How Much Should You Charge As An Independent Consultant?
How Much Should You Charge As An Independent Consultant?
This is a question that all spare room tycoons will ask till the day they die. If you feel lost, you're not alone. Huge training industries have grown up just to help people learn how to price -- from huge multinationals to people like us.
But this is no cause for concern. Part of pricing is a science. The rest is confidence in action. You must begin with a solid estimate of all your business costs, and a well-founded idea of how much you need to support yourself. While there are wide variations in pricing practices from industry to industry, it will be worth your time to research your field and see what competitors are charging.
Because we usually have lower fixed expenses, spare room tycoons can often prosper at a lower price point than our larger competitors. Often, though, we offer benefits that nobody else can provide, and we should be sure to point this out to potential customers, and to charge for the added value we provide.
There is, however, one iron rule of pricing: You must charge enough to live.
When I started my business, I bought a book that offered a formula. It said that you should set your hourly rate at a level that would give you a reasonable living if you are able to sell about one third of your available hours. Another third of your time should be allocated to finding new business. The last third is taken up with such activities as bookkeeping, walking to the post office, gnashing your teeth and checking your email. I found this very useful advice because I was able to make it work. It helped me keep in mind how much time I need to spend promoting.
There are other formulas that apply to retailing, manufacturing or other sorts of services, and most of them are helpful both because they stress how much of an entrepreneur's time is spent doing apparently nonproductive work, and because they offer a discipline that many who are new to business sorely need.
None of these formulas work, however, if you don't offer what buyers want at the rates you need to charge to stay in business. All too often, beginners think that they can undercharge in order to get business. This seems like a logical tactic, but it's the road to ruin. It costs money and may make it difficult to sustain your business. It can lead some customers to wonder whether you really know what you're doing. And it can distract you from the more difficult, but perhaps more rewarding, task of finding something you can offer at a price that gives you a good income.
Nevertheless, just about every self-employed person I know has adopted this tactic at least once. I did it during the late 1980s when things were looking particularly gloomy in China. I decided to offer a one-day seminar for a very low price, essentially in the hope of getting my foot in the door. All I need, I told myself, is to find one big company that's interested.
I spent thousands of dollars on printing, postage and mailing list rentals. The phone rang only a few times, and I sold just one seminar. I was encouraged, however, because this company was a world leader in a technology that China desperately needed. And it was relatively nearby, which usually helps.
After the seminar, there was even a small follow-up consulting assignment. I didn't dare charge very much for it because I didn't wnat to scare a potentially lucrative client away. Later I found out that, in the two years after my seminar, the company made more than $1 million in sales in China. Yet I had charged only a few thousand dollars, merely enough to pay for my mailing campaign. That meant that I had done several months of work, and offered valuable counsel, without making any money at all. I had not respected the value of what I was offering to this company. How could I expect the client to do so?
Soon after, this company was sold, and it did not, in the end, become a long-term customer. But if it had, I might have had difficulty raising my rates. You need to establish your price from the very beginning, or you will always be at a disadvantage.
If you charge too little, you could find yourself working full-time for less than it costs you to survive. Then, if you lose even a little piece of business, the results can be disastrous. Soon you'll be looking at the want ads seeking to serve the corporate kingdoms once more. The samurai is killed by his own cheap sword.
How Much Should You Charge As An Independent Consultant - To learn more about this author, visit James Chan's Website.
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"How much should I charge?"
This is a question that all spare room tycoons will ask till the day they die. If you feel lost, you're not alone. Huge training industries have grown up just to help people learn how to price -- from huge multinationals to people like us.
But this is no cause for concern. Part of pricing is a science. The rest is confidence in action. You must begin with a solid estimate of all your business costs, and a well-founded idea of how much you need to support yourself. While there are wide variations in pricing practices from industry to industry, it will be worth your time to research your field and see what competitors are charging.
Because we usually have lower fixed expenses, spare room tycoons can often prosper at a lower price point than our larger competitors. Often, though, we offer benefits that nobody else can provide, and we should be sure to point this out to potential customers, and to charge for the added value we provide.
There is, however, one iron rule of pricing: You must charge enough to live.
When I started my business, I bought a book that offered a formula. It said that you should set your hourly rate at a level that would give you a reasonable living if you are able to sell about one third of your available hours. Another third of your time should be allocated to finding new business. The last third is taken up with such activities as bookkeeping, walking to the post office, gnashing your teeth and checking your email. I found this very useful advice because I was able to make it work. It helped me keep in mind how much time I need to spend promoting.
There are other formulas that apply to retailing, manufacturing or other sorts of services, and most of them are helpful both because they stress how much of an entrepreneur's time is spent doing apparently nonproductive work, and because they offer a discipline that many who are new to business sorely need.
None of these formulas work, however, if you don't offer what buyers want at the rates you need to charge to stay in business. All too often, beginners think that they can undercharge in order to get business. This seems like a logical tactic, but it's the road to ruin. It costs money and may make it difficult to sustain your business. It can lead some customers to wonder whether you really know what you're doing. And it can distract you from the more difficult, but perhaps more rewarding, task of finding something you can offer at a price that gives you a good income.
Nevertheless, just about every self-employed person I know has adopted this tactic at least once. I did it during the late 1980s when things were looking particularly gloomy in China. I decided to offer a one-day seminar for a very low price, essentially in the hope of getting my foot in the door. All I need, I told myself, is to find one big company that's interested.
I spent thousands of dollars on printing, postage and mailing list rentals. The phone rang only a few times, and I sold just one seminar. I was encouraged, however, because this company was a world leader in a technology that China desperately needed. And it was relatively nearby, which usually helps.
After the seminar, there was even a small follow-up consulting assignment. I didn't dare charge very much for it because I didn't wnat to scare a potentially lucrative client away. Later I found out that, in the two years after my seminar, the company made more than $1 million in sales in China. Yet I had charged only a few thousand dollars, merely enough to pay for my mailing campaign. That meant that I had done several months of work, and offered valuable counsel, without making any money at all. I had not respected the value of what I was offering to this company. How could I expect the client to do so?
Soon after, this company was sold, and it did not, in the end, become a long-term customer. But if it had, I might have had difficulty raising my rates. You need to establish your price from the very beginning, or you will always be at a disadvantage.
If you charge too little, you could find yourself working full-time for less than it costs you to survive. Then, if you lose even a little piece of business, the results can be disastrous. Soon you'll be looking at the want ads seeking to serve the corporate kingdoms once more. The samurai is killed by his own cheap sword.
How Much Should You Charge As An Independent Consultant - To learn more about this author, visit James Chan's Website.
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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Dianne CramptonDianne Crampton is an executive leadership coach, team culture consultant, author and president of TIGERS Success Series, Inc. Dianne has been helping CEO's and Executives connect their employees to their core values and goals for over 20 years using the trademarked TIGERS team culture process, which stands for trust, interdependence, genuineness, empathy, risk and success. To download a free white paper on behaviors that build strong teams and behaviors that will predictably tear them down go here. Dianne's contribution to the 2010 Pfeiffer Consulting Journal (an imprint of John Wiley and Sons Publishers) entitled TIGERS Hearted Teams is available in November 2009. Her new book TIGERS Among Us: 5 Winning Business Team Cultures And Why, Three Creeks Publishing will release in March 2010. To receive publishing discounts, subscribe to the free TigerTracks Newsletter here. - Visit Dianne Crampton's Website |
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George LudwigGeorge Ludwig is a recognized authority on sales strategy and peak performance psychology. An international speaker, trainer, and corporate consultant, he helps clients like Johnson & Johnson, Abbott Laboratories, Northwestern Mutual, CIGNA, and numerous others improve sales force effectiveness and performance. Though it's George's strategies and processes that help corporations increase productivity and performance, it's his tremendous energy and dynamism that spark the transformation. Again and again, clients remark on his amazing ability to unleash human capacity and inspire men and women to break out of their comfort zones. The result is a whole new type of salesperson. His customized presentations teach achievers to make stunning advances in their lives. From helping salespeople realize cherished dreams to helping corporations exponentially accelerate revenue streams, George Ludwig leaves audiences and individuals empowered, emboldened, and clamoring for more. George is the best-selling author of Power Selling: Seven Strategies for Cracking the Sales Code and Wise Moves: 60 Quick Tips to Improve Your Position in Life & Business. - Visit George Ludwig's Website |
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James Chan Video - James Chan, Ph.D., created the phrase "The China Formula" to help Americans understand China in one word.
Dr. Chan is President of the Philadelphia-based, independent consultancy, Asia Marketing and Management (AMM). AMM specializes in advising U.S. manufacturers, trade associations, and information companies in building business relationships in China and in exporting American-made products and services in China and Asia. To view AMM's detailed profile online, go to: www.AsiaMarketingManagement.com.
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