If you’re a new consultant these simple pricing strategies can help you attract the right clients and maximize your revenues. Sidestep the common notice consulting mistakes and get paid a rate you deserve.
We want to make sure that you don’t price too high because then nobody wants to do business with you.
And if you price too low, well, then you get lots of business, but you’re working your tail off for pennies on the dollar. So there is a happy medium.
So we’ll go through the three pricing strategies. And then at the end, we’ll wrap up with how to actually physically choose the price that you start with. And of course, how to scale as your company scales as well. So let’s go ahead and jump right in,
Of course, you might be thinking how on earth could this possibly be on the best pricing strategies, we all want to remove ourselves from being stuck on that hourly rate? And of course, that makes sense because at the end of the day, our clients aren’t necessarily paying for how much time and energy we Putin.
They just want the result, right? They’re looking for the value that our service provides.
Most clients don’t really care how long it takes you as long as they get what they’re actually looking for.
That’s what they’re paying for. However, when you’re just getting started, especially if you’re doing creative work or you’re doing any type of support work, hourly going to be the best for two reasons.
- Number one, it’s going to protect you, because when you’re just getting started, you don’t really know how long things are going to take.
- The second pricing strategy, which is arguably better, isn’t necessarily going to be a good fit yet.
Number two, it allows you to protect yourself from scope creep because when you’re doing any sort of creative work, where there’s going to be lots of revisions, or maybe you’re just doing some sort of support role where you’re fixing problems on a website or bugs as they come up as a developer, you need to make sure that you are actually going to get paid for all of those little changes along the way. Because when there’s concrete, this is what I’m delivering to my client.
Then going an hourly rate is going to make a whole lot of sense or using this as a backup plan. Once you’ve gone through your package, which is actually going to be the second pricing strategy, this is going to be the strongest on this list.
The power of creating packages for your services is you’re essentially turning your service into a product because, at the end of the day, your clients want the result of your service. They don’t really care about all the stuff you have to do in order to get them to the result that they’re looking for.
So this is a great model because you’re essentially turning your service into a product. And so your client knows that they pay X and they’re supposed to get result Y at the end of the day.
Now, you might be wondering how on earth should figure out to put in my package or who I should be selling my package to, or maybe even how much I should be selling my package for, the good news is there is a site full of freelancers who have figured this out for you. And that is fiverr.com.
Now I’m in no way shape for form saying, okay, you need to price your services 5 to $10 for your package.
That’s not what I’m saying at all. What I am saying though, is you can go to Fiverr and you can look at the sellers, and the packages they’ve created in your nature or industry.
You’re going to get a lot of ideas on how you can bundle your services together and figure out what your ideal customers might actually want.
So that way you can put services together. And you can really think about when a customer comes to me, they want results X or Y, right? And they’re going to pay A, B, or C.
I know I keep changing my letters here, but just bear with me.
So they’re going to pay ABC for the result XYZ, right? So we need to figure out what are those results that they’re after? And then how much should we be charging? We’ll get to in a moment here and in the middle is what you’re actually physically doing, right? So you want to figure out what are all the things you need to do to give them the results that they’re looking for.
And that’s how you come up with your packages.
Again, I’m not saying you have to charge 5to 20 bucks for your quote-unquote gig, or you should be using Fiverr.
Fiverr is just a great place to go, to get ideas on how to put together your packages and what packages people might be looking for in your niche or industry, already, now a common objection I get, go something like this.
But what if the client doesn’t want my offer? Like I do things on Google analytics and Google ads, but then they’re looking for Facebook ads.
And then I say, you know, what? I’m just losing money. Well, you know what? Welcome to real life.
That’s how every business consultant has to do business. You have to say no to things that aren’t your core competency, because there is an extreme opportunity cost, especially when you’re just getting started, working with people who aren’t your ideal clients. You need to draw that line in the sand and say, these are my packages.
These are my prices, which we’ll get to in a moment. And this is what I do.
This is what I want to become an expert in. Because every time you take a project, no matter how lucrative it might seem, that is not in your package or in the core competency that you’re working towards.
That’s time, you’re not spending finding more ideal clients for the package. That’s time you’re not spending improving your core competency and that’s time you’re not spending creating another case study, so you can get more clients like this and not doing side projects over here.
They might seem like they make you money in the beginning, but in the long run, you’re just hurting your consulting practice.
So don’t fall into the trap of just trying to get everyone under the sun, create your packages, decide what your core competency is going to be. Don’t be a Jack of all trades, be a master of what you decide and just stick to it.
Now, before we move on to the third pricing strategy, there is a way to combine these first two, having a package and having an hourly rate.
- So let’s say, for example, you were a web developer.
You want to come up with a package for creating a website and maybe setting up some sales funnels or automation, sequences, whatever you decide for your ideal customer, right? So that’s your package.
Maybe you have three or four different tiers and that’s what you deliver. Well, then your ideal customer might need support or they might want things changed in the future, for things like that, that aren’t explicitly outlined in your package.
Then you can have an hourly rate on the backend, or you can even offer something like a monthly retainer or a monthly fee for helping your ideal customer with their website app ongoing. But the point is you need to separate anything that is in your package from an hourly rate.
And the big advantage of your package is you’re protecting yourself from scope creep, right up front, scope creep is a huge brain drain and energy drain.
And maybe more important than the first two money drain on your business. You definitely want to have a package and not start with the hourly rate, but an hourly rate is something to great to add on the backend, once you’ve already gotten that package and you have that to fall back on, so you don’t deal with scope creep. So now let’s go ahead and look at number three.
The third strategy on this list is going to be a percentage. Now, this can be the hardest to put together, but it’s the best in terms of aligning what you want and what your client wants because this is essentially paid for performance.
So the best way to do this is to go through an example of what we do with our agency. So we actually charge a percentage of ad, spend all the way up to a hundred K and I’ll get to why it’s capped out in a moment.
So essentially what you would do, is you would figure out how can you tie your results and what you’re working on to how much your clients spending, or how much your client is making.
So think of this as some sort of commission structure, where the better you do, the more money your client makes, and the more money your client makes, the more money you make.
So you guys are both in an alignment on the harder you work or the better your results, the more they make and the more you make.
So it’s a great structure. It’s quite difficult to set up though, depending upon your niche or industry, for example, with our marketing services, I got a little off track there. I said example, and then I went off and explained it.
But for us, we charge a percentage of ad spend. Now what this means is the more our client spends on ads, the more we get paid, because the more work we’re doing and hypothetically they’re spending more money because we’re actually getting them a positive return on their ads, right? We weren’t doing a good job.
They wouldn’t increase their budget. They’d probably just fire us. Right.
So that’s a great example of how something like this could work. Now, of course, you do have to have some sort of cap, right? So if a client gets over a 100K a month in ad spend, all of a sudden, we go to a… we essentially cap out the percentage because it doesn’t make sense to keep charging, because there is a point where there’s diminishing returns for the client and you’re essentially just getting way more gravy than you should be asking for. Right? So that is something that you want to keep in mind.
Of course, you know, if you have clients that are spending a hundred K or at two or 300 K budgets, and you’re running into that problem,you are probably going to be more than happy to have that issue, as opposed to the opposite end, where you’re trying to figure out what your minimum should be in terms of the spend percentage, which is something that we also have, because obviously our percentage at$500 a month, well, that’s not really going to work too well.
So you do want to have some sort of minimum terms of spend or percentage so that you’re not spinning your wheels for too little money.
So that does it for the three big pricing strategies that I think you should be using as you get started with your consulting practice.
So now let’s figure out how much should you actually charge, irrespective of which one of these you choose? Well, this is going to be the hardest part.
So I’m going to give you two strategies to use, one for hourly and one for the package or percentage, but first, we need to take a step back, right? So go and hit that like button, if you’re still watching and getting some value because now it’s time to really figure out and look at our service through the eyes of our ideal customer.
So we know what we want to charge. Hopefully, we know how much it costs to deliver those results.
We know the results that our clients are looking for, but now we need to figure out what are those results actually worth to the client. And this is going to be where you might actually need to do change your ideal customer or client.
So for example, going back to digital marketing, because that’s the agency that we run here. When we are doing Google ads or YouTube ads, the value of a customer to say a local restaurant versus the value of a customer to a car dealership is going to be astronomically different, right? Getting someone to come into a restaurant, that’s probably 5 or $10 per head.
If it was a really expensive restaurant versus getting someone to walk into a car dealership, that might be 10 to 20 grand, right? But we’re doing the same work. And so even though you’re doing the same work, the value to the restaurant owner is going to be a lot less than the value to the car dealership owner, even though you’re doing the same thing. And so that’s something that you need to keep up in mind with your pricing.
And so the car dealership owner, they have no problem paying 5 or 10 K a month for us running advertising.
Whereas if we did that to a restaurant that would make no business sense. So we decided to go after clients with business models that would allow us to get to that 5K to 10K per client range versus going to local businesses where we’re probably only a couple hundred dollars a month, even though we’re putting in almost the same amount of work.
So how do we actually figure out what our price should be? Just keep that in mind when you’re coming up with your price, well, the best way is to actually figure out your costs and then add some sort of profit margin on top of it.
Now, if that sounds overly simplified, well, it should be, because it needs to be simple in the beginning, you need to make sure that you are getting paid enough to put food on the table at the end of the day.
So keeping with our digital marketing example, something that I did when I first got started is I looked at how many hours does it take to put together a Google ads account from scratch? Well, it takes about two to three weeks. And over those two to three weeks, it’s 25to 30 hours.
Now the going rate for someone who does that, you can go on sites like freelancer guru and Upwork to figure out what freelancers are charging.
So the average going rate was around 25 to30 bucks. So I just went the low end and said $25, right? So $25 an hour, 25 hours, that gives me 600in $25 in quote-unquote cost.
And then if I wanted a 20% margin, that would be an additional $125 bringing my total fee up to 750. And that is exactly what we charged in the beginning.
Now I know that seems super elementary, where essentially you’re just taking whatever your hourly rate is, multiplying that by how long you think it’s going to take, and then just add like five or six hours on top of that, and that’s your package, but that is the best way to start because it makes sure that you’re not charging astronomically high, but you’re also keeping yourself out of that hourly rate camp.
Sure. You’re going to keep time-tracking and figuring out how to become more effective. And as you become more effective, your profit margin is going to get larger and larger. And as you become better at your craft as we did, we eventually went from $750 to account setup all the way up to $1,500 for an account set up, because we got better, we got more efficient.
And we started to have a proven track record of success with setting up accounts.
And so that’s what I recommend doing when it comes to figuring out what your actual price should be, figure out what the going hourly rate is for that type of service. And then of course figure out how long you think it’s going to take you, multiply those together, add five to ten extra hours on top of that, or 22 all the way up to 50% if you really want to go crazy.
And then that should be your price. You give it to someone flat and you’ve removed the hourly part of the pricing equation between you and the customer. And it’s up to you to become more efficient.
And most importantly, you have a much better understanding of how you can start to price your consulting services.