5 Tips on How to Set Consulting Fees 2

For all the years I was one-person business planning consulting, one of the hardest parts of surviving in that business was figuring out how much to charge the client. Of course I worried about charging too much and not getting the job. But on the other hand, charging too little devalues your work. It sends the wrong message and, if you win the job, puts less money in the bank. Fortunecookiedollar_blogsize_istock

So how much should I charge? I get this question a lot.

What reminded me was “Determine What To Charge as a Consultant,” by Karen Klein, on BusinessWeek.com. She shares the results of interviews with several different consultants. One tip, for example:

The rule is to charge what you are worth and what the market will bear, says Gene Fairbrother, a longtime small-business consultant …

And don’t miss the comment posted below that article, by David Winch. He’s way too negative about what the others say, but makes some good points regardless.

For the record, here are some tips I bring from the 12 years I made a living from professional business consulting:

  1. I always set fixed amounts for the job (by the way, we call them “engagements” instead of “jobs” in consulting). I would calculate amounts based on a rate per day but insulate the client from my calculations. The job was some amount in thousands of dollars.
  2. Whenever possible I’d set an early milestone, some first step, that would give me and my clients a good view of the value of the job. That would be an abandonment point, with no questions asked. That made it easier for clients to say yes. We only commit to this much, and if we don’t like it, we drop the rest. Very powerful in selling.
  3. Scope creep was always a problem for me. As the years went by I became more thorough in scoping engagements and deliverables at the beginning of jobs. Still, the long-term key to success was repeat business, so I rarely told a client “no, that’s beyond the scope of the job.” The most likely use of the proposal was to allow me to renegotiate fees as the scope grew. “That’s actually beyond the scope of the job, but I’ll be happy to do it for you, for $XXXXX.”
  4. At one larger company I dealt with a specific manager who was a pain to work with. I didn’t want to lose the relationship with the larger company, but this person always took advantage, pushed the scope, wanted more, made my life difficult. So for that person, I would take my calculated price and triple it.
  5. When in doubt, charge more. Your fees are your statement of value. Don’t undercut yourself. One still-painful memory was the job I lost bidding $24,000 to a competitor bidding $76,000. The client was unhappy with the choice, wanted to work with me, but said, “My bosses didn’t believe the more expensive offer wasn’t going to be higher quality.” Live and learn.

I hope this helps you with this built-in problem in your consulting business.

(Photo credit: istockphoto.com)


About the Author Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry. Follow Tim on Google+ Read more »

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  • http://www.oramplusreviews.com Marisela Keilholtz

    Another great blog post! I shared this one on Facebook – you should look at adding a “like” button to your website.

  • http://www.consulting-business.com Michael Zipursky

    Tim, great post! I just finished creating an online consulting fees calculator that your readers might find helpful:

    http://www.consulting-business.com/consulting-fees-calculator.html