Consulting Pricing Models Overview

Sep 18, 2024

Consulting Crash Course: Pricing Models

Introduction

  • Presenter: Drew from Hourslogger
  • Focus: Consulting pricing models
    • Various pricing models
    • How much to charge
    • Payment terms
    • Discussing price with clients

Pricing Models

Overview

  • Selection of model depends on industry and experience
  • Main pricing models:
    • Hourly
    • Per Project
    • Retainer
    • Productized Services
    • Value-Based

Details

  • Hourly
    • Simple and common
    • Charge based on hours worked
  • Per Project
    • Estimate total project cost upfront
    • Risk of under/overbilling
  • Retainer
    • Advance payment for future services
    • Useful for sporadic work
  • Productized Services
    • Systematized and packaged services
    • Example: Fixed price for a service (e.g., $1,000 for a website)
  • Value-Based
    • Price based on value/ROI to client
    • Can be highly profitable but difficult to negotiate

Setting Rates

Calculating Rates

  • Formula: Desired salary / working months / weeks per month / hours per week
    • Example: $100,000 goal -> $70/hour
  • Assumes 75% billable hours
  • Consider industry, experience, location
  • Check competitor rates
  • Experimentation advised

Additional Considerations

  • Consultants charge more due to lack of benefits and extra taxes
  • Opt for fewer large contracts over many small ones
  • Advice: Charge more than you think you’re worth

Payment Terms

  • Include terms in contracts and invoices
  • Payment frequency: Twice a month is recommended
  • Payment period options: Due immediately, Net 10, 15, 30, 60
  • Payment methods: ACH, check, credit card
  • Consider fees (e.g., 2.9% for credit cards)
  • Late fees or discounts for early/late payments (2-5%)

Discussing Price with Clients

Strategies

  • Practice to speak confidently about price
  • Disclose price after understanding client needs
  • Develop a list of client questions
  • Use a high-low range if not ready to give a definitive price
  • Understand the client's needs, project scope, and timeframe first

Handling Objections

  • Steps: Listen, Understand, Respond, Confirm
  • Common objections: Too expensive, Busy, Not interested
  • Sample responses:
    • "What if x changes?"
    • "Would you consider a test run?"
    • "What would have to happen for us to do business?"
    • "Mind if I follow up?"

Conclusion

  • Next topic: Accounting for consultants
  • Aim: Building effective consulting practices