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How Much Are You Worth: Consulting Fees
By Christopher Smith
How much is your time and expertise worth? Its the age old challenge for
consultants: how much do I bill my clients? Sadly, there is no set in stone
answer, however, here are some tips that will help you establish your rates.
First, lets look at your client's needs. Why are they hiring an outside
consultant, when they have employees? There are several reasons why your client
is interested in hiring you as a consultant:
a) third party opinion - employees know where their bread is buttered, so they
are less inclined to go against the current direction of the company. As an
outsider, there is no concern with offering a different opinion. Your
independent opinion can provide a much needed, focused perspective your client's
company needs.
b) you are cheaper - this is what is normally the hardest for new consultants to
understand. How can you command $75/hr when your client has reps working for
$20/hr. It normally ends up with the consultant charging a lower rates. No more!
The employee:
$20.00 Hourly rate
$ 7.00 Fringe Benefits @ 35%
$10.00 Overhead rate at 50% (computers, office space etc)
$37.00 Total effective pay rate
Hours per year: 2080... Annual salary $76960
The contractor:
$75.00 Hourly rate
Hours per year: 480 (12 weeks, 3 months worth of work).... Cost of completing
the project: $36000
Your client gets the project completed quicker, and you end up saving them over
50%.
c) expertise in a specific area - you clearly can bring something that no other
person on their team can. That's why they called you. As the expert in your
chosen field, you can meet your clients needs with quickness and efficiency.
d) motivated to get job done on time, and likely, on budget - your work becomes
your reputation. If you take too long, or go over budget, you wont see any
future business from your client. However, provide the customer with what they
need, under promise and over deliver, and not only will you retain your client
for future business, you will get referrals. That's motivation that no employee
has.
Now that you know what is motivating your client, you have the groundwork to
start to establish your rates. As show in the second reason for hiring a
consultant, while your hourly rate may appear to be more than their employees,
it actually works out to be less expensive. Any fears or unease that you have in
commanding a hire rate than their employees should now be eased. However, how
much more can you charge?
Who is your competition?
Establish what their rates are, and then confirm what can they offer. Can you
honestly provide more services, better customer service and come under budget or
on time? If your competitors can provide more than you, you'll find that you may
only be able to compete with a lower rate. However, if you can offer more, and
have the proven results to back up that claim, you can justify a higher rate.
One key factor to remember is that if you charge a lower rate than your
customer, you open yourself up to clients who will demand more of your time (it
doesn't cost them as much as your competition). This may lead to finishing
projects past due and scheduling conflicts with other clients. So while you may
be able to charge an extra $40 per hour for example, you may end up losing
clients, and worse, having client demands cut into your personal time.
If you bill a higher rate, you may surprisingly find that you get better
clients, and more referrals. If you can justify a higher rate, your clients will
be very specific with you in terms of what their needs are (saving you time).
Clients who are willing to pay a higher rate, will referral other clients who
are willing to pay a higher rate.
Your rate will impact the amount of business you receive. One term successful
consultants learn very early is to understand the concept of value billing.
Instead of billing by the hour (which many of your clients will be leery of),
consider billing by the project.
By negotiating an amount the client will pay based on the project, you can
establish milestones at which payments will be made, and provide added
motivation to get the job done and the client signed off quicker. If the project
is going to take you 10 hours, consider negotiating an amount for 1.5 to 2x your
normal hourly rate. If you get the job done in 5 hours, you get paid the full
amount, not for 5 hours. The client is happy because they know what the cost
ceiling is, and most importantly, the project is delivered early.
Another benefit of value billing is that you can set up milestones whereby you
can get paid. If you advise your client that the project will be completed in
say, 6 weeks, and comprise of 3 phases, you can receive payment from them when
each phase is complete. Finish early, you get paid early and your client is
happy. Finish behind schedule and your client isn't paying for work that isn't
complete yet.
This method helps to improve your cash flow. This is key for any self employed
consultant.
So, how much are you worth now?
About the Author
Northern Source offers to improve search engine rankings for your small business . You'll find more free helpful hints at http://www.northernsource.com
Article Source: http://www.simplysearch4it.com/article/14096.html
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| Some other articles by Christopher Smith | |
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