by Guest Blogger Andréa Coutu on her website Consultant Journal.
Andrea Coutu came to our attention when we were researching best practices on setting consulting fees. Her advice and products featured on her website Consultant Journal are excellent. We got in touch with her and she agreed to write a guest blog with more thoughts on the topic. Thank you Andrea!
Money – it can pose a huge roadblock as you relaunch your career. If you’re new to freelancing and consulting, you may feel like coming up with a fee is, well, a bit daunting. Mix in a change in careers, a career break or gender factors, and it can get more complicated. Fortunately, there are clear models and recommendations that can help you navigate this new path.
Gender affects the mix
A 2006 Harvard Business School study, When Gender Changes the Negotiation, found that women perform on par with men when negotiating salaries in low ambiguity industries. Low ambiguity industries are those where salary expectations are more clear to applicants. Although consulting is included as a low ambiguity industry, there’s a big difference between applying for a job and attempting to win a consulting contract. Independent consulting and freelancing – where you’re on your own -- may seem far more mysterious and ambiguous.
For many people, the thought of negotiating consulting fees sounds mysterious, overwhelming and indeed ambiguous. At Consultant Journal, I get a lot of email from readers who’ve stumbled on to my site late at night, while tearing their hair out over a need to get a proposal out the next morning. If you’ve never had to negotiate a fee for your services before, it can be intimidating. If you’ve made a career change, taken a career break, just started in entrepreneurship or never gone to bat for yourself before, you may feel like you’re facing several obstacles. But with a good roadmap, you can get yourself around, over and through those obstacles and come out on the other side.
Get confident by studying consulting fee models
Take the time to explore typical models for consulting fees. When you realize the value of each hour of your time, it can help you feel more confident about asking for a decent hourly rate or project fee. While you’ll eventually want to move on to solution-based fees that really get into the value you provide, most people start out with hourly rates – and many are happy to stick with those. But you’ll find there’s a range of models for determining fees:
- Doubling/tripling your hourly wage – if you’d make $25 an hour in a day job, charge $50 to $75 as a consultant. Likewise, if you’d make $60 an hour, charge $120 to $180.
- Using a daily rate for consulting – multiple an hourly rate by the hours in a day
- Setting consultant fees by the project – work out a fixed fee for each project so that your client need not worry about how much a phone call is going to cost or what the end amount will be.
- Setting consulting fees based on performance and value added – if you do this strategically, you can make a good profit, but with no control over how your client implements or manipulates your recommendations, you may not see the results you want.
- Setting consultant fees strategically using real-life data – a combination of working days, hours, profit margins, overhead, bad debt
- Charging what everyone else charges – this is a popular tactic, but does nothing to address the unique solutions you offer.
- Moving to solution-based Fees – this is more complicated and means you need a solid business and marketing plan behind you, but it’s the model that will leave you with the most profit.
Take the time to really evaluate and understand common ways of calculating consulting fees. Get into the models and take an in-depth look at each one. By taking the time to understand what goes into fee negotiations, you’ll feel more confident about presenting your fees to clients. You’ll also be in a better position to handle requests to defend your quotes or cut your rates.
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