How to Start a Consulting Business: Determining Your Rates
Grow Your Business, Not Your Inbox
How much should you charge as a consultant? This can be an extremely challenging question to answer because it involves doing research, taking risks and proper planning. Fortunately, all three of these skills will come in handy as an entrepreneur so you may as well get used to it now.
In most cases, I strongly suggest asking the prospect what their budget is. If they have a number in mind, you can see how well that aligns with what you were going to charge. You might find the prospect has a much higher budget than you anticipated. However, they may respond to that question by asking what your rate is. To avoid volleying back and forth before one of you gives up, you'll need to have this established from the start.
It’s important to remember the rate you charge will have a direct impact on how people perceive you. Too low? They could take that as a sign that you aren't that good. Too high? You better really good — and prove it — or people are going to pass. I’ll always be in favor of doing what is required to deliver what your client needs and charging for a more premium service. You have the opportunity to build your own businesses, why wouldn’t you want to be the best solution out there for your specific audience?
Keep in mind, “premium” for your audience may not be viewed as premium — or even applicable — for other audiences. That’s why it’s so important to do deep research on who you’ll be helping. This allows you to genuinely say, "I understand you have this challenge, this is the impact it's having on you, and I've developed a solution to alleviate it. Would you like my help?"
Once you’ve honed in on your audience, it is time to figure out how much to charge them for the solution you've developed. Here are some simple methods.
1. Ask people how much they paid for a similar service
This is an approach I stumbled across by accident when I first started consulting. I asked a friend if she needed help optimizing her Instagram profile so she could land more clients. She politely informed me she was already working with a consultant, with whom she was very happy. I was somewhat disappointed but decided to turn it into a learning opportunity. I asked her how much her consultant charged so I could get a feel for the going rate in New York City. I then asked her another question, “What else could they do, that would justify you paying even more?” This is a crucial question for all of us to ask. If you charge the average rate, you’ll get average results. Her response let me know exactly what I needed to do in order to be positioned as a more premium service.
If possible, get input from 5-10 people. If you operate locally, you’ll want to inquire about the rates in your area or a similar metro.
2. Research competitor's rates online
Some consultants publish their rates on their site, including me. The reason being, I don’t like yelling “Surprise!” at the end of an enrollment call as I finally disclose my rate. From my perspective, being upfront about my rate is a huge timesaver for both me and the prospect I’m connecting with. If I can’t help them on their terms (which includes their budget) it’s not worth spending 30 minutes to figure that out. I should note, the value of publishing your rates is hotly debated. Jake Savage, Sales Coach at Grow Savagely, states, "Having pricing on your website leaves everything up to a numbers game. It becomes an endless battle of trying to increase your conversion rates. Instead, get your potential client on the phone. Be persuasive and close the deal."
That said, being able to openly disclose a rate is more aligned with a time-based or retainer model as some projects can be challenging to scope without bespoke input. For example, Jake Savage trains sales teams. If he's training three people the rate would be lower than if he was training a team of thirty.
Do some competitive research and keep track of the results you’re seeing in a spreadsheet. Be sure to take note of the services your competitors are offering, too. It could help improve the value you deliver to your audience.
3. Directly ask other consultants what they charge
This one may sound counterintuitive but you’ll be surprised at how many “competitors” are willing to help you out. If you offer in-person public peaking consulting in San Francisco, you’re not much of a threat to someone who offers the same service in Chicago. Consider reaching out to other consultants on LinkedIn and asking for some friendly advice.
“Hi Mary, I see you’re a Public Speaking consultant in Chicago. I’m starting a similar business here in San Francisco and would greatly appreciate it if you could answer just one question for me. How much do you charge for your services?”
One of three things will happen:
Mary will ignore you or refuse to disclose her rates. If that's the case, keep it moving and ask someone else.
She’ll get back to you with a quick response. Thank her and continue doing your research.
She’ll get back to you with a longer response and potentially offer to connect with you via phone.
In the last scenario, you could potentially pick up some valuable tips that will help you accelerate the growth of your business.
You can also ask consultants who serve the same audience, with a different service. This will give you an idea of how much they typically pay for outside help.
Related: The 7 Deadly LinkedIn Sins
4. Charge based on the value you create
Being able to determine the return on investment a prospect can expect is a gift to any consultant. It's much easier for a prospect to justify an investment if they understand what they'll get out of it. If you operate in a market that allows you to do so, it’s worth digging deep and crunching the numbers.
Heads up, there’s some math coming at you.
Let’s say you’re a business process consultant, and you help clients keep better track of their leads. You’re currently talking to a prospect who has the following data points.
- Leads per quarter: 200
- Conversion rate: 20%
- New deals per quarter: 40
- Average deal value: $6,000
- Average revenue per quarter: $240,000
During your enrollment call with the prospect, you discover their process for tracking leads is horrendous. They forget to call people back, aren’t taking proper notes and don’t have a clear handle on their sales pipeline. With your help, it’s obvious they could increase their conversion rate by at least 20%, which would give them a new conversion rate of 24%.
Through working with you, here’s how the new scenario could look.
- Leads per quarter: 200
- Conversion rate: 24%
- New deals per quarter: 48
- Average deal value: 6,000
- Average revenue per quarter: $288,000
By helping them get a better handle on their business process, you can help them generate another $48k in just one quarter. Over the course of a year, all things being equal, that's almost $200k in incremental revenue. Assuming they're going to be in business for more than one year, the benefits of your work will continue to pay off. If you show them this data and tell them your rate is $25K, it's much easier to justify the investment.
You may be working with clients who generate more or less revenue, but the process is the same. That said, if you want to increase your rates, solve more expensive problems.
This same approach can be applied when you’re consulting individuals. Helping an established keynote speaker further hone their public speaking skills will most likely yield greater results than helping someone who is just starting out. The established speaker knows they can get on stages, they just want to get on more, and be able to increase their rates. You can charge more because you’re solving a more expensive problem.
Related: How to Forecast Revenue and Growth
5. Do a feasibility analysis
Once you arrive at a rate, you have to determine whether or not it makes sense based on your desired income and lifestyle. If you want to make $100k/yr before taxes and charge $2,000 per project, you need to book 50 projects per year. That’s a whole lot of enrollment calls, emails, admin work, etc. I’m not saying this isn’t doable, but you may be better off creating a solution worth $10,000 and connecting with an audience that can afford it. You’ll only need to land 10 clients per year, and will most likely have a deeper relationship with them. This can easily lead to more business through referrals and testimonials.
6. Close with confidence
Your rate will evolve over time, but it shouldn't evolve over the course of your first conversation. Never say "It depends" or "That's negotiable." Tell it to them your rate like they asked you what time it is. I know its tempting to discount fees just to win business, but that can easily throw off your projections and lead to more people wanting to work with you at a reduced rate. Referrals are one of the best ways to grow your business. If you do a good job, you'll earn them. However, you don't want people to say "You should work with Spencer Bell, he's amazing, and he only charges . . ."
Establish a reputation based on the quality of service you provide, not a discounted rate.