a something per month to add yet then make something up quickly. There is always something. Also consider what additional services you could provide through a subcontractor or virtual assistant that could be of benefit. It does not have to be your time at all.

The trick is to simply remember to add those two magic words to your quotes “plus $Y per month”. Practice 100 times a day in front of a mirror until it rolls of the tongue by accident at your next proposal.

If you totally cannot handle adding those 2 words to your offering then go with flat fee.

If you adopt this model don’t forget to get paid your project fee upfront before any work is carried out.

Other Pricing Models

There are several other pricing models some of which are a little more advanced. They come with some powerful benefits including higher earning potential but also there's more risk. If you've closed less than 25-50 consulting deals I recommend fixed upfront fee plus monthly retainer especially if you don't have time or money to risk on other fee structures.

Some quick examples include:

  • Percentage of increased profit or decreased expenses. The client pays you a percentage of every dollar earned (or saved) through implementing your advice. This has tremendous earning potential if used with the right client businesses. Common percentages range for 10% to 40%. Obviously the two biggest risks are they never see a benefit in which case you earn nothing or they fail to measure or pay you for the money you are owed.
  • Equity share. You gain shares or some equity in the company in exchange for working together. This can be a great option for start-up or other companies with small budgets but where you see big potential. The risk is obvious because you might end up with a healthy share of nothing. By the same token while a company is worth nothing it is sometimes easy to get a good chunk of equity because 30% of nothing is nothing but as that business grows you might have trouble negotiating such a good portion.
  • Profit share on a particular product or project. For example if you help with a product launch you might get a percentage of all gross sales.
  • Any of the previous 3 with a fixed consulting fee or fixed fee plus retainer.

Feel free to mix and match, there are really no rules and while to start with some of these deals might be a little too complex and risky eventually you might find your sweet spot in some of these different models. It is very healthy to know there are other options; it is easy to lose sight of the possibilities and get stuck into a “normal” way of doing business. Feel free to explore outside the square.

Trading and Barter

As a consultant it is tempting from time to time to barter or trade your services for other business goods and services. Likewise, from time to time, other business owners might offer you trade in exchange for your services.

It is best to only accept trade in exchange for your services in order to get things you otherwise could not. What this means is in order to get things that are not ordinarily for sale. These could be favours from influential business owners, fun experiences or things that usually cannot be bought for money.

In almost all other cases it is best to get paid cash at your normal rate and then just buy whatever good and services have been offered in trade if that is something you want.

There are stories of consultants accepting one year of free dry cleaning or large amounts of free pizza from a local restaurant in exchange for work. Sometimes the offer sounds tempting but in reality most credible and financially viable businesses pay for goods using currency and accept only currency for their goods and services. Try paying your mortgage with a year of free dry cleaning. If the bank won’t accept it as payment neither should you.

To be fair there is some opportunity to trade and barter and done well it can be beneficial and wildly profitable. There are professional networks of barter and exchange which help this type of business transaction take place. If that is something that interests you then investigate that further. The advice here is to be very careful of any business which tries to offer you commodity goods and services in trade for your service.

Trade through professional networks is different. Likewise credible businesses may have all manner of deals, joint ventures and partnerships but those again are usually things that you otherwise could not go and buy with cash.

Packaging Your Service

With smart packaging you can maximise your potential revenue and drive the maximum amount of value into your client relationships.

While it is common to offer standard services or to work solely on a single project by project basis adding extra services into the mix can make selling and closing deals easier, make you stand out as more unique in your market as well as provide greater revenue per client.

If you do offer packages the smart way to approach this is to only offer one option at a time. It is tempting to go in with 3 or more options but often this serves only to confuse prospects. The smart way to present packages is to lead with your preferred option first and only if they say no to that provide the additional options.

If you do pitch a variety of service packages at once or one at a time it makes sense to stack the deck in your favour. You do this by making the preferred option so attractive in comparison to all the other options that it is painful to choose anything else. Sometimes a client must choose something else due to budget constraints or plain stubbornness but it is good for you to make sure they know the better option exists and that they lose by taking any of the others.

The easiest way to make one option a lot more attractive compared with the others is by adding extra items to the package. These items should be valuable but also non-core services and ones which are easy and inexpensive to provide.

For the other options you would naturally need to keep any core services to ensure you deliver something of good value but you remove the extra attractive items from the package. So the preferred option might have 3 core services plus 5 additional deal sweeteners. Option 2 might have 3 core services and 2 additional deal sweeteners and the third option might have 2 core services and no deal sweeteners.

Next you reduce the price between the packages by small margins. For example our preferred option might cost $8,500, option 2 might be $7,500 and option 3 might be $7,000. Option one appears to be the best deal and the other two options look far less appealing because the price drop is small compared with the reduction in package contents.

If they have given you a budget then option 3 would sit right at the high end or just above their limit. The other two options are a stretch but clearly drive more value relative to the cost.

There is always some valuable stuff you can bundle in with your services. You could even consider hard goods (books, training material) that compliment your service or additional add on services. Another option is to include a decent amount of retainer time as part of the deal for example 3 months of retainer which at a reduced rate.

Naturally there is room to play around with things. Always remember to stick to your baseline minimum and while some clients will need to take the less preferred options out of necessity you now have some things which you can drop in as little value added gifts and over deliver on their expectations. Naturally do not give away the farm but select one thing that appealed to them which they missed out and just deliver it. They will know it was out of reach, it will have been something they desired as part of the other package and if you gift it to them it will be very good for business.

Risks, Rules and Exceptions to Those Rules

Get Paid In Advance

One rule which is highly recommended is to make sure you always get paid in advance. Some clients won’t be too enthusiastic about doing that but it makes your life so much easier. For the most part clients are willing to accept that as a term of doing business. It is not even all that unusual as a lot of services require part or full payment in advance for example construction companies, online retailers and airlines.

If you are not paid in advance you are taking on extra risk. Risk they might not pay at all or in some cases they might see fit to withhold payment until some extra things that were not in the original scope are done. In some cases even well meaning clients get confused between what was agreed to and the picture they had in their head. Even carefully crafted and signed agreements cannot always prevent that behaviour. If you are paid in advance that is less of a stressful issue to content with.

No Free Consulting

If you have a favourite charity, church or community group you support then you might give them some free time but otherwise avoid providing your service free of charge.

In a perfect world people would respect other time that is donated but for some reason most do not place value on free services. Freebie seekers can drain a lot of time and energy and with rare exception they also tend to take less responsibility for the results and take less action.

If you feel compelled to not charge for your time then make sure there are at least some strict conditions in place so that it really is not free, there are some strings attached. For example you might require they complete regular status updates, or provide you with a testimonial or make introductions to people on their social network.

Selling to Friends

It is good to help out friends but be careful. It is common for people to get better results faster if they have paid for good s and services. If you are providing legitimate value to your friends it is not unreasonable to charge them for it. Also think about any training you have had to pay for, any software or tools that you had to invest in. It would be fair to at least recover some of those out of pocket expenses.

Cutting Deals

As a rule do not cut deals. That can be difficult if you are starting out because there is always pressure to close and get some revenue coming in. The issue is that people don't keep secrets in business and it is too easy to either get caught out by a grumpy client who paid full price that now expects at least the same deal or to become the one other folks come to because you offer special deals.

Because it is not necessary to cut deals in order to get clients it really should be avoided. It could win you some good will but most likely it will just cost you some cash.

You also do not want a client that requires a deal in order to do business with you. That is a warning sign of things to come. That does not mean you don’t offer a fair price in exchange for your service. If a potential client demands a deal then the best course of action is to say that cannot be done but that you can remove items from your service package to come down to a budget they are happy with. That is a perfectly reasonable response and standard to uphold in your business, again if they won’t accept your terms at this stage they are likely to be a huge pain later on in the relationship.

Another consideration is that you risk losing your position of authority in the relationship if clients or prospects get to talk you down or into making deals. This is not about having power over someone for the sake of control this is an issue of positioning and being the leader in your market. You cannot be the leader and positioned as the go to expert and authority if subjected to bulling from the market. Furthermore in the client consultant relationship it is really up to you to be in charge, run your projects and control the business relationship and terms. If you lose this ability you risk being dropped into the same bucket as an employee which you are not. Being a consultant requires you to take charge, make tough calls at times and speak with authority with the client. To put that into jeopardy puts the entire project and any potential benefits at risk too.

Some Closing Cautions and Tips

Here are some final words of caution when it comes to striking deals and pricing your service. It is a short list designed to get you thinking and while this article ends on a list of warnings make sure to go through the exercises and set your fees.

  • Don't itemise bills or quotes, there should be no way to tie your fee with time or a particular deliverable.
  • Don't set a fee based purely on the thickness of a clients’ wallet. This does not mean do not do custom deals that maximise your revenue but it does mean do not sell the same thing to someone else for more money without good reason to do so.
  • You should have an established “standard” pricing formula for apples v apples stuff.
  • It is OK to add PITA (pain in the axx) money for troublesome clients or for extra complexity.
  • Price everything as projects. Name projects for new clients as “Phase 1” and “Phase 2” etc which implies an ongoing business relationship from the outset.
  • Look for ways for your service to be free anyway…how can you find them more money?
  • Avoid talking about fees too soon, even though they'll probably ask you early in the discussion push it out a little till you've got them thinking about the project and the value you can deliver.
  • Don't hard sell, there is a time to sell and pitch but when it is time to talk dollars keep it cool and leverage silence.
  • Don't get too scared, it is OK to be nervous, that's normal and if you're not nervous your fee is too low! Just try to stay calm, keep a straight face and play your cards close.
  • If a client is too cheap then move on. It is not worth lowering yourself to work at their level, there are other clients who will pay willingly.
  • Don't talk price with anyone who isn't cutting the check. Talk money only with the person who is in a position to say yes and pay you. It is a top down approach. Talk first to the check writer / decision maker then you can move down the ladder.
  • If there is a committee involved then walk away. Committees are often slow, fickle and difficult to please.
  • Don't deal with underlings. It is very important you work as a peer with the person who runs the show. Even for implementation talk to the boss man and he can talk to the guy who does the work.

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