What's the best way to set my consulting price?

Eric PMP Management Consultant, MS in Information Systems, MBA, Project Management Professional, Six Sigma Black Belt Trained

August 17th, 2013

I have enticed a client to buy a bundle of 9 meeting-hours from me for $1,800. They might perceive this as $200/hour. There is some other work that the client is doing to which I could contribute but I would be willing to do it at a lower rate (like $100/hour in 1/10 increments, for example). I'd like to offer my services to this client but don't want to diminish the value of my brand / offering if I come in at too low of a rate. I'm a management consultant and project manager who is also technical. I think that my time is worth $200/hour in some contexts (especially when the meetings are planned by me, for example) but in others, like when I'm just helping out as a helping hand, I think it should be lower. Any thoughts on how to price myself or how to distinguish between these to pricing categories ?

Eugene St.Clair Chief Executive Officer at Humanproof

August 17th, 2013

Hi Eric,

Personally, I wouldn't offer different hourly rates to the same client. I would do everything I could to establish my value to THEM and stand behind it. If you are a powerhouse of expertise at $200 and I have a problem that isn't THAT hard that I need a $200/hr consultant, then I would find someone cheaper than you. If you come in and say that you can do an easier problem or not participate as much for less per hour, then you just demonstrated that your time isn't actually worth $200/hr (to you and me both). In which case, you can offer a "blended rate" that may be more like $150 and in this case, you have just shown again that your real value is not that high. Check out "million dollar consulting". My best recommendation is if you can demand $200/hr, then you should be finding work that pays $200/hr and not spending time working for half that. Hope that helps! I realize you may have a unique situation here. In that case, I would again consider a lower rate where the client will hire you for both types of work. You need to provide a dollar amount that is attractive to them but take some time to really consider what it costs you to be doing work for less. Establish what YOUR time is worth to you and don't go under than unless its for strategic positioning.

V/R,

Gene

Alexander Ross Head of Business Development at Verifide

August 17th, 2013

I have faced that issue before (and surprisingly have a similar technical/business/proj mgmt background). Its tricky either way and opens a can of worms. But my solution is to, rather than drop my rate, keep the full rate but be willing to through in some free hours. For example, only bill 10 hours but acknowledge up front that you'll spend 20 on it. Theoretically, you could do things on an incremental fixed bid per piece (so rate wouldn't be an issue) but to me that never felt right for two reasons. First, things always take longer than anticipated. (Google Hofstadter's Law for a funny take.) Second, there are diverging incentives

Sergiy Kuzmenko

August 17th, 2013

Here's a short and well written book on pricing model: http://breakingthetimebarrier.freshbooks.com/.

Gaurav Garg

August 17th, 2013

Eric, I have a similar profile like yours. I recently did a product strategy for GE Healthcare using fixed fee. This approach has worked for me in the past where I help a client achieve an objective for a predictable amount. It also gives me the opportunity to offer some services (free) out of goodwill and reduce my brand or perceived hourly rate. Best of luck! Gaurav

John Wallace President at Apps Incorporated

August 17th, 2013

I agree with both Ben and Eugene, but I've been in scenarios where I want to help a client that just can't afford my rate. In those cases I look at ways to (a) maintain my value while (b) finding a way that lets them pay me. For example, I had one client whose project was tied around a funding cycle. They only had enough money to pay me half of my rate at that moment, but they really needed the product done before their funding date. In that case, I billed them half of my invoices net-30, and billed the others after they got their money in. I could also see (rare) deals where I'd take part of my compensation in cash and part in stock or other consideration. In the "other consideration" category, if they were a construction company, I'd be willing to take payment in the form of a new kitchen for example. In this particular case, is there an opportunity for you to get stock or phantom stock or similar deferred comp? Sure, it might be worthless, but it allows them to get a veteran worth $200/hr and only have to pay $100/hr now with the rest on a liquidation event. It's one way for you maintain the appearance of your rate. The downside of the deal is that particular customer is unlikely to pay you $200/hr in cash ever again. (The nice thing about phantom stock is that it is easy. The contract can be just a couple of pages. http://en.wikipedia.org/wiki/Phantom_stock)

Tim Scott

August 18th, 2013

Gene's answer is dead on. People will always be happy to keep you busy on lower value work and pay you less for it. Setting your price and holding to it keeps you from falling into that trap.

Ben Griffin CEO Peer Group Facilitator | Executive Coach | Board of Directors | Strategic Thinking | Ben.Griffin@CEOIQ.com

August 17th, 2013

Eric You may want to be cautious about 'stratifying' your rate like thisto protect your brand, it's usually a good idea to set a price and stick with it, even if it costs you a bit of business / billings from time to timewhat a customer / client is buying from you is your expertise and contributionnot your handsso even when they are 'doing the work' and you are 'contributing to it'think about the idea that your contribution is very likely to be the 'highest level contribution' to the work being doneand is worth a premium price If you want to 'discount' itkeep the same visible billing rate and do a couple hours that get thrown init helps keep you positioned as a valuable resource with a premium price For what it's worthBen

Vijay MD Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)

August 18th, 2013

It’s too confusing to go in with multiple rates under yourself. Couple of suggestions: 1) You can offer rates at different levels of seniority (e.g., principal vs. project manager) and then backfill yourself in the lower value role to “cover” a gap. This allows you to slot in a hire if it makes sense 2) You could bundle all of it in a daily rate or project rate that enables you to work across all of the desired elements.

Anonymous

August 17th, 2013

I have struggled with this a lot in the last 15 years. What I've learned is that no matter how sensible it might seem, it never quite 'fits' to have the same person billing at different rates when they are providing different services. It just doesn't quite add up. It's like renting a car by the hour and paying more if you are going to the opera than if you are going to the movies - to the renter, it's the same car. What works for me is simply to arrive at a solid, workable rate and then give clients as much benefit as possible for that rate, and keep it simple. I always tell clients when they are paying me to do something that isn't worth my full rate ('you could get someone else to do this cheaper') and it seems to just bolster their trust in me.

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