A number of years ago, my company was interviewing consultants to help with a particular project. I helped with the interviews. The first consultant was a man in his fifties, with a very strong track record in the area we were interested in. His rate was $92/hour. The second consultant was a woman in her forties who had less experience, but her record was very good. Her rate was $83/hour. In the end, we didn’t hire either of them, because we decided not to pursue that area of work. However, we might have hired either one.
We were not a company that would make a decision on price. We were a company that would hire a consultant based on overall value. The second consultant could have named her price at $92/hour, and it would have no negative effect on our consideration of her. In fact, having a higher rate, might have improved our opinion of her, as price has a tendency to be equated with value, even though that is often not the case.
As a counterpoint to this, I knew someone whose rate was $100/hour. I thought that was high, and so did another individual in my same field. The sweet spot in the field I was working in seemed to be in the nineties. Less than $90/hour, you must not be as good. More than $99/hour, and you are possibly charging too much. The market price is the best indicator of what you should charge when developing your rate.
If you are in doubt of this principle, try pricing an item. Take galoshes. My husband had bought some new shoes, and wanted to extend their life, and I suggested he try galoshes to cover them during the winter months. Searching for galoshes online, it was clear that they cost $15- $20 across several brands and vendors, and then there was a jump to about $30-35, if they were more like a boot than a slip-on.
We like to think that we price people differently than rubber shoe covers, but we don’t. We have standard price ranges, and we tend to be suspicious when something falls outside of that range. This is why you have to keep the standard market price in mind when you set your rate as a consultant.
When I set out to develop my rate, I kept this principle in mind. I had an amount I wanted to make each year, and a number of hours I wanted to work. I worked with those numbers to set a rate, but I ensured it fell below $100/hour. I’m good, but I’m not exceptional (not yet).
I secured the rate I wanted, and I credit the interviews with those consultants years ago with helping me develop a number I could feel confident in. Setting a consulting rate can be a bit unnerving, particularly if your negotiation skills are still in the making. Maybe, unlike me, you don’t have the benefit of knowing what people charge. Do your research. If you can, call and ask someone directly, or as directly as possible. If you don’t know anyone doing the type of work you are interested in, then take that as a sign you might need to do more research: you certainly need to know your competition. As long as you are within the market price range, your rate is almost assuredly going to be accepted.
Here is my strategy for developing a rate:
- Decide how much you want to gross annually
- Decide how many hours you want to work annually
- Consider the market for the type of work you are interested in: how much someone makes doing your type of work, type of customer, how the rate is determined (experience vs. performance)
- Account for all your work costs, including delays in billing, time off, taxes, etc. to ensure your desired rate makes sense
Is the final number within the market range? Great! You are ready to start billing!
Photo by Andrik Langfield on Unsplash