Finding the optimum hourly rate for your consulting business is an essential part of your setup. Charge too little, and you’ll be selling your services short; charge too much and you’ll lose out on business to competitors. So getting the price right is an important consideration.
If you are just starting out as a consultant, you’ll likely have to set a lower price to pick up work. But once you’ve been operating for a while, have built a reputation, and have enough prospects, you can revisit your pricing and most likely be able to increase your hourly rates.
Here are some tips to help you accurately and fairly set your hourly rates.
1. Know your costs
Before you set an hourly rate, you need to know your cost of doing business. This includes any overhead expenses, like office rent, software subscriptions, equipment, travel, etc, in addition to your own salary. Factor in enough to cover those costs and make a reasonable profit.
2. Research the market
Research your market to get an understanding of what other consultants are charging. Try to determine what they’re offering and how it may differ from what you’re offering. Use this information to make sure you’re not setting your hourly rate too high or too low. If you're just starting out, it's better to price at the lower end to attract new clients, then increase your rate after you have established yourself.
3. Ask for a retainer
If you’re working with a client for an extended period of time, consider asking for a retainer. This allows you to receive a lump sum upfront for the estimated number of hours you’ll be working, instead of billing the client hourly. Remember, you can use our free invoice template to create and share invoices once you're up and running.
4. Don’t undervalue your services
It’s important to remember that your services are valuable! Don’t be afraid to charge what you’re worth. If a client wants to negotiate, be willing to make compromises, but never lower your rates below what’s profitable for you, just to get a client.
5. Consider unbundling your services
Depending on the services you offer, you may want to consider unbundling them. This allows you to charge a flat fee upfront for a certain set of services and an additional fee for any other services needed. It also provides your clients with more choices and allows them to pick only the services they require, which is likely to increase the chances of them using you.
6. Offer discounts
Some clients may be hesitant to commit to an hourly rate, and you can use discounts for day rates, weekly rates, or even monthly rates, to sweeten the deal. This can be especially beneficial for long-term contracts or when you’re trying to win a big client. Keep in mind point 4 though - you should never go too low.
7. Adjust your rate over time
Don’t be afraid to adjust your rates as time goes on. Once you’ve built a good reputation, it’s likely that you can charge more. You’ll also need to take into account inflation, the market, and the cost of living. Be mindful of these factors and adjust accordingly every six months or so. Another tactic is to increase your price for new clients, whilst keeping the price the same for exisiting clients. This allows you to steadily test what the market will bear, without having to raise the price for clients you are already working with.
Summary
Setting an hourly rate as a consultant is important to ensure you are making a reasonable profit while not pricing yourself out of the market. Knowing your costs, researching the market, asking for a retainer, and considering unbundling your services are all ways to ensure you are able to make a living. It is also important to value your services and understand when it's appropriate to offer discounts. As time goes on, adjusting the rate is also beneficial to ensure a reasonable profit.
