There is one question I get asked 80% more than all other questions combined. And that’s “How much do I charge for my consulting services?” It’s also one of the toughest questions to answer. A consultant’s rate, or the fees one charges for a project, depend on a number of factors:
- The perceived value in the client’s eyes
- The actual value in terms of time, effort, and skill/knowledge/resources the consultant provides
- Client’s budget
- Consultant’s income requirements
And don’t get me started on all the doubts and concerns many new consultants have when setting their rates:
- Is my knowledge and skill worth paying for? What am I worth?
- If I try to negotiate, will I lose the project?
The overwhelming majority of new freelancers (and even established ones) will undercut themselves and far under-bid their projects. These are not consultants lacking skills or experience either. But when we make the switch from employee to consultant - or entrepreneur to service provider - the humble, hard working pioneer in us would rather slave away on someone else’s project than chance charging too much and falling short.
Unfortunately, though we mean well, when we don’t charge enough for our services it backfires. On us and on our client.
WAR STORY EXCERPT
I once coached a consultant who primarily wanted me to help him land more projects. He said he wanted to fire his current clients because they didn’t treat him well. After asking him to copy me on his correspondence with some of his clients, the issue became clear. He resented his client which led to boredom and poor performance on the project. Probing him for the cause of his frustration quickly landed on the money issue.“They don’t pay me what I’m worth! What I’m doing for them is worth at minimum $2000 a month. But I’m only getting $800.”
“But you agreed to that rate, correct?” I won’t go into the irate huffing on the other end of the phone that I got as response!
The problem was that his client was paying him what he’d agreed to. Rather than discuss the issue, he silently steeped in his frustration and his performance slipped. In all honesty, he eventually admitted that he was upset with his client for putting him in a position where he wasn’t proud of his own actions or response.
Once I encouraged him to come clean to his client and ask for more money, the situation transformed. His client came to respect him more, appreciated his honesty, and he ended up never looking for more clients, but instead received referrals from his once-problematic client.
This is why I always tell consultants: charge what you fairly deserve. And I tell companies to always pay what the project is truly worth. Sure, you should bargain, negotiate, and save money where you can. But don’t cut corners. Don’t hire a programmer for $10 per hour who is responsible for coding your entire website when every other bid was $40 or higher. There is usually something amiss and you inevitably get what you pay for. They may have the talent and skills, but regardless, I’ve found that the results often mirror the investment.
So What to Charge?
Luckily, there are a lot of tools and resources out there that help us target our rates. Here’s a few that should do the trick:
May 5th, 2008 at 11:00 pm
Hi. I am a long time reader. I wanted to say that I like your blog and the layout.
Peter Quinn
June 4th, 2008 at 2:07 pm
Hi,
I am a new web design consultant. I work with a payroll company in France. French government takes 40%, the company 10%. I get only the 50% remaining. The company recommends me to charge at least 300€/day.
It is really difficult for me to remain competitive. A lot of people request a quote but when I send it I always get the same comment: my rate is too expensive. They expect to get a website for $300 to $500 when I charge at least 1000€ for a site up to five pages (the Euro currency is not helping).
Everyone recommends me to charge for what I fairly deserve but it is not easy to announce to the client he will have to pay 5000€ or more when they could get the same website made in India for $100.
Anyway, nice website. I will be returning often.
June 5th, 2008 at 12:47 pm
Hi Jeremie,
You raise very valid challenges.
Here are a couple ideas that may help:
1. Differentiate yourself from the competition to help justify premium pricing.
Explain why you’re more expensive in terms of benefit to the client. You may have to add elements to your offering, but it shouldn’t be too difficult. For instance, if you have any experience with search engine optimization or even just on-page optimization, you can explain that a website made in India may look pretty, but it won’t generate traffic or necessarily convert it.
If their website is there to make money, then they need to invest in a total traffic-generating, sales-converting mechanism. That involves more than just design.
You can very easily, for little extra time, conduct a basic, successful SEO campaign using SoloSEO.com or WebCEO.com.
http://www.soloseo.com
http://www.webceo.com
SoloSEO has a small monthly fee with a free two week trial.
WebCEO is a one-time fee, but they have a free limited edition to get you started.
2. Start earning business for yourself outside this company you’re working for. Also, I don’t know about french taxes, but I know that here in the States, I can write off all expenses. That saves me around 10-20% in taxes.
Additionally, if you have any corporation options in France, a corporation will usually be taxed at a significantly lower rate than an individual, which may also save you money in taxes.
Hope that helps.
Best,
Jaime
June 9th, 2008 at 3:47 am
Thanks Jaime for the help. I think you are right. I need to differentiate myself to justify my price.
Regarding taxes, I had two options. The first one was to create my own company in Spain and pay 250€ each month. Pros: I could write off all expenses as you point out, and it is pretty cheap compared to french taxes. Cons: I am only living in Spain for a couple of months and there would be no point for me to start my company in Spain right now.
The second option was to register with this Payroll company in France and it is what I finally opted for. The good part is, wherever I live in the World (I plan to live in Thailand at the end of this year), I pay french taxes and pay for my retirement. Also, the company is in charge of all the administrative tasks. If I was on my own and had a problem with a client living at the opposite part of the world, I could do very little to protect myself since suing someone abroad would actually cost me too much. This company could protect me in that case as they have few lawyers and money to do so. Cons: I only get 50% of what I actually charge and it makes me think I should better start my own company once I settle in Thailand.
Thanks again Jaime.
June 9th, 2008 at 11:05 pm
The administrative tasks and legal protection sound great, but not for 50% of earnings. I think you are right to start your own company once you get settled somewhere.
Frankly, a client not paying has been such a rare occurrence, I doubt it’s worth half of everything you’ve ever made just to be able to fight the occasional non-payer.
I’m excited for you that you’re moving to Thailand for a time. I’ve heard such beautiful things about that country and plan to spend time there in the new year.
June 11th, 2008 at 7:06 am
Cool, maybe we will meet there