I am at the career crossroads. My company got acquired last year and my mandatory commitment is done. Now I am exploring what to do next. I have a few ideas, but also need some cash flow before I can spend time on it. So I have decided to go about part-time freelancing route. Trying to figure out job definition, audience, pricing etc. – Business Transformation Specialist
If the goal is immediate cash flow, the best business to start is doing something you already know for customers, where you’re already established – i.e., take your most recent job and pitch what you did for your former employer as consulting services for other companies in your current field. By sticking to what you’ve done before in an industry you already know, you start with a track record, a network and an understanding of what your prospective clients might want and need.
Don’t forget to include your former employer in your list of prospects. They might no longer have the headcount to keep you on salary, but could still want you as a consulting resource. Since you have a track record there, your most recent employer could be a quick, first sale. (Getting that quick first sale, even at a discounted rate, is the best first step to launching your business.)
With your job now defined as similar to your previous one and your audience now defined as companies within industries where you’re already established, the remaining question is pricing. There are four main ways to price your services:
1 – Cost of goods
If you were selling a product, you would account for what it cost to make it – i.e., the cost of goods. In this case, your production inputs are your years of experience, specific expertise and unique skills. A consultant with 10 years of experience wouldn’t necessarily price at double the rate of a consultant with five years of experience, but all things being equal, you would expect the more experienced consultant would have a higher rate.
One option is to price based on what you were earning before, including a markup on your base salary for benefits and other compensation you are now responsible for. Another option is to think about the value of you place on your time. If you want to make $200,000 annually and a full-time schedule is ~2,000 per year (40 hours times 50 weeks), then your rate should be at least $100 per hour. (It really needs to be higher to net $100 per hour because some of your work, such as selling, marketing and collections will be unbillable.)
2 – Competitor fees
In addition to basing your consulting fees on what you want to make, you can look at what other consultants are charging. You might have worked alongside consultants at your previous employers – hopefully you kept in touch and can reach out to learn about pricing customs. There might be recruiting agencies who specialize in placing consultants at different places, and they may give you an idea of your market value. If you have friends with hiring and/or budget authority, ask them about the going consulting rates.
Make sure you’re comparing yourself to competitors offering the same service at the same level. If you have a friend who hires consultants but for a different industry than yours, then you have to factor in any pay differential in the industries (for example, you would expect private sector to pay more than non-profit). If you get a rate quote from an agency, keep in mind that they are taking a cut because they are landing the client, taking time-consuming sales and marketing off your plate. The rate they pay you may be less than what you can negotiate on your own. Finally, if you hear about another independent consultant’s fees, look at their background, and make sure you’re not tying your pricing to someone with much more (or less) experience than you.
3 – Cost of other alternatives
Your potential clients might not only hire other consultants instead of you. They might decide to use technology, if possible, to do what you’re offering. Or they might divide the work among existing internal staff. Or they might decide to do nothing.
You want to know what the alternatives are in advance so you can address them when you sell to your prospective clients. You need to answer why you are the better choice. The difference may not come down to price, but by costing out these alternatives, you can get a sense for where your pricing should land.
4 – Value you deliver
For the Business Transformation Specialist who asked the original question that sparked this post, the value he delivers might be the best way to price what he does. A successful business transformation hits the bottom line in terms of increased revenues, costs saved, or some other measurable result that translates into dollars and cents. If you can quantify the value you will deliver to your potential client, your fee can be based on a portion of that value, regardless of how much time it takes you individually or your years of experience.
Tying your pricing to value enables you to charge considerably more than if you break it down to an hourly rate. Let’s say your work makes or saves the company $100,000, and it takes you four hours to outline the solution. Your client might balk at paying a $1,000 hourly rate, but that’s only 4% of the total value. If you pitched $100,000 in savings for a $4,000 investment, you wouldn’t hear as much pushback (and you might even be able to pitch higher than $4,000). Tying your pricing to value also helps you think bigger – and therefore ask bigger.
Give options that allow for flexibility as you experiment with pricing
Even with rigorous planning, you won’t know for sure how to define your services, who your ideal clients are and how you should price. The ideal offerings to pitch initially allow for some flexibility so you can see what prospective clients are interested in and how much they are willing to pay. For example, you might offer strategic advice separate from implementing the advice. You might break down the strategic advice portion even further by charging separately for the initial research into how the company is doing and then for recommendations on how to improve. The more you can break down your offerings, the more levers you have to negotiate as a consultant.
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