Working as a consultant can be a self-fulfilling profession. You get to choose your hours, the type of work you want to do, and what clients you want to add to your portfolio.
Whether you’ve been a consultant for a while or are just entering the world of consultancy, there’s one thing you must know.
It’s competitive.
Take management consulting. It’s worth over $300 billion in the USA—that’s just America, not even counting Canada or any other country!
As you can imagine, consulting is a highly competitive field. But, except for the quality of services, what else sets being a consultant apart?
Pricing.
The pricing range you choose can significantly influence how prospective clients perceive your work and position you in the market.
Pricing also paves the way for expectations, viability and competitive positioning.
Learn how to set the correct pricing that aligns with the quality of your services, attract the right clients, and drive profits with our breakdown of different strategies below.
Understanding the Value You Provide
As a consultant, consider value-based pricing. This strategy acknowledges your customers, their needs, and how they perceive the value of the products/services you're providing.
By simply focusing on what the client is willing to pay, consultants can set higher profit margins and gain a competitive edge in their market. It also helps tailor your offerings to meet specific requirements and create unique propositions, increasing the likelihood of long-term customer loyalty.
This approach focuses solely on delivering value and is seen as a more customer-centric pricing strategy.
Articulating your value
You likely have a lot of expertise and value to bring to your client. But how do you pinpoint exactly which area of your expertise is valuable to them?
It's simple.
You need to put yourself in your ideal clients shoes.
Your ideal clients are people with needs, and often, your value is dictated by how you transform their pain points into achieving their wants and needs. So, the first step to calculating your value is to put yourself in their shoes.
Try this: Have a “why” conversation with your client and determine why they want to hire someone as expensive as you. Learn about their needs and the expertise they require. This may give you an idea of how to position your worth for a value-based proposal.
In other words: Think about how your education, strengths, and experience combine to create a unique form of expertise that aligns with their work style and delivers the desired results.
Value pricing is all about catering to the mind of the buyer and the maximum amount of money they would pay for your consultancy services. Once you’ve figured out that you can set an attractive price that’s lower for them and suitable for you, you can have an attractive deal.
Tips for quantifying the impact of your work on clients' businesses
Whether defining, identifying or conveying your potential or existing impact for client’s businesses there’s different ways you can quantify your impact. Here are some top tips on how to do so:
Impact on profitability
How does your solution help increase your clients' profit or cash flow? This is a straightforward question, and rightly so. Many people make decisions centered solely on improving cash flow and profit margins.
Understand that value isn't just about money
When you first start out, you'll often price per hour because you think of time as money. But it's not the only thing clients value. They value guarantees(e.g. the problem will be solved and won't be a problem), they value speed, they value brand. Honestly, that's just a few examples of what you can use to quantify your value.
Metrics matter
Before beginning any project, defining a baseline dataset and selecting the metrics you intend to track is essential. This initial step proves invaluable later on as it allows you to gauge your impact effectively using appropriate comparisons.
Use comparisons
To show your value, comparison can be king. You may want to compare your work to industry standards, other consultants' performance, or previous data. Showing numbers can be a proven testament of your success compared to what your competitors share.
Add images
Use data visualization to convey your impact more efficiently. Once you’ve quantified your impact, put it in a roadmap or graph, or use other visual aids to make it easier for your client to understand. Transforming your impact into a visual outcome can allow you to efficiently highlight patterns, trends, and outliers.
Common Pricing Models for Consultants
One of the major benefits of being a consultant is that you have full control over how you set your prices. Typically, you can charge hourly, project-based, retainer, or value-based pricing.
Hourly
This pricing model is relatively straightforward. You dictate your prices according to the hours worked and bill your client for the time you spend on a project.
If the nature of your work involves a lot of meetings and in-person work, then hourly could be suitable. It’s important to know your hourly rate to set the baseline price for project and retainer rates.
Hourly rates are often best when you’re just entering the consultancy world. Especially if you don’t know how long a project will take, it’s best to charge according to an hourly rate.
Pros
Easier to explain the pricing structure to clients
Beneficial when you can’t exactly pinpoint how much time to spend on a project
Transparent pricing model, easy to track for you as a consultant
It provides flexibility and allows you to adjust according to the scope of work
Cons
It can reduce earning potential, especially if you’re working on multiple projects simultaneously.
It is hard to determine revenue and overhead costs
Project scope may creep i.e. clients may add a bigger workload to the project and may become more unhappy with the bill
Project based
This type of pricing involves undergoing a specific service for a set price agreed upon in advance. Compared to hourly rates, project pricing involves trading hours for a set amount of money based on your expertise for a specific fee that benefits you and your client.
The final fee presented to the client factors in the scope, complexity and value of the project. For a project pricing model to be undergone, there must be a precise plan and scope, alongside understanding your client's objective to create a valuable fixed cost.
Pros
It allows you to customize projects based on your client’s needs.
Allows you to provide your client with a unique quote
It helps set clear expectations about the scope of work upfront
Allows you to plan finances in advance
Higher perceived value for your services
Cons
There can be gaps in understanding of the project requirements
If changes in project requirements are made, a project price often needs to be renegotiated
It can be challenging to determine an accurate cost
Uncertainty about future projects
Retainer
A fixed sum of money paid in advance for a specific number of hours or work over a certain period is a pricing model that contains specific deliverables or expertise to help guide operations. It’s beneficial for consultants who are looking for job stability and do not want to spend time grinding to find the next project.
Pros
You don’t need to negotiate your rates every month.
There is a clear idea about the intended scope of work.
Steady and predictable monthly income.
Cons
It sometimes can lack flexibility if clients needs change every month
Workload can vary
Sometimes, the hourly rate is less than what a project-based model would be
The Psychology of Pricing
Pricing is a strategic way that uses both human psychology and cognitive biases to influence the opinion and behavior of your potential clients based on your pricing structure. To truly gain influence, you must set your prices so they reason with your prospective customers on a subconscious level, compelling them to purchase.
However, it must be able to be done on an emotional level.
Strategies for presenting prices so they drive value
To influence consumer behavior, you must think about what pricing strategies might be the most effective in influencing them. Here are some common pricing strategies to think about:
Cost plus pricing
This strategy is also known as markup pricing, combining contributing costs to your services and a fixed percentage added on top. To do this effectively, calculate the overhead costs, infrastructure used and any other expenses related to your services and then add the markup.
Competitive pricing
Competitive pricing is fairly straightforward: it involves setting prices for your consultancy services based on what your competitors are charging. This strategy can help draw in more customers and expand your market share, whether in online or offline markets.
Dynamic pricing
This is a strategy that allows you to price your services based on the market, type of customer, competition, and other factors. The pricing of your consultancy services correlate to real time responses of supply and demand.
Value-Based Pricing in Depth
This pricing strategy is used when you set a specific fee for your client according to the value or impact your service will create for them. It involves determining a value that your customers are willing to pay instead of calculating fees according to service cost and a standard markup.
In order for consultants to undergo value-based pricing, they need to have a service that separates itself from the competition. Maintaining open communication channels and having a strong rapport with your customers is also essential. Doing this allows you to gain insights from existing and prospective clients about the amount of money they're willing to invest.
How to implement value based pricing
To switch to a value-based pricing model, you need to first consider how your expertise can help a business owner or consumer. Then, you need to consider what value you can offer them.
Try this:
Diagnose your client's potential problem
Find solutions to fix their problem
Doing this will help establish you as a thought leader in your space. Then, you can provide a customized solution and charge a premium for your services, as you have the expertise to offer that prospect or client.
Note: Always think of the desired future state- what it would be like if you could help them.
Conversations to have
Whether meeting with a prospective or existing client, have a strategic conversation about the value you create and the outcome, as opposed to time spent and input.
But how do you do this effectively?
Well, first up, you've got to be enthusiastic.
Whenever you're meeting a client over a call
Be excited, engage, and listen to their concerns. It's essential to listen to what they're saying and be available.
Once you have a friendly presence, explain your agenda -how you can help them and the value you can create for them.
Another factor in your conversation to note is to be mindful of their time, as most people have hectic schedules.
Setting competitive rates
In order to set a rate that’s beneficial for you yet also competitive for prospective clients, you must know the market conditions. Try obtaining qualitative data from interviews, focus groups, and surveys.
Conduct a competitive analysis, reviewing the competition of your prospective client before providing them with a quotation. When undergoing a competitive analysis review, there:
Sales channels
Market share
Social media following
Product or service portfolio
It’s essential you find out what other consultants in your field are charging their customers. Some could offer hourly rates, retainers, or fixed-based pricing. The outcomes of this research can help establish an appropriate baseline rate to charge potential clients.
Adjusting rates based on experience
If you’re a consultant that holds a large amount of experience in a particular niche or industry, you can command higher prices or adjust them due to your expertise.
Prospective clients will likely pay more for professionals who can produce results according to past performance. So, knowing your worth can increase your confidence, preventing you from underselling yourself during negotiations.
Dynamic Pricing Strategies
Dynamic pricing is also a strategy that can help dictate how much you charge your clients. It’s commonly referred to as surge pricing or time costing, where your price is adjusted according to the industry, demand and client budget.
To give you an idea, let’s look at these a little bit further:
Industry
Every industry has a wide range of average salaries. Depending on your industry, your experience and expertise can dictate the charge you set for your consultancy work.
Demand
Think about the demand for your services in your market. For instance, if there’s a high demand for your services, you could charge more, especially if there are consultants with limited expertise. If this is the case, your services could be deemed more valuable, and you can justify charging a higher price.
Competition
Always consider your competition from other consultants. Although you might have in-demand skills, you might still have a lot of competition. The more competition you have, the more you may want to consider lowering your prices to win trust and open up new opportunities to clients.
Scope
The project scope is another factor that dictates the fees you charge. The greater the scope of work or the more complex the project, the more likely you can charge a higher fee as more work is often involved.
Client budget
Clients' needs, and expectations can influence your pricing strategy. You may encounter different clients with various budgets, which you must consider when deciding your prices. It’s always important to consider your value and how much they want to pay for your services.
Communicating Your Rates Effectively
To gain more significant influence over your clients and win your intended proposals, you must consciously consider how you handle your prices. To present your prices effectively, here are some of the best practices:
1. Simple pricing structure
As a consultant, you’ll want to use a straightforward and easy-to-understand structure surrounding your pricing model. This means cutting out any jargon and complicated fees and breaking down the costs so there’s a clear understanding of what each part of your cost covers. If possible, provide an itemized breakdown for complete transparency, and specify what isn’t included in the cost and your [ref payment method.
2. Provide packages
Provide prospective clients with different options or packages, giving them preferred choices according to their budget and needs. Consider adding tiered pricing structures that show them the differences to help them make a better decision.
3. Undergo value based pricing
Emphasize the value your consultancy services can provide to your prospective client. Clearly explain how your services can add value and benefit your client and whether you can quantify the possible ROI.
4. Add testimonials, case studies and visual aids
Add testimonials and case studies. If you show positive outcomes you’ve achieved using tables, infographics, or charts, it can make your proposition easier to understand.
How to handle negotiations and pushback on prices
When presenting your services to a prospective client, there might be times when they want to negotiate and lower your price. To ensure you not only win the client but also have them pay a price that's comfortable for you, try to:
Know your bottom line
First, determine the lowest price you can accept as a minimum. Doing this will help you create a clear boundary for negotiations, preventing you from underselling yourself and agreeing to unfavorable terms.
Listen
Understand any objections or concerns and listen to their why. Learn why they decide to push back on your price and then directly address their concerns. Doing this can help provide them value on your perspective and show you’re cooperative in working with them to find a beneficial solution that works for both sides.
Confirm the price at the beginning
When presenting your services, be upfront and share your price from the start. Don't surprise your prospective clients! If you share with them from the beginning, this gives them time to decide early on whether they'd like to proceed with your service offering.
Focus more on the value you
Emphasize the value of your services to give prospective clients an idea of why they need to work with you. If you find yourself in a position where your potential client pushes back, it can become easy to focus on the price drop.
However, instead of arguing, shift the dialogue and focus on the benefits your service provides. Becoming more persuasive can help them reconsider and pay your service fee.
Have an alternative option
If the people or organization you’re pitching to does not have a lower price, consider alternative solutions you can provide them. For instance, you could adjust the scope of work and present different options or services within their budget.
Stay confident
When negotiating, stay confident yet flexible around your client’s goals. Don’t be overly aggressive or confrontational, as this may cause setbacks or damage the relationship, making it more challenging to reach an agreement.
Pitfalls to Avoid in Pricing
To ensure every deal goes in your favor, you’ll want to know about the major mistakes made by consultants and how to avoid them. Here are some of the common ones:
Under pricing your services
One of the key mistakes consultants make is underpricing their services. While this may seem like a good way to attract customers, it can damage your reputation and services in the long run. When you don’t price your consultancy services well, you could be missing out on major money that could be reinvested into your business.
Depending on cost based pricing
Another problem can be that you’re spending too much on cost-based pricing. This is when you set your prices according to delivering a service to clients. Cost-based pricing can be a useful place to start, but it’s not enough on its own. This pricing model does not factor in the perceived value, market demand, competition, and perceived value of your services.
Not factoring in the time and effort
A major mistake many consultants make is misinterpreting the time and effort spent delivering services. When setting the price for your services, you should factor in hours spent on research, preparation, meetings, and follow-ups.
Ignoring the competition
It’s important to know what other consultants are doing in your space and analyze their pricing and performance. If your prices are too high, you risk losing prospective clients to your competitors. When offering your services, look for ways to differentiate them from the competitors to make them look more valuable.
Failing to review the pricing
Consultants also fail to adjust pricing over time. Failing to adjust prices can cause you to miss opportunities to make more money and stay ahead of the competition. Always monitor market trends, look at your value proposition, and adjust your prices to remain competitive.
The danger of underpricing and how it can affect your brand
Underpricing is not uncommon in consulting, but it can have long-term consequences, causing significant harm to your business. When you underprice your consultancy services, your prospective clients may view them as low quality or not value your products or services.
You could also potentially attract the wrong customers, those who are just looking for a bargain. These customers may lack loyalty and not be willing to pay full price for your services.
Review and Adjust: The Continuous Process of Pricing Optimization
For any consultant's strategy, it's important that it's refined every 6-12 months. Adjusting your strategy every so often is essential because it helps with:
Profitability
An up-to-date pricing structure allows you to seek opportunities to increase your profits. If your consultancy services are underpriced, you could leave money on the table.
Similarly, refining your strategy can allow you to adjust prices for low-margin items or bundle several services together to maximize your profits.
Competition
Another factor to look out for is your competition. Always observe what your competitors are doing and adjust your services' pricing to remain competitive. If your consultancy services are high-value and unique, you could charge a premium; however, if the market is crowded, you might want to be conscious of the rate you charge.
Market dynamics
Many markets are changing due to factors linked to supply and demand, economic conditions, and consumer behavior. Regularly reviewing your pricing strategy allows you to stay profitable and relevant amongst such changes.
Utilizing client feedback and performance data to refine pricing
Another way to justify your pricing is to look at existing client feedback and data and decide your fee. After all, customers can provide crucial insights into what they think of your pricing and value for your consultancy services.
Regularly collecting feedback from different sources, such as surveys, questionnaires, service reviews, and testimonials, can allow you to make more informed decisions about your pricing. Monitoring conversations and analytics from emails and social media can also help you make smarter pricing decisions to align with customer expectations.
Conclusion
In addition to the quality of work, finding the right pricing strategy for consultancy services is essential. If you're a consultant, you must first know the value you can create and then strategically articulate it to them to help influence the pricing. When sharing your value, use metrics, images, and comparisons to be as persuasive as possible.
There’s a wide range of pricing models, such as hourly, project, and retainer-based.
Regardless of your chosen model, you must review your strategy every 6-12 months to stay profitable and have a strong positioning in your market.
To help you with this, look at existing customer feedback and data. Then, look at opportunities for improvement and modify your pricing strategy accordingly to stay relevant and ensure long-term success that aligns with your business goals.
If you're like to read more about starting you're own consulting company, then check out these articles:
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