Now that you have made the decision to open your consulting business, you need to get serious about how much money you will charge your clients. If you charge too little, you won't succeed in business. If you charge too much, you won't get any clients. So how do you find that middle ground that seems fair to everyone involved? One way to help you decide how much to charge is to find out what the competition's rates are. A simple telephone call, asking for their brochure and rates, should do the trick. Then set your rates so that you are competitive with everyone else in the community.
Before setting your fees, make sure you have listed all of your expenses. There is nothing worse than setting your rates, having your client pay you on time and then finding out you failed to include several expenses that materialized. This brings up an important point to remember in every job you take from a client: Include a "miscellaneous" line item in your fee proposal. But don't pad the miscellaneous figure to make additional income.
Most clients will understand that in every project, there will no doubt be additional expenses. Just be sure everyone knows upfront an approximate figure for those expenses.
Before you set your rates, find out what other consultants in your community are charging for their services. Sometimes a simple telephone call to another consultant's office asking what their fees are will give you the answers you need. Or you may have to have a friend call and ask for their brochure, or any additional information they can collect regarding fees and pricing. If you live in a small town and there are no other consultants in your field, then rejoice and be glad, but set your fees at a reasonable level!
When setting your rates, you have several options, including hourly rates, project fees and working on a retainer basis. Let's examine each one closely.
You need to tread carefully when setting hourly fees, because two things could happen: A) Your hourly rate is so high that no one could ever afford you (therefore no client will ever knock on your door). B) Your hourly rate is so low that no one will take you seriously.
Keep one important rule in mind when establishing your fee, no matter which structure you decide on: The more money people pay for a product or service, the more they expect to get for their money. In other words, if a client agrees to your hourly rate of $400, then you had better give $400 worth of service to that client every hour you work for them.
Some clients prefer to be billed on an hourly basis, while others hate the idea of paying someone what they perceive to be too much per hour. Those clients usually prefer to pay per project.
When working on a project rate basis, a consultant normally gets a fixed amount of money for a predetermined period of time. A few of my fund-raising clients actually preferred to be charged this way, so it wasn't unusual for me to charge $36,000 for a one-year project in which I consulted them on how they could raise money. Because of the amount of money involved, most agencies preferred to be billed on a monthly basis. This worked out fine until I realized that many agencies were late paying their monthly bills.
Because of this, I decided that all future clients who wished to be billed on a monthly basis would pay the first-month fee and the last-month fee at the signing of the contract, which meant that if the agreed-upon amount of the project was $36,000, to be paid on a monthly basis, I received a check in the amount of $6,000 before I began any work ($3,000 for the first month's fee and $3,000 for the last month's fee).
Working on a retainer basis gives you a set monthly fee in which you agree to be available for work for an agreed-upon number of hours for your client. While in the ideal world you would have a dozen or so clients who hire you and pay you a hefty sum each month (and never actually call you except for a few hours here and there), don't get your hopes up. Most companies that hire a consultant on a retainer basis have a clause in their contract that prohibits you from working for their competitors.
Working and getting paid in this method certainly has its advantages. You are guaranteed income each month, and when you are starting out in your consulting business, cash flow can be a problem. Some consultants actually offer a percentage reduction in their fees if a client will agree to pay a monthly retainer fee. The average income when a consultant is paid on a retainer basis is $3,500 per month.