In the United States, consultancy fees and prices can be structured in a variety of ways. But, as with most companies that offer services, the main challenge is to price their offers. The price of products is easier than the price of services because, with products, you can easily track production costs. However, determining the value of what constitutes the time, staff, and experience of services is very subjective.
This is why different consultants employ different techniques to ensure that the prices of their services are fair. In the process, consultants consider all the factors necessary to ensure they don't overcharge or undercharge. Otherwise, the risk of losing customers due to high prices remains a constant possibility. According to a study conducted by Consulting Success, the following statistics show how most consultants structure the pricing of their consulting services. Most of these consulting firms consider their fee structure to be a vital competitive asset that they rarely disclose to non-clients, making it difficult to compare the rates of other consultants.
The largest group of consultants that make up the market are self-employed or freelancers and, in general, they charge according to what they think they are worth, especially since there is usually no ceiling on their rates, especially for those in the private sector. Hourly charging is a time-based agreement. Consultants are only charged for the number of hours worked. How do consultants determine their hourly rate? Often, when consultants get paid by the hour, they base their salary on the amount they received from the company they worked for or where they still work by the hour, with a small profit margin. According to the Small Business Administration (SBA), the hourly rate is taken from dividing the previous wage by 52 weeks of work and then dividing that number by 40 or the number of regular working hours in a week.
Consultants should then consult with their competitors to ensure that the profit margin does not exceed 25-30 percent. New consultants charge less money to build a portfolio, so you'd expect to get great deals when working with them. Although rates may vary mainly by location, among other factors. The daily rate is basically derived from a consultant's hourly rate multiplied by the number of hours per day that a consultant is expected to be available to work. Most consultants prefer to charge this way, as clients are often used to hiring services on a daily basis to avoid limitations on the scope of work, which usually happens if you charge by the hour. Clients tend to be more comfortable with an hourly or daily rate because they could evaluate the need for consulting services from time to time without the hassle of most long-term agreements.
Clients may not be actively involved in all of those stages, but they are certainly part of the consultant's job, so they are necessary to estimate project costs. A trusted consultant will assure you that there will be no hidden charges from start to finish. There are cases where the services of a consultant are needed on an ongoing basis. In such cases, a retainer agreement is more appropriate. Some examples of consultants who provide services on a recurring basis are legal consultants, IT consultants, and even financial consultants.
You pay an upfront fee to ensure your consultant is available any time you need advice or assistance. Retainer charges are usually calculated in the same way as project rates are calculated but putting a consultant on a monthly retainer can give you an advantage. Monthly retainers guarantee the consultant a regular flow of revenue without having to spend on additional sales and marketing costs to secure a project with you. You can leverage this type of business once you've tried out a consultant after a month or two or once you've already covered the entire scope of the project. That said, some consultants are only available for retainer arrangements; since there is an initial investment required to explore your business and its needs, a long-term commitment may be necessary. The best option you have is to pay based on the value that your consultant brings to your business rather than just for time spent or materials given. Finding the right solution for your business can be extremely difficult as navigating through the consulting landscape is very difficult when you don't have reliable references or sufficient budget for an industry guru.
See my extensive guide on how to find and evaluate a consultant to help you scale your business. Let's take a closer look at each of these factors in more detail in following sections. The market rate refers to average market price or what customers typically pay for certain products or services. While this doesn't serve as mandatory limit for your prices determining market rate is crucial for structuring consulting fees. Lower quantities tend to suggest longer iterations i.e., set aside at least several days for training plan/course/monthly consulting retainer or work with small businesses in consulting and implementation capacity i.e., marketing campaigns/hiring help/overall high-level strategy. As noted above type of relationship would dictate fee since longer plan would mean higher final amount and less time spent discovering/pre-selling/better long-term financial planning. Some colleagues sell one-time consulting calls and then sell other services through agencies/partners while others have minimum limit like “one day” or some other arbitrary amount which they consider minimum requirement for job which may include other factors like having go work/conduct video training for internal departments. According The B2B Marketer there are typically two types of consulting engagements which are Project and Service type where former is generally non-recurring while latter is recurring. Services provided by consultants are linked with some expectations in terms of return on investment and professional business consultants often focus on ROI when pricing their services. In conclusion it's important for businesses looking for consultancy services understand different pricing models available so that they can make informed decision about which one suits them best depending upon their needs and budget.