How much should you charge for consultancy?

Consultancy work is labour intensive but the product being delivered is largely intangible. That makes it difficult to know what to charge and prone to client negotiations.

This article looks at pricing, deciding between projects and retainers, and how to deal with clients that ask for discounts.

How much is my time worth?

Consultancy rates are heavily influenced by the sector and the amount of experience you have.

"You tend not to start as a consultant from nothing - typically you have run another business and worked elsewhere and there's a need for what you do," said business consultant and Mindsetup director Emma Mills-Sheffield.

Make sure your day rate takes downtime into account and your margins are healthy enough to make the business sustainable. Check out our article on how new service-based businesses can price their time for more information.

Emma added that creating a system for pricing projects helps make sure people don't undervalue themselves.

How can I set prices for different types of clients?

Emma said pricing is a dark art.

"The top areas to cover would be to see where you are against competitors in your area - are you regional, national or international and what competitors do you have around?"

The size of the client you're pitching to has a big impact as well. Are you selling to a small business or corporate client?

One approach is to group potential clients into different tiers. For example, tier one could be corporates, tier two SMEs and tier three owner-managed businesses. This ties pricing back to your customer personas and helps calibrate your expectations.

Is it better to charge per day or have a fixed price for a project?

The way you charge for consultancy services is likely to be based on the client's preference, how you want to work and what best suits the project.

Think about how you want to offer your services because it will impact your cash flow. Look at how sustainable your business is and the project's profitability.

It may be worth charging less for a retainer to establish a long-term relationship. Generally, consultancies have a mix of retained and project-based work.

Whether you decide to charge a fixed price or use a retainer, the costs are calculated in a relatively similar way.

"When it comes to a longer project, I generally start by looking at the project in terms of days and then I would usually wrap an incentive into it and say that I will do it on a project rate. This gives an incentive to the client to lock you in," said Emma.

Does it make sense to offer free or discounted services?

Offering discounts has the potential to devalue your service but it may give new clients an opportunity to work with you.

"Gaining work will, in most cases, require some effort which will quite often be for free. However, once the work is secure, try not to reduce your price as it will affect your earnings," said Peritus Digital owner Angus Ogilvy-Stuart.

Think about the value you're providing and the resources it requires. Doing a one-hour talk to a client's team might not require much preparation and gives you an opportunity to demonstrate the potential.

"Even if you're not being paid, you're in front of a client showing them how brilliant you are. The likelihood of that leading to work may be much greater than if you spent those two hours networking somewhere else," said Claire.

What do you do if clients ask for discounts?

Establishing a potential client has the budget for a project is an important part of the sales qualification process.

Ask what the budget is. If they don't know then at least it starts the conversation about money, so you know they're serious and not wasting your time.

If your quote is too high, look for ways to change the scope of the project. This reinforces your value and avoids simply offering a discount, which impacts your margins.

You may still face push back because a client has a strict budget, is going through a procurement process or another reason. It's up to you to decide whether it makes financial sense. Be prepared to walk away from work - sustainable businesses are built on healthy margins.

Whatever tactic you use for negotiation, don't start thinking about discounts straight away.

"We are very good at discounting in our heads before we even talk to the clients. We start out by thinking 'they'll never pay this, maybe I'll go in 20% less because I really want it' and then they start talking to you about fees and you give them another discount!

"Before you know it, you've lopped a massive amount off. The trick is in understanding where the value is for you and the client," said Emma.

The power of appearances

The way you present yourself is really important. Trust is built through lots of touch points, from your social media and website to the presentations you give.

"Make sure you present yourself how you want to be seen," advised Emma. "If you want to be taken seriously and your consultancy is worth the money you want people to pay then that's what you have to project."

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