When most people start consulting on their own (and potentially subsequently hire people and start an agency), they charge too little. Don’t be embarrassed – everyone does it. When I was doing my first freelance consulting projects in 2011/2012, I was literally charging $50 per hour and was billing hourly. I fairly quickly with the next couple of clients raised my hourly rate to $75 an hour, but still billed hourly.
Now, when I do personal consulting (where I mainly focus on B2C organic acquisition for digital marketplaces) I charge a minimum of $4000 per month ($5000 for a focused SEO audit, more for a comprehensive audit) and do any hourly work (of which I do very little) at $250 per hour. To say I’ve raised my rates significantly is an understatement. I charge what I do because I have worked hard to become an expert and positioned myself as an expert.
So how did I and many others I know do it, and better yet how can you do it for yourself?
We’ll cover a few areas in this guide:
1. Why we undercharge at first, and why that’s not necessarily bad
2. How to benchmark yourself against what others currently charge
3. Creating a rubric for pricing work
4. How and when to communicate price increases to current clients
Why We Charge Too Little
Everyone undercharges for their services at first. We already covered that. But why? While this is almost universally true in the consulting world (and can make charging a premium a bit trickier as a seasoned practitioner and consultant), it’s natural and not necessarily a bad thing.
I see three main reasons why first time consultants undercharge:
1. They are still fairly green in learning their marketable skill and thus shouldn’t charge an expert rate for sub-expert work
2. They are still trying to build their book of clients and past clients, so they quote a price that they are positive the client will say “yes” to
3. They do not know how to justify above-market-rate prices to potential clients
I’ll cover the first two here, and the third point will be published as a post on its own next week. I will update this post when that goes live.
Charging Less As A Novice
Let me be very clear – as a novice practitioner signing consulting clients, you should not charge the same as a more senior practitioner with years (even decades) of experience honing their craft. You may be good for your current years of experience, but you are not yet expert level.
As a novice practitioner consultant, you should be completely upfront with your potential client as to your current skillset. If you’ve been doing link building but your client wants a technical SEO portion to the project, you should do one of two things:
1. Tell them that technical SEO is not your forte but you want to get better at it so you’ll do that part of the project for a reduced price (and the irony here is they are probably more likely to choose you for the overall project because you were honest with them)
2. Tell them that technical SEO is your forte so you will partner with a technical SEO, which is why you are not charging them less for that part of the project (since you still need to make a margin AND you’ll have to pay someone to do the work)
The most important thing to remember is this: always be honest about your current skillset. There is no quicker way to get a bad name with clients and perpetuate a snake oil reputation of our industry.
Novice Consulting Sales Problem: Not Knowing Their Budget
On the same token, you should charge what your clients are willing to pay. This comes back to your sales skills and learning what a client is willing to pay. This is precisely why I ask inquiries coming through Credo how much they likely have to spend. Aside from the fact that this helps me to route leads to the right places (because many agencies/consultants do have a set minimum for work that they will take on), it also helps the pros anchor their proposals somewhere.
This is one of the major consulting sales faux pas (French: don’t do’s) that I see – not knowing what your potential client’s budget range is. If you do not know this, you will likely do one of two things:
1. Quote them too little because you do not want to overquote, because overquoting is often seen as worse than underquoting since you won’t make any money; or
2. Overquote because you misunderstood or assumed wrongly their budget and how that maps to the scope of the work that they want.
There are a few simple ways to at least get an idea of their budget. First, if you are on a site like Credo then you get their approximate budget in the leads sent to you. If you have your own contact form on your own site (and you should!) then you can provide a pricing field. You can choose whether to put a range (as I have on Credo) or a simple check box that their budget is over your minimum so you can qualify it.
Let me rant just a minute on lead volume, because I’m sure a lot of you are screaming in your head “But that will kill my conversion rates!” And you know what, you’re right. You will almost definitely get fewer leads by doing this, but that’s ok! You’re likely not in the leads business like I am (and I’m figuring out how to keep lead volume and quality high at the same time), so why do you care about lead volume?
Tell me which of these would you prefer:
* 8 leads, 6 phone calls, 3 new clients
* 80 leads, 30 phone calls, 6 new clients
Now, it probably depends on the scale of your operation which one you choose, but personally I would take the first one any day because my time is more optimized. I’m not doing 24 phone calls that don’t close because the lead isn’t qualified enough from my form. It’s really easy to look busy, it’s really hard to be effective. Read the Elimination chapters in Tim Ferriss’s The Four Hour Work Week to change your perspective on work and why we work so much.
I’d rather spend less time on sales calls (in the above example, 3 hours instead of 15) to close the work I need to make ends meet. In fact, if you do the math above you will be able to close just as much work with 40% of the effort, since your initial leads are more highly qualified than scenario 2’s. Seems like a no-brainer to me.
Ok, rant over.
Building Your Book of Clients
The second main reason practitioners price themselves low at the beginning is to build their book of clients. You’re still getting experience, which we’ve talked about above, and you also need to have some case studies about the results that you have gotten for other clients so that you can sell those bigger clients. Similarly, when you’re charging less you are also learning the other strategies you need to run a successful consulting practice or agency – sales, everything involved with contracts, client management, time management, and so much more.
Businesses are savvy when it comes to hiring people. They are always trying to get more for their money, and that includes when they hire a consultant. Price is definitely an important factor for businesses, especially smaller businesses, so if one person offers them a set of work for $X,XXX and another offers it for $XX,XXX, they take that into account and ask what more they’re getting if they pay $XX,XXX. If they’re not receiving exponentially more value or work for the money, guess what? They’re going for the cheaper option.
An aside – those who charge more because they have the experience to merit it are likely way better at selling than novice consultants or sales people are. I’ve sold my own consulting work for almost 6 years now, and I close 75% of the work that I pitch. I can guarantee you that I can close better clients at higher hourly rates or retainers than less experienced consultants simply because I have done it so many times. So price is not the only factor, but can be a strong one.
Because one of the next biggest factors taken into account by potential clients is your experience working with similar websites in a similar industry (or with the same business model, eg ecommerce), sometimes it can be quite strategic to undercut your competition price-wise (while still making monetary ends meet) to get that big client on your roster. And if you are smart, then also writing into your contract the ability to use their logo on your website.
Benchmarking Your Prices
Most young (or even experienced) consultants don’t charge enough because they simply don’t know how much their competition (or those doing similar work, such as those doing PPC strategy when you do SEO strategy) charges for the same types of work. If you have worked at an agency before, then you probably have a benchmark for how much they charged and accordingly how much you could charge.
Let’s also remember that your pricing will vary depending on the type of business you are running – strategy, services, individual consultant, agency, using contractors, etc. The larger the business and larger number of services or strategy you offer, the more complicated pricing becomes. And that means that you’ll have to do a bit more work to charge the right pricing.
So how do you benchmark yourself against others? Here are a few ways:
1. Ask fellow friendly agency owners or consultants what they charge. Ask enough to them to get an idea of the spectrum, then make yourself competitive (and find a competitive advantage, such as charging less because you have scale or charging more and having a better offering);
2. Use our post on SEO and other consultant and agency rates;
3. Look at Credo’s list of pros (or scrape it) and find medians based on retainers or hourly rates. We publish both.
If you want to check out our post on SEO and other consultant and agency rates, you will see this graph:
On that live chart, you can click into each individual type of service and see the breakdown of monthly retainers and hourly rates for both agencies and consultants. That gives you a great place to start.
Finally, we are conducting a survey of marketing agencies and consultants to gather this information more broadly across the industry. The findings will be published in full publicly in mid-January, and will be available for download for just your email address.
Creating A Price Rubric For Your Consulting Business
Once you have benchmarked your prices against others and come up with your initial pricing (which will always change), now you need to create a pricing rubric for your business. If you’re not sure what a “rubric” is, it’s defined as ” a set of instructions or rules.”
Basically, it’s how you define pricing based off the type of project.
If you offer a very specific type of service, like technical SEO audits, then yours may look like this:
- SEO code review (per page template): 3 hours
- Internal linking audit: 4 hours
- Page template on page SEO audit: 2 hours per template
- Keyword research (per 50 pages): 3 hours
- Writing up recommendations: 3 hours
- Client management time: 3 hours per month
- Reporting: 1 hour per month
If you operate at a $250 per hour rate, a site with 4 templates to review, 500 pages needing keyword research, and the writing up of recommendations, delivering them to the client, and reporting will cost around $14,000. Every single time.
Your consulting is a business, even if you only do 5 hours of freelance work a month moonlighting alongside your day job. It’s a business just like a grocery store is a business. Grocery stores don’t arbitrarily charge based off what a specific customer wants to pay – the grocery store knows what they need to charge on tomatoes to make a margin on tomatoes, and that’s what you pay.
Same for your work.
Important to note: this is an internal rubric only.
I do not recommend that you show this pricing rubric within your proposals to your potential clients. This rubric simply exists to help you price your services consistently so that all projects have their best chance of being profitable for your company.
Instead, pitch them on the full project because this is what they need. If you show them how much each individual part costs, clients will try to nickel and dime you to ask how much it would cost to, for example, only do the code review and page template audit but not do the keyword research. You know that in order for them to see forward traction they need keyword research and the internal linking audit as well, so why are you going to give them the chance to sabotage themselves?
If they try to get you to break out pricing, then you or your sales executive has not done a great job of explaining to them why they need each part of the project that you are proposing to them.
Communicating price changes to current clients
Communicating pricing changes to your current clients can be a nerve-wracking experience (trust me, I’ve been through it many times). It’s never fun, but it is possible to do it well and come out on the other side with your business better off.
There can be many reasons for raising/changing your prices:
- Your experience merits it
- A client is unprofitable yet wants to continue working with you
- The client needs more of your time to see faster results
Raising prices can often lead to thoughts like “but what if they balk at the new price and go somewhere else? I can’t afford to lose that revenue!” If you’re thinking this, I have two things to say to you.
First, any time you raise or change anything in the consulting world, you run the risk of losing clients. If this client is unprofitable, then you can’t afford to keep them around for the health of your business. We have to make tough decisions in business.
Second, you should always have a strong pipeline of clients who want to work with you and are willing to wait and pay more than you are currently charging other clients. I understand that many agencies and consultants do not have this (which is part of the reason I started Credo), but it is a good goal to have and work towards.
When you are ready to raise prices on your current clients, keep three things in mind:
- Be as confident as you can that the client will remain with you
- Communicate the change way ahead of time
- Be specific about why your prices are going up
- Don’t negotiate down
Raising prices is nerve-inducing at the best of times, but you can settle these nerves by ensuring that a few things are taken care of ahead of time:
- The consultant or account manager has a good relationship with the client.
- The client is seeing the results they signed on to get, and these results have been communicated to them clearly.
- Build project/pricing reviews into contracts
If the client has not been communicated with often, they likely will not renew when you raise prices on them. Consulting is largely about relationships, and people want to do business with those with whom they have a relationship. Talk to your clients.
If the client is not seeing the results they’ve signed on for or they have not had the results communicated to them, you need to establish a habit of doing this with them before you approach a price increase.
A client should never be surprised by a price increase.
One great way to prep them for this conversation is to build in a project review at a certain point in the project (assuming they are a monthly recurring client). For example, maybe you agree to a certain price point and types of work for the first six months and you both agree to revisit the agreement after six months to make sure it is still working for both of you. A good client will recognize that you also need to be motivated to work on their project and will be open to this.
Second, assuming you have done the above (or even if you have not), the client’s point of contact at your agency (that could be you) should begin seeding the conversation early. For example, if you’ve promised a set of hours or projects monthly and are consistently over delivering, communicate this to the client. Great consultants keep their clients apprised as to how much time or work is left, and thus the client can understand when they are getting more than they are paying for.
This can cut both ways as sometimes clients will balk at a price increase because they’ve been getting more than they were paying for and like it that way (of course, who wouldn’t?), which is even more reason to not overdeliver for the sake of overdelivering. Instead, go back to your rubric when they ask for more work and offer to quote them for more work.
Don’t Negotiate Hourly Rates
I’ve said this in other places online, but it’s worth restating here. Negotiate on scope, not on price.
You are running a business, even if the business is just you working with clients. The bills have to be paid and you have a responsibility to yourself and your employees if you have them to operate a profitable business.
You need to figure out the prices you need to charge to operate a profitable consultancy or agency. You factor in available time, the price point that motivates you, your costs (tools, salaries, etc), and everything else that goes into running a business.
Then don’t go below this. If your clients can’t pay what you need to live and operate a profitable business, you need to either:
- Move up the chain and work with larger budgets, or
- Run a leaner operation
Don’t negotiate on this. You will run your business into the ground. If you need to, negotiate on the scope of the project but only so far as to eliminate the “nice to haves” and not the work required to get them the results they need or want.
Pricing your consulting work is hard, and is a constantly moving target. If you have multiple clients, you will inevitably have some that are paying you more (or better) than others. We’ve all had loss leader clients for a time. But at the end of the day, you need to charge what you are worth and need to live.