Pricing Strategies For Consultants
June 22, 2017
Consultants worldwide serve a similar function that is to solve clients’ problems, improve operational efficiency, and maximize profitability through achievable solutions in everyday systems. While seemingly straightforward, pricing can be one of the most complex topics for a consultant.
Pricing consulting services can be a delicate balance based on a number of internal and external factors. Internal factors within a consultant's control are factors such as education, experience, and client base. External factors are based on the general economy, geographic location, competition, client's perception of value, ability to pay, as well as the supply and demand within the marketplace for consultants.
The following are key tips to consultancy pricing:
Know Pricing Options
There is not one standard pricing method that fits all consulting situations. Based on the individual situation, pricing options may be based on the following rates:
• Monthly retainers (certain number of hours)
• Project fees
Know The Competition
The market and competition can also dictate to a certain extent consultant pricing. Although it is difficult to determine what other consultants charge, it is important to have pricing in line with the competition based on experience, education, and credentials. Higher fees can be commanded as experience and success stories grow. While consultants will not readily offer pricing options over the phone as each engagement differs, talking to other professionals in the local market (CPAs, attorneys, etc.) can offer insight into what other consultants might charge for similar services. For consultants just beginning a consulting practice, contacting consultants in other cities of similar size can be a good benchmark for quoting starting fees. As a client base expands, a consultant can then start to quote fees based on demand and availability.
Quote Fair Fees
Fair fees attract clients especially when fees are discussed not as an expense item but an investment in the business' future. Clients seek a return on investment (ROI) and assisting clients in achieving their business goals produces an expected ROI. Fair fees and success create opportunities for additional consulting engagements. When fees are set unreasonably high, new business can be lost before a consultant has a chance to prove his or her value to a client. Conversely, when fees are set unreasonably low just to attract business, profit can be lost while projecting an image of being a low-cost provider. It is then difficult to raise fees in the future. A fee structure must be based not only on the amount of time estimated to complete a project but the degree of difficulty, possible travel, and business overhead.
Pricing Can Vary
Different fees can certainly be charged for different clients. Flexibility is an important factor in consultant pricing. While some clients might prefer a project fee, others might prefer an hourly fee or monthly retainer. Fees can certainly be increased as one gains experience and reputation, as well as renegotiating fees after one project is completed and before another project is started.
Use Engagement Letters
An engagement letter is a written agreement between you and your client specifying what you will do during your consulting engagement. It should address the scope of your work, compensation, and payment terms. The letter should also state the responsibilities of your client – what your client is expected to do, what documents will be provided to you, what employees you will be able to speak with, etc. Additionally, you should include services that you will not provide during your engagement and a disclaimer of guaranteed outcomes.
Never Agree To Contingent Fees
Your fees should not be contingent upon whether someone agrees or disagrees with your final recommendations or the timetable for implementing recommendations. In other words, you have no control over how clients will use your analysis. Some act quickly and get fast results. Others never follow through or implement an idea at a later date. Your compensation cannot be tied to their timetable or results. When you provide excellent service and best efforts in your analytical work, your compensation should not be based on outcomes.