Set Your Consulting Fees Using These 5 Tried-and-True Methods

When we started our consulting business, one area we struggled with was pricing. Deciding how to set fees for our services was challenging. But we tried several routes: First, we charged a projet rate – a set price for a pre-determined work product. However, we found that too often, the client would ask us for additional work or change the scope of the project in midstream. That led to our suffering what might be called scope creep. Several times, the price we had originally set was no longer appropriate for the hours needed to complete the work desired by the client. Perhaps because we new to freelancing, we took on the extra work without pushing back on the client or explaining that the changes would necessitate an extra charge. Our second strategy, which we switched to within months, was an hourly billing rate, and we have continued this way of charging to this day. We can give clients an estimate of the number of hours it will take to complete a work product so that they know what fees to expect. Charging by the hour also makes it easy to explain that changing or adding work will increase the number of hours needed. The downside of this billing method, however, is that we need to keep track of all of our time. However, we find that that discipline is worth the simplicity of our fee structure. Still, determining what hourly rate to charge remains a challenge. You don’t want to overcharge your client or set your fees so high that you can’t get work. On the other hand, you want to be fairly compensated for your time. Below are five factors we used when considering how to set our hourly billing rate.

Size of the opportunity

Bain Consulting, McKinsey & Company and the Boston Consulting Group are all able to charge millions of dollars for an engagement because the projects on which they work hold the realistic possibility of yielding benefits to their clients worth hundreds of millions, if not billions, of dollars. This, of course, means that they can typically serve only the largest companies in the world. Unless you have an unusually strong pedigree, you yourself won’t be able to work on opportunities of this magnitude or charge these fees. Nevertheless, think about the size of the opportunities on which you will work. Our rough rule of thumb is that the expected upside for the client should be on the order of ten times our fees or more.