Working for yourself can be stressful! When you sit down to think about building your consulting practice, you think: How much should I charge?!
You might imagine scenarios in your head:
Someone seeing your pricing and thinking: “Oh that’s cheap! I’m going to squeeze all the blood out of this stone I can” and then you end up working yourself into the ground for very little return.
Someone sees your pricing and they think “She’s not worth that! Who does she think she is?! She’s crazy. That’s highway robbery.”
First of all – stop imagining scenarios. Whether you imagine positive or negative scenarios for your consulting business: they aren’t actually helping you get any work done. So just stop.
Secondly – I’m going to HELP you figure out how to price your services beautifully.
Ready? Let’s go!
The biggest challenge for new consultants is what to charge. Fortunately, I have a formula to help with that.
One of the questions people often ask me is: do I charge by the hour or by the project. My answer is: “Either. You have to choose for you.”
I have some clients that I charge by the hour, because I do “as needed” work for them but others I charge by the project, but I always, always, always keep my hourly rate in mind, because my time is limited and I’m not going to work indefinitely on a project with a limited budget.
The way I do this: I typically charge a project retainer but I limit the total amount of hours I will commit to the project.
How do I figure out the total number of hours I can commit to a project? I base this on my experience of how much time I know the type of work to take (I’m able to estimate this because I’ve done enough of this work in the past to make an estimate, plus I STILL track my time to analyze my productivity). I also estimate the total hours based on my desired hourly rate.
So how do you calculate what your hourly rate should be?
I’ll be honest, when I first started consulting, my hourly rate was purely based on “the bare minimum I thought I needed” or “what the client ‘could afford.’” Not really based on market rates and not even accounting for all of my expenses – so I undercharged for a looooooong time because I didn’t understand the VALUE of what I was providing.
Just because something is fun or “easy” for you doesn’t mean that you shouldn’t be compensated well for it. Especially because it was often “easy” for you because you have a ton of experience in it.
Getting out of that “it’s easy for me therefore I can’t charge ‘a lot’ for it” mentality has been a process for me, but here’s how I now calculate my hourly rate:
Baseline hourly rate = ((((“Annual living or business expenses” x 1.45) / 12 ) / 4) / the number of hours you want to work every week)
So here’s why I calculate it this way:
So for example:
Say your “annual living/business expense” number is $100,000, and you only want to work 30 hours per week, here’s how that breaks down:
((((100000 x 1.45) / 12 ) / 4) / 30)
That equals about $100 per hour.
Protip: Even if you have a 9-to-5 or other income, calculate your hourly rate as if you didn’t. For example, don’t take out any expenses because “your day job will pay for them.” If you do this, you’ll be selling yourself short in your consulting practice.
Please note: Make sure you have a sober assessment of your hourly rate by researching what people with similar experience charge per hour. You can use a site like Payscale for this. Just make sure you adjust per taxes and other business expenses.