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Consulting and Customer Service

How To Price Consulting Services

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Beginning consultants often underprice themselves and go out of business. They divide their annual salary by 2080, the number of work hours in a year. For example, $100,000 divided by 2080 equals $48.00 per hour. The problem is, new consultants only bill half their time, say 20 hours per week. In addition, this formula neglects the cost of benefits, usually 35-40% of annual salary. If your corporate salary is $100,000, your total compensation is roughly $140,000 (base salary + 40%).

Therefore, when figuring your consulting rate, you should always include the cost of benefits, like this: $140,000 divided by 2080 equals $67.00 per hour. Then you double this number to compensate for unpaid time doing such things as administration, customer service, entertaining clients, sales and marketing, and proposal writing. Now your hourly rate is $135.00 per hour—something sustainable you can live on.

"Gulp," you say. "That's awfully hard to ask for."

When I launched my consulting practice in 1978, I charged $15.00 per hour with the guarantee that if you didn't like the meeting, you wouldn't have to pay. I've gradually raised rates to $350-500 per hour today—with the same guarantee.

How do you ask for a lot of money?

As you know, everyone likes to feel they're being treated fairly. Everyone loves a deal. I've often positioned my rates like this: "My normal rate is $75.00 per hour, but because you're a friend of a friend (or it's the holidays, or you're on a tight budget, etc.) I'll do it for you for $50.00." Without exception, people appreciate this gesture of savings and don't dispute my fees. The same principle applies to large projects. Just structure your pricing accordingly.

It's important to benchmark your rates against the market. Obviously, you can't charge $135.00 per hour if the going rate is $75.00.

Package or project prices are generally better than hourly time and materials charges. Why? Because if you complete a $5,000 project in 10 hours, you've earned $500 per hour, not $135.00 per hour—your usual rate. Over the years, I've completed several $10,000-$20,000 projects in just a few hours. You'll need those big hits occasionally to stay in business.

Consulting often involves getting a client, delivering service, then finding another client. That sequential model of client after client creates the feast or famine income that consulting is famous for. It's a catch-22: while you've consulting you can't be selling, and while you're selling you aren't generating cash. How do you reduce the up-and-down cycles and even out your income?

One way is to establish "anchor clients." You're familiar with the idea of anchor stores in a shopping center—big companies like Nordstrom or Sears who "anchor" the center and make it profitable. Smaller stores contribute revenues but are less essential to the project's financial success.

In a similar way, consultants can secure "anchor clients," large ongoing projects that deliver revenue month after month. One or two significant anchor clients can keep you in business and even out your cash flow. It's almost like having a job while still being independent. If you work ten hours per week for one organization, and five hours per week for a second company, you'll have time left over for smaller, one-time assignments. You'll control both your time and your own destiny.

That's the beauty of independent consulting.

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William S. Frank, M.A.,
25 Reasons I love consulting.
by William S. Frank
  1. Brand. You are your own brand, and you can define it any way you want. For many years, I provided outplacement to the ex-employees of Schlumberger, the world's largest oilfield service corporation. When departing employees left the company, they didn't request outplacement in their severance package. They said, "I want Bill Frank."
  2. Demand. The world will always be full of terrible problems that need solving.
  3. White Hat. I can be a helper and get paid for it.
  4. Pay. I can be paid to do things I'd gladly do for nothing.
  5. Variety. Every day is different.
  6. Happiness. At this stage of my career, I only work for people I respect and care about. If a client micromanages me or is otherwise no fun, I complete the assignment and replace them.
  7. Talent. I'm using 110% of my talents and stretching myself to the max.
  8. Change. I can change my focus any day I want. If you're a McDonald's franchisee, you don't say, "Hey, I've got this great idea for a meatball sandwich—let's try it out today." In consulting you can adjust your focus hour-by-hour, as long as your clients still understand and appreciate what you do.
  9. Income. No one else would pay me as much as I pay myself.
  10. FUN. I can't think of anything I'd rather be doing.
  11. Retirement. I can write and consult as long as I am physically and mentally capable. Peter Drucker worked into his 90s, and when asked which book was his best, he said: "My next one."
  12. Job Security. Although clients come and go, no one can come into my office and say, "Pack up your stuff . . . You don't work here anymore." In 29 years, I've only had one employer: ME.
  13. Travel. I don't have to travel unless I decide to. I travel if it's both FUN and profitable—or at least FUN.
  14. Commute. I live five minutes from my office, a corner office in an upscale six-story tower. In winter, I leave a heated garage at home and drive to an underground heated garage at work. There's seldom time to hear even one song on the radio.
  15. Vacation. Consulting is more fun than vacation (except on Wailea Beach in Maui).
  16. Friends. I have developed hundreds of close acquaintances and several lifetime friends.
  17. Time. I can work as much or as little as I like: four-hour days or 18-hour days. (Of course, my income will reflect that.)
  18. Employees. I can work with employees, subcontractors, partners, or alone—I've done it all.
  19. Passive Income. I've developed several products that provide "mailbox money." I earn while I'm sleeping.
  20. Ethics. I've never had to violate my values or personal code of ethics. I've never had to lie, purposely deceive or harm others, or promise things I can't deliver. I go to bed with a clear conscience. That doesn't mean there's never any conflict. But the conflict is conducted according to generally accepted business practices.
  21. Virtual. My career is fairly portable. With the Internet, e-mail, cell phone, and FedEx, I can work nationally, even internationally from my office—or anywhere in the world.
  22. Purpose. I make a difference in peoples' lives every day. I see it in their faces, hear it in their voices, and read it in their thank-yous.
  23. Experience. Every painful or joyful life experience makes me a better consultant. So does every person I meet or book I read. Grey hair can be good in consulting.
  24. Structure. I have to work very hard, and the clients expect superb results—but I get to structure my days, weeks, months, and years.
  25. Boss. Most of the time, I love my boss.
As I was posting these letters online, I realized I want to communicate my love for consulting. It's just a great business. The single letters, taken together, may create a picture of enjoyment, but in a burst of creativity I listed some of the reasons consulting is such a good fit for me—and perhaps for you, too. They are not prioritized; this is just how they came out.