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How to: Set a fee for your services


This Expert Guide has been written for freelancers and small companies delivering consultancy and training services to clients and who want to review the process by which they charge for their work. These notes will be helpful to people who are new to the business or who wish to re-examine their present fee-charging arrangements.

The dangers of mis-pricing

Setting a realistic fee for your work is central to a good business plan and a viable commercial operation. Set the fee too high and you won't attract work. Set it too low, and you'll be working long hours for little return. Speak to established businesses and most will tell you some of their golden rules, including:-

  • Don't undersell yourself: believe in your skills and expertise, and charge accordingly

  • Set an income target for month/quarter/year

  • With an income target in place, the higher your fees, the fewer days you need to work to reach them

  • Check what your competitors are charging, then set down how your services are better and therefore worth more

  • Make sure you know all your own direct costs

  • Don't forget to allow for the costs associated with buying/leasing your capital equipment

  • Be prepared to be flexible in your pricing: listen out for clues as to what the client is expecting to pay and negotiate

  • Know your own marketing costs: larger or multiple contracts might be discounted whilst shorter, one-off contracts may attract a premium - both may take the same length of time to secure, but the former is far more rewarding

  • And a golden rule for the marketing people - it's easier to attract more work from an existing client than it is to obtain a new client.
  • Deciding how to price

    When selecting your charging mechanism, you should remember that the client prefers to know exactly what their contract is going to cost; they don't want hidden extras or approximations. At the same time, you want to establish some boundaries to your own work commitment to the client so that the contract is not open-ended.

    For consultants and trainers, there are two ways of quoting a fee:

    1.The per-day or per-hour rate for your services. This is particularly useful for short contracts such as a training event or facilitation day, where the number of days is known in advance. Both parties know where they stand with a per-day rate - they hire you for two days' delivery and you expect to be paid for twice your daily rate. Bear in mind though that the client is only paying you for your 'visible' time. If you need to spend time in advance preparing materials, or afterwards gathering feedback, this will need to be built into your daily rate (see below)

    2.A fee for the whole contract. For larger contracts, perhaps stretching over several weeks or months, the client is unlikely to be interested in a per day rate as their final liability is difficult to quantify. Instead, the client will want a quotation for delivery of the whole contract. To produce a realistic quote for this project fee, you need to work out several things: how much work is actually required in the brief?; how long will this take you to deliver?; what will your expenses be?; what sort of contingency element should you allow in the budget? If you know your own daily rate and can estimate your expenses, then you can start to build an itemised budget for the work. Some consultants break this budget down into phases, so that the client can see where the time and money is being spent. Other consultants also include a review process with the client to reexamine the anticipated budget at intervals during the contract.

    You should remember a couple of useful points. First, everything is negotiable in a contract: put in what you want, and invite the client to discuss your proposed terms. Second, if a contract is proving too difficult or insufficiently attractive, walk away; spend your time doing what's rewarding to you!

    Just how much are you worth?

    Most consultants and trainers make the mistake of under-valuing themselves - particularly in the early days - and sell themselves too cheaply merely to ensure they have some income. Any business development programme will teach you that the success of a small business is built upon identifying a niche product/service and then charging a premium for it. Only the big players can afford to charge lower rates because of their volumes. Pricing yourself too cheaply has two other adverse consequences. You look cheap (so people don't value what you do). You feel cheap (so you don't value what you do).

    Traditionally, there are three ways of pricing a service:

    1.By what it costs to produce or deliver. For trainers and consultants, this is pretty ineffectual as a pricing policy. Your costs (of travel, printing, phone calls, materials, etc.) are likely to be small. The real charge is for your time - and you're unlikely to use the national minimum wage as a guide here!

    2.By what other people charge for something similar. Whilst this is a useful comparative exercise, it is of little real help. Within three miles of where you work, there will be people charging from £100 to £2,000 per day for essentially the same service, depending on the 'going rate' in different sectors of the economy. And your business will succeed by showing how it is different from the others, not how it succeeds in following the crowd.

    3.By what it's worth to the purchaser. If your service is something which the client needs today and you can deliver it tomorrow, they will be prepared to pay a high price because of its intrinsic value to a perceived need. Providing you can match the client's need (preferably more closely than anyone else), it will have a higher value to them.

    Working with a group of consulting colleagues some years ago, we argued our fee pricing on the 'Picasso Principle'. On the face of it, a Picasso painting might be worth £30 for the canvas and paints, £100 for the frame, and £500 for the time taken to paint it. Yet it's valued at £10 million. Why? Because the purchaser places that much value on owning it. And because you are buying the accumulated wisdom, insight and expertise developed by Picasso in all the years and all the earlier painting which led up to this one. As a consultant or trainer, the client is purchasing not just a day of your time, but the accumulated wisdom, insight and expertise which has made you the professional person you are. It is this aggregated experience which ensures that their needs will be met and which invests your work with value. So what value do you place on your experience?

    Creating a budget and setting a fee

    Let us return to more concrete ways of setting a budget or fee for a contract. You should remember that it's not just your time that you are charging for when you set a fee, but a whole series of elements which together will make up the total contract. Here are some elements which you might forget. Some you can charge for directly:

  • Your travel and subsistence costs in working with the client

  • Your administration costs for the contract (secretarial, telephone, etc.)

  • Materials consumed during the contract

  • Any sub-contractors or outsourcing services which you use

  • Time spent in preparation

  • Time spent in liaising with the client, attending progress meetings, etc.

  • Time spent in feedback, evaluation and quality control activities
  • Others cannot be charged directly, but need to be subsumed within the overall fee:

  • A share of the marketing costs of your business (advertising, directory entries, listings, mailshots) to secure new work

  • A proportion of your office costs

  • A proportion of your capital expenses (car, computer, fax machine)

  • A proportion of your own development and learning activities to stay up-to-date with the field.
  • When you set these out, many consultants and trainers are surprised by just how much they amount to - and by how much they have been under-charging in the past.

    Registering for VAT

    In the UK, any business which has an annual turnover in excess of the VAT threshold (currently around £50,000) must register with HM Revenue & Customs (HMRC) for Value Added Tax. VAT is a tax which you collect on behalf of the government and account for every three months. You must charge the tax to your clients at 17.5% and you can off-set the VAT you incur on expenses against that which you charge.

    Many training and consultancy businesses will exceed the threshold, so registration will be obligatory. In the early stages of a business, registration may be desirable as it creates the impression of business size, and enables you to reduce your expenses by reclaiming the VAT on many expenses.

    There are two disadvantages of VAT registration which you should consider if you are trading below the threshold. Firstly, smaller clients may not be VAT registered themselves and therefore they are unable to reclaim the tax: you are merely increasing the cost to them of your services. Secondly, VAT accounts are rather more complex and require care in preparing the compulsory quarterly returns. More information is available at the HMRC website.

    Set yourself some useful goals

    If you have the opportunity, it's worth setting yourself at least two goals: how much you want to earn (e.g. in a year), and how many days you want to spend in chargeable delivery to clients (over a year). Link the two, and you immediately give yourself a notional daily rate, assuming that all your expenses and overheads can be charged extra.

    Many consultants and trainers find themselves working too many days at a stretch. To be effective, you just can't work 4/5/6 days at a time. It might be profitable, but it doesn't allow time for preparation, administration, marketing, learning and maintenance. The secret is to pace yourself and charge a realistic rate for the right number of days. However, the reality for many freelancers and small firms is a cycle of 'feast or famine' with either too much work or too little work. This is where being part of a local network - or developing your own affiliates scheme - can be useful, so that there are colleagues amongst whom you can share work to ease out these peaks and troughs.

    Some tips in fee-setting

    Finally, here are some ideas culled from our own experience over many years in responding to tenders and quoting for work:

  • Ask for as much information as possible about what the client wants - this way you can assess the work involved

  • Ask the client how many other people are being invited to tender (and who) - this will help you decide whether it's worth spending time in tendering

  • Ask the client what order of budget they had in mind (and explain that this will help you in putting together a realistic and itemised budget)

  • Consider whether you should charge more for contracts where you have to tender on the basis that you only win a proportion of those you prepare

  • For larger contracts, include a fully itemised budget showing work allocated to different phases; invite the client to treat the budget as a 'menu' from which they can request more time on some areas and less on others

  • Build review meetings into the contract where progress against budget can be discussed

  • Walk away from contracts where the client appears over-demanding in the negotiation stages - they are unlikely to get any easier!

  • Don't compromise on your own principles - if you're worth it, say so

  • Reward regular clients with a loyalty discount

  • Review your fees regularly (1st January?) so that you can introduce price increases when necessary.

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