I was watching a video by Marie Forleo who says:
I’m not sure I could do this quite so frankly but the principle is right – when you are selling your time as a service, it is important to place a value on it. If you don’t place a value on it, then it is certain that no one else will!
You could start by saying, my clients pay me £250 (or £500 or, like Jay Abraham, $5,000) an hour for advice and I have a packed work schedule… (which is true because, if you aren’t working with paying clients, you are working to find paying clients!)
You’ve immediately notified them that your time has a value, whatever you decide to agree to thereafter.
(You’ve also just positioned yourself as an expert whose time is extremely valuable.)
Marie has also worked out some scripts for different situations:
This is not unlike the advice I received when I started out in consulting – ‘ People will not value that which they get for free.’
I found this to be true in consulting – clients will not take action unless they’ve paid for the advice – when they pay, they have to take action in order to get a return on their investment.
If they don’t pay, then they’ve lost nothing by wasting your time. By not taking action, they don’t get results and they won’t value your advice or what you could potentially do for them.
Payment is simply an exchange of value and your value cannot be realised unless they take action and they are more likely to take action and get value when they pay you, so everyone wins!
The flip side to this is that I have received many unexpected and lucrative jobs by doing a freebie for someone. The work appears from unexpected sources when you demonstrate your skills, sometimes many years afterwards.
You have activated the very human emotion of RECIPROCITY and that is a very powerful motivator. When someone gives me something, I always try to return the favour in spades – it’s just how I roll. It’s human nature for most of us to feel this.
But whether you insist on payment, or you decide to give some of your time for free, you need to START by placing a value on your time.
So if you give the freebie – say two hours of your time – the recipient knows that you effectively gave them at least £500 of value and that may then activate the law of reciprocity. It cannot be activated if the recipient does not value your time.
At the very least you will want a testimonial in order to help you to find paying work.
But let me ask you, why spend time with freebie-seekers, when someone, somewhere would gladly pay for your time and expertise? You have a responsibility to both yourself and your family to spend your time wisely and find those paying customers who value your time.
And time is short.
So when a ‘friend’ or acquaintance approaches you because they just want to pick your brain, first place a value on it and then I leave the rest to your discretion – your time is valuable because it is the only thing you cannot make more of so don’t squander it – treat it as your most precious resource, because it really is!
Here’s a video I made to underline the point:
Going back in my records to when I was business consulting, I found this good advice written by…. ME!:
When we are searching for work as consultants it is very easy to under price our services.
I am even willing to bet that most of the offline consultants on the Warrior Forum have fallen into this trap.
How do I know this? I have been consulting for 10 years and I’ve learnt from my own experience.
The purpose of this article is to provide pricing guidance for offline consultants. It’s a wake-up call to re-consider your pricing policy in the light of what I will reveal.
Make no mistake, under-pricing or discounting your services will hurt your consulting business in a number of ways:
- In order to meet your financial goals you will have to work harder and longer in order to make up the shortfall.
- You will have less time and money to carry out the research and training necessary to maintain and enhance your consulting skills and competitive edge.
- You will have less time to market and manage your consulting business which potentially means that you will miss out on more lucrative opportunities i.e. you should realise that there is also an opportunity cost to charging too little.
- If you charge too little, you will sub-consciously resent your customer and have a poor attitude to getting new customers simply because you are not charging what you are truly worth.
- You may also be failing your customers, who will not get the full value you are capable of delivering due to lack of time and resources. Also, if you are tired and burnt out you cannot deliver your best work.
In addition to providing you with guidance on calculating a realistic breakeven price per billable hour, this article also seeks to set-out some strategies for charging premium prices for your consulting services and the psychological power of doing so.
Pricing Truths and Myths
It’s important to realise from the outset, your clients really don’t know what your consulting fees should be. READ THAT AGAIN before you move on because it is critically important. It’s important because they will value your service according to the price that YOU place on it.
The fact is that ‘neither do you know what the fee should be’ until you can establish the potential value or benefits that your services will deliver to your customer. If you cannot establish the value then any price you quote is effectively a gamble for both you and your customer. And you stand to lose your reputation and the customer’s money if you proceed.
It is critical therefore that you do not reveal your price until you have first established and communicated the value or benefits that you can potentially offer to their business.
The mistaken belief that lower prices = more sales.
The problem with this strategy is that by clogging up your time with low value work it means that you may not have time for higher value work if it comes along. It also means that you have less time and money to market to find the premium jobs and may therefore lose market share. Also, your low price undermines your credibility as an expert and this may actually result in reducing your sales.
Leading on from the myth above, realise that many people will make assumptions about your competence as an internet marketing consultant based on the level of fees you charge i.e. low fees = low value, high fees = high value.
Where do you want to position yourself in the marketplace?
Price is the most important factor in the client’s buying decision.
You know from your own personal experience that this simply isn’t true – we are often persuaded to spend more for higher quality or our perception of it. We don’t all drive the cheapest most fuel efficient car or wear the cheapest clothes.
Our job as marketers is to help our clients to grow their business. Your fees are therefore an investment in their business and your ability to sell will therefore largely depend on your ability to convince your prospective client that you can deliver the results you promise and you are the best one to do so.
This can be achieved by:
- Showing or telling them about the results you achieved for other clients
- Offering a free or low-cost demonstration of your skills
- Testimonials or referrals from other satisfied clients
- Outlining your detailed plan for delivering results
- Reducing the risk to your client if the expected results don’t materialise – this can best be done by breaking a large project down into smaller chunks and getting paid for delivering each small chunk (just like paying a building contractor to build your house.)
- Providing a result upfront, on spec, and selling the finished article e.g. a lead generating website (or the leads there from).
- Providing more total value than your competitors.
You first have to convince YOURSELF that your fee is fair before you try to convince your client.
This is critically important. If you do not believe yourself in the value you are offering, you will never convince your client. This is one of the principal reasons you will be under pricing your work – you haven’t convinced yourself yet that you are worthy of a higher fee.
Let’s examine this in more detail:
- You need to calculate the true cost of providing your service – a formula for this is provided later in this report.
- You need to realise the uniqueness of what you are offering. We are all of us unique with different heuristics ( i.e. experience-based techniques for problem solving, learning, and discovery.) Even though we may be replicating skills we have learnt elsewhere, none of us will deliver the same service in quite the same way because of our differing life experience, training, skills and personality.
- We are valuable to our clients just by listening to their problems and being present with them – you don’t have to provide all the answers, just facilitate the process whereby the client arrives at their own solution by asking insightful questions.
- Most of us have a lot of expert knowledge about internet marketing that will short-cut our client’s progress to online success. (Even if we have failed most of the time, we can ensure our clients don’t make the same mistakes.)
- Assuming we are honest and trustworthy, by working with us we ensure that our clients do not fall into the clutches of less trustworthy service providers.
- We have unique and different viewpoints to offer – often we don’t see things as they are, we see things as we are – and this is valuable in itself.
The ability to market a business online is becoming an increasingly important skill as traditional bricks and mortar businesses struggle to compete. Every business must now learn to compete online if they do not wish to trade at a disadvantage to their competitors.
Some businesses do not yet recognise this reality but more and more are beginning to awaken to this reality as they realise that the traditional forms of marketing are yielding less and less by way of results. (As the saying goes – in the kingdom of the blind, the one-eyed man is king.)
You will get referral-based businesses saying that they do not need to market online but the truth is that their potential clients will probably first research their business online before making contact.
Also, one has to question just how many lucrative clients they are losing if they cannot be found by a new customer at the very point in time when their product or service is needed? It always pays to have several ‘marketing pillars’ on which to support your business because you never know when you traditional source of business will dry up.
Finally, there are not many competent offline consultants available – there are plenty of other internet marketing models for an internet marketer to follow in order to make money online that are potentially easier than dealing directly with clients.
I hope I have convinced you that your marketing skills are potentially some of the most valuable that a business owner can access – remember, without more customers and sales, everyone else in the business is redundant.
You must keep your prices low until you are established.
There are several problems with this strategy. You will fill your business with under-priced work often from price-shoppers who will show no loyalty when you try to increase your fees.
You will find heavy resistance to fee increases or face difficult questions about why you are charging more than you did before.
You are creating a cut-price brand and image for yourself that will be difficult to reverse later i.e. low price = low value.
This is the lazy way to market your business. Better to position yourself at the outset as the expert you are and charge a proper fee.
Clients will not value that which they get for free.
Getting results in marketing depends largely on implementation not theory. It is much more likely that a client will implement your advice if they have paid a fair fee for it.
A substantial fee will commit your client to taking action to get a return on their investment. If you truly believe that you can generate a good return on their investment then a fair fee is doing your client a service by compelling them to take action. (It could also put them off buying but only if you haven’t communicated your value proposition properly in the first place and reduced their risk of taking action to an acceptable level.)
How to Price Consulting Services
Newbie consultants often under-price themselves and go out of business.
They divide their annual salary by 2080, the number of work hours in a year. For example, $100,000 divided by 2080 equals $48.00 per hour.
The problem is, new consultants only bill half their time, say 20 hours per week. (You need the rest of the time in order to train to increase your expertise, carry out research, market your business and carry out your administrative duties.
In addition, this formula neglects the cost of benefits, usually 35-40% of annual salary. If your corporate salary was £100,000, your total compensation is roughly £140,000 (base salary + 40%).
Therefore, when figuring out your consulting rate, you should always include the cost of benefits, like this: £140,000 divided by 2080 equals £67.00 per hour.
Then you double this number to compensate for unpaid time doing such things as administration, customer service, entertaining clients, sales and marketing, and proposal writing. Now your hourly rate is £135.00 per hour—something sustainable you can live on.
You may be saying to yourself “that’s awfully hard to ask for.”
When I launched my consulting practice in 2001, I charged £30.00 per hour with the guarantee that if you didn’t like the meeting, you wouldn’t have to pay. I’ve gradually raised rates to £200 per hour today or a daily rate of £1,600 — with the same guarantee.
How do you ask for a lot of money?
As you know, everyone likes to feel they’re being treated fairly. Everyone loves a deal.
I’ve often positioned my rates like this:
“My normal rate is £200.00 per hour, but because you’re a friend of a friend (or it’s the holidays, or you’re on a tight budget, etc.) I’ll do it for you for £150.00.”
Without exception, people appreciate this gesture of savings and don’t dispute my fees. The same principle applies to large projects. Just structure your pricing accordingly.
It’s important to benchmark your rates against the market. Obviously, you can’t charge £200.00 per hour if the going rate is £50.00.
Package or project prices are generally better than hourly time and materials charges. Why? Because if you complete a £5,000 project in 10 hours, you’ve earned £500 per hour, not £200.00 per hour—your usual rate.
Over the years, I’ve completed several £10,000-£20,000 projects in just a few hours. You’ll need those big hits occasionally to stay in business.
Consulting often involves getting a client, delivering service, then finding another client. That sequential model of client after client creates the feast or famine income that consulting is famous for. It’s a catch-22: while you’ve consulting you can’t be selling, and while you’re selling you aren’t generating cash. How do you reduce the up-and-down cycles and even out your income?
One way is to establish “anchor clients.” You’re familiar with the idea of anchor stores in a shopping centre—big companies like Marks & Spencer or John Lewis who “anchor” the centre and make it profitable. Smaller stores contribute revenues but are less essential to the project’s financial success.
In a similar way, consultants can secure “anchor clients,” large ongoing projects that deliver revenue month after month. One or two significant anchor clients can keep you in business and even out your cash flow. It’s almost like having a job while still being independent. If you work ten hours per week for one organization, and five hours per week for a second company, you’ll have time left over for smaller, one-time assignments.
You’ll control both your time and your own destiny.