It can be a difficult task to determine your fee as a self-employed consultant. There are several pricing models that you can consider when deciding what your consulting services should cost. This article sheds light on these pricing models and is based on an interview with Casper Mønsted, director and partner in Incentive and specialist in pricing.
According to Casper Mønsted, you must first and foremost set a price for your services that reflects the value you create for your customer. " Too many companies – large and small – focus solely on covering their costs and then some. But for customers, your costs are not important. What is important for them, on the other hand, is the value they get by buying your services."
It can be difficult to accurately calculate the value, especially as an independent consultant who rarely can afford major market analyses. But as Casper points out, there are other things you can do.
Talk to your customers about what they were particularly happy about by your cooperation, how they have been able to use your solution and what it has meant for their business.
A good understanding of the value creation also means that you are aware of what the customers' alternative to choosing you is. Are you up against a competitor , can they handle the tasks internally, or is the alternative that the task is not solved?
Last but not least, Casper encourages you to look at your order book. If you receive more inquiries than you can handle, and always have the calendar fully booked, then maybe it's time to raise the price.
After you have created an understanding of what value you create for your customers, it is relevant to consider which pricing model is right for you. Casper suggests that you consider the following three pricing models when communicating a price to the customer.
The first pricing model is about calculating your fee by setting a fixed rate per hour you work. A fixed hourly wage can be an advantage if there is great uncertainty about the scope of the project.
If you, as an independent consultant or adviser, are unable to estimate how long a given task will take, or there is great uncertainty about the project, the classic pricing model, where you set an hourly price, may be the best for you.
The better you have understood how much value you create for the customer compared to their alternative, the better you are able to set the right hourly rate. If you choose this price model, you must be aware that the payment per hour does not have to be a fixed rate for all clients, types of tasks or times of the year. Here it is a good idea to differentiate so that the price is higher the more value you generate.
Another possibility is that you, as an independent consultant, create some concepts and products that you can sell at a fixed price.
This pricing model works best if the task you need to solve is well defined and if you have experience with the customer and task type. With this price model, in contrast to the hourly price, you avoid that your fee is reduced if you solve the task faster or are more efficient than other candidates.
In a situation where you have developed a more efficient method, or have a unique specialization that makes you more efficient and allows you to deliver a high value to the customer, this model is therefore preferable. You must remember to define your products very precisely, so that you and your customer agree on what you must deliver, how much and how often you are available, etc.
You can also choose to set fixed prices for well-defined projects and combine this with a follow-up service agreement in case your customer needs extra services, which is calculated on an hourly basis.
The outcome-based price is a model where you set your fee according to the customer's measurable value creation as a result of your service.
This model can allow for very high fees, but is also associated with a high risk. In order for this model to work for you, it is important that, in collaboration with your customer, you are able to measure how your service has affected the customer in isolation (e.g. in kroner saved or additional income).
You must choose the pricing model that best suits you based on the value you create, the services you provide, the value of your methods and the uncertainty surrounding the projects you work on.
Don't be afraid to differentiate your consulting services and the price of them in relation to your customer groups and project types.