One question that’s always out there for consultants and others who work for themselves, or even own small businesses, is how much should they charge for services. Truthfully, even seasoned consultants struggle with this question.

self employment

Price point is a problem because all of us want to get work and close contracts, and we’re perpetually battling someone else who wants to undercut our rates.

I once interviewed a friend of mine who’s an entrepreneur in SEO services. Before that he had started a company that made windows, and was doing really well because they built quality windows. Then one of the largest window manufacturers in the area decided to get tough to drive him out of the market. They not only drastically reduced their rates, but offered to pay for free advertising for any of his former clients who’d left. Within months my friend had to close down that business because he couldn’t compete with that.

So, figuring out what to charge is a valid concern, but it’s not always the case when there are others who offer what we consider as the same services for more money. Check out this video where the presenter is talking about why he paid $310 for a haircut:

That's another way of looking at pricing services based on knowledge, talent, experience and, best of all, word of mouth advertising. That's pretty hard to beat, which means if you can make yourself the person or business that people want to work with, you can pretty much name your price.

I acknowledge that might not be enough information for you to figure out what to charge based on what you do, so here’s a few things you need to think about, some beyond thinking about what you do:

1. How much money do you need to live on?

This is the major question you have to answer and it’s not as cut and dry as it seems. If you only want to make what you were making when you were working for someone else you might as well go get another job.

In essence, you have to make enough to pay your bills, be able to put some aside for those periods when you’re waiting for your next contract, marketing expenses, equipment and supply expenses, etc. You need to have enough money to pay for health insurance, food, at least a little bit of entertainment... things you don't put a lot of thought into until something comes up like problems with your car or some of your appliances.

2. How many clients/hours do you need to make the yearly amount you’ve calculated for yourself?

I told you it wasn’t easy. Say you want to make $50,000 a year, and you want to make $50 an hour at a minimum. This means you’d have to work at least 1,000 hours a year, or the equivalent of 25-26 work weeks a year; that's not a bad life if you budget well. If your projects usually take 2 hours to complete, it means you need at least 500 clients a year; if it takes 4 hours you need at least 250. If you're a consultant and can get a 6-month contract with just one client, you're solid.

But... could you get away with charging $100 an hour? That would bring you down to 500 hours for 2 hours, which is 250 clients, or 125 clients for 4 hours. If as a consultant you can get that same 6 month gig with one client you've doubled your money for the year and have more money to work with.

Can you reach that? Do you need clients who need recurring services, which makes it easier because you need fewer numbers? Can you actually get a lot of clients in a year, even if the number is just 125? What figure does your industry seem to need? If you believe you're really good, charge more; if not, learn more to you can afford to charge more.

3. The client’s ability to pay should be the least of your concerns.

This is a hard one to overcome for most new consultants because they want to get established.

Truth be told, you can’t expect to get everyone as a client, so you might as well shoot for those you believe can pay you. Being so exorbitant that you can’t get any clients makes no sense, but settling for an amount that you really can’t live on or sustain over the long haul isn’t worth it either. There’s nothing wrong with discounting here and there for whatever reason but don’t go into negotiations expecting to drastically discount your services.

I know what you're thinking because I've been there as a consumer. We get offered things at least weekly that will "only" cost "this much", and it feels like it's beyond our budget. If we're like that, won't our potential clients be the same? Possibly, but business is a different animal than general consumption. As long as what you offer is needed, you'll find clients who'll be willing to pay what you ask for as long as you can find a way to prove to them that you're worth it.

4. Can you determine your value?

What makes one consultant worth $30 an hour and another worth $500 an hour? Two things: what you bring to the client and your own feeling of self worth. Let’s look at these.

On the first, you have to ask yourself what your typical clients are going to walk away with after you’ve helped them with whatever their needs are. Are you going to help them make a lot of money? Are you fixing something they need to make their life or work easier, or it’s a necessary thing? Are you offering them something they might not think they need so it ends up being more about you than them?

On the second, how well can you evaluate your own worth? Do you see yourself at an expert or an authority? Do you have a track record, whether it was while you were employed or as an independent, for solid performance? Are there a lot of people who do what you do, and if so are they better than you? Did any of their other consultant's help a former client increase their revenue $730 million in one year (that's my line lol)?

These are stepping stones to define for yourself as an independent consultant; set a rate and start working from there. You can always look online at others in your industry who do what you do to see if you can find what they’re charging and modify yourself towards that. Just remember that, if you’re independent, there’s so many more things you’re responsible for that many of those who are employed don’t have to worry about.