Know-How Exchange : Strategy

1) How do you price contracts? By the hour/day/week/month? By Deliverable? By Length or Project? Non-negotiable Flat Rate Fee?

All of the above. If you go flat rate spell out exactly what the limits of the engagement are.

Nothing is non negotiable

2) What factors go into your rate? (Competitive bidders, your own experience/expertise, what the client can afford, price on a whim?)

Rates are always driven by background and credibility. Then deal with what the market will bear, what you need to cover your nut and so on.

Flat rates are easier because I can say OK, this is going to take about so long, and I'm willing to do it for so much. Hourly rates are tougher, but don't be squeamish about setting out a healthy rate--if they can't afford it or don't want to pay it they'll tell you that.

Your hourly rate also depends on background and credentials. Probably would never want to go under 115/hour and if you're a sole consultant I doubt you would get more then 200 tops--adjust for size of company etc.

3) How much negotiation do you get from prospects? Do they try to lower your price? Do you let them?

Every client wants more for less and every client negotiates. You have to give it to them too a lot. For new folks like you, where every client is critical, you have to be pretty amenable to negotiation . . . but always ask for something in return if you can. Don't sweat it if the fee is lower than you want, and don't compare your rates with consulting firm rates or other more established consultants.

New consultants need clients.

My reason for asking:
I have come upon a rather nice niche in marketing consulting

Always remember, you are not the first person to find any market opportunity. Make sure you know why no one else is pursuing it. It may be a dead end.

You describe a two week project . . . almost entirely based on primary research conducted by yourself with work product being a written document highlighting your findings and offering your observations. This looks like about 2/3 research and 1/3 writing, and I'm thinking it's probably a 48-hour effort (working not elapsed time)--Basically four days of research and a couple days writing.

If you do a good job there is a promise of further work, but never forget that that is a trick clients use to drive pricing down and that down-the-road big engagement carrot doesn't always happen or even for that matter exist.

I'd probably want between 8 and 10 for the work. But if I were first starting out and this the first client, I'd do it for as little as 5 ($105/hour). . . might want to get them to formalize some sort of intent to bring you in on further work if they want to grind you hard.

Again, if you're someone with a strong background and perhaps even known in your industry, charge more.

I guess though you need a first client more than you need to make up a 3K delta between your hypothetical low end and mine, so you're probably wise to be prepared to say yes and take a hit on this one.

Oh yea, don't forget to deal with expenses. A research project sometimes leads you to information sources that are sometimes expensive--from something not so expensive like a competitor ad placement audit to those 5K segmentation studies. If you've got to determine things like market size, demographic profiles, historical and current market share y0ou may need some of these and you have to have somebody other than yourself pay for it.

As often as you can, ask your clients to pay your expenses directly, rather than reimburse you. Plane fare and so on.

Final thought: make sure they understand your full capabilities now, whether those skills are coming into play here or not. Otherwise they'll pigeon hole you so fast your head will spin. If they're asking for research only here, and you're setting up a more full service consultancy, let them know that and make sure the message sticks. That's the best road to follow-on sales, upsell and cross sell. Otherwise, youll be thought about only when they need some research.

Hope this helps

Hi, Tate --

I've rarely discounted any contract or consulting work. Instead, I build incremental deliverables into a Scope of Work document. I use those deliverables two ways:

- As milestones for payments due
- As negotiating chips

I use deliverables as payment milestones primarily to put the client at ease. I try to define the deliverables at different stages of value, so that if the client wants to put a halt to the work before the end of the project, they can walk away with something of value, and I don't leave empty handed.

For example, on my last web development project, the first deliverable was simply a set of design proposals. The client could have taken those and handed them to another firm, and I wouldn't have invested any "unpaid" time jumping ahead to another deliverable.

To use deliverables as negotiating chips, you have to consider whether you can actually control the scope of the work effectively (i.e., is it an all-or-nuttin deal?). Rather than negotiate your rate, you flex on the outcome of the project.

To expand on my earlier example... I knew the client would suffer a bit of sticker shock on the total project price. So in the Scope of Work, I outlined in detail the final website content, and when they hesitated, I offered to scale back on the content. I explained that they could do the project in phases. Giving them that option did the trick, though! They opted for the whole basket.

I know you're not doing web stuff, but with some thought you can break just about any project down into three or four "stop/go" milestones and any deliverable into Sm/Med/Lg sizes. Good luck!

- Shelley

ps. Not sure if I made it clear... my projects are generally for a flat fee, broken into 2-4 payments based on key deliverables. (The only time I do hourly work is when the project is too open-ended or long-term.)

I could write a book on this one. In fact, I have. You will find a full discussion of pricing approaches for consulting fees in Rasputin For Hire : An inside look at management consulting between jobs or as a second career.

In a nutshell, when you look at the pros and cons of the various options -- per diem, retainer, flat project fee -- the only one that really makes sense is the flat project fee. Per diem, in particular, motivates you to be inefficient and the client to spend only the bare minimum of time briefing you. Retainer leaves you open to abuse, though it's nice to have a regular paycheck coming in, once you and the client know each other well enough to trust that everyone will be fair.

One of the great hidden benefits of the flat project fee is the requirement that you really think through the deliverable and the time that will be required to satisfy (or exceed) the client's expectations. That means you have to really understand what success will look like for the client -- sometimes in more detail than the client ever realized.

I'd be happy to go into greater detail, but then I'd just be quoting the book. If you're really in a hurry, order the book on the website (www.rasputinforhire.com), and let me know by private email. I'll be sure the book is sent out same day via Priority Mail. (If you prefer FedEx, let me know that too, and I'll expedite with the folks who handle fulfillment.)