This article was published in the Ask ACE column in Mainebiz.
Q. With goods you figure out a price by adding overhead to cost of goods sold and multiplying by a percentage mark-up. Charging for my services is more of a chicken and egg problem: the cost of my time is the value of my time. How do I set a rate?
ACE Advises: All consulting projects require a clearly defined fee. Setting that fee is a challenge for new consultants, who typically undercharge. They should keep in mind that they are charging for their experience and the services they provide, not the fact that they are new. To start, find out what other consultants charge. There are a number of ways to do this. If you belong to a professional association, you’ll find that those organizations collect and summarize data on fees. The internet is a powerful tool. Even though many consultants do not include pricing on their website, some do. Many organizations support small businesses and have access to detailed industry data – for free. One of my colleagues recommends the Small Business Development Centers (SBDC) located throughout Maine. Once you have a rough idea of the market rate you can set your own. Because you are an expert, you should have a pretty good idea of the time the project should take. From there you propose a fee structure.
Hourly: The consultant would first determine his hourly rate. Often, the consultant sets a minimum number of hours. The total hours will be multiplied times the hourly rate.
Daily: This is straightforward: if your consultant’s fee is $1,000 per day and the project would take an estimated nine days to complete, your estimate would be $9,000. It is a good idea to benchmark daily charges against your hourly rate. Eight hours per day at $1,000 per day is $125/ hour. How do they compare?
Fixed-Price: This pricing is the entire price of the project based on the estimates made by the consultant. Many times, it’s an educated guess about the length of time required to complete the project. The estimate is then adjusted to allow for errors or surprises.
ACE member Bob LaBrie of LaBrie Training & Consulting, has over 30 years’ experience in sales and self-motivation.