Best Pricing Strategies For Consultants – Maximize Your Profits & Attract Your Dream Client
Pricing is one of the awkward questions that a new entrepreneur gets, especially when it comes to service-based businesses.
Sometimes, you’re not sure if the price is too high or you may have given away your offer for free.
Of course, you need to ensure that you earn an income while delivering value to your customers.
In this pricing strategy guide, you’ll learn about the three best pricing models to use if you’re getting started in selling your services as a consultant.
Of course, you want to make sure that you don’t price too high because nobody would want to do business with you. And if you price too low, you may get a lot of clients, but you’re working your tail off for pennies on the dollar.
So, here’s a happy medium.
We’ll go through three pricing strategies. Then at the end, we’ll wrap it up with you to choose the price that you’ll start with. And of course, we’ll talk about how to scale as your company scales as well.
The first pricing strategy we have is hourly.
You might wonder how on earth could this possibly be on the best pricing strategies. We want to remove ourselves from being stuck on that hourly rate. Right?
Of course, it makes sense because, at the end of the day, our clients are not paying for how much time and energy we put in. They want the result, right?
They’re looking for the value that our service provides.
Most clients don’t care how long it takes you as long as they get what they’re looking for. Because that’s what they’re paying.
However, if you’re just getting started, especially if you’re doing creative or support work, hourly is the best way for two reasons.
- It will protect you. Because as a newbie, you have no idea how long things are going to take.
- It will protect you from scope creep. Because if you’re doing creative work, there might be lots of revisions, you need to make sure that you get paid for all those little changes along the way.
If there’s no concrete scope of what you’ll deliver to your client, then going an hourly rate will make a whole lot of sense or you can use this as a backup plan.
Key Takeaway: Hourly Is Weak but Works
The next pricing strategy is a package. And this is the best pricing strategy on this list.
And the power of creating packages is essentially turning your services into products. Because at the end of the day, your clients want the result of your service.
They don’t care about all the stuff you have to do to get them to the result that they’re looking for.
You might wonder how on earth you should put your package together or who you should be selling your package to or how much your package should cost.
The good news is that there’s a site full of freelancers who have figured this out for you.
And it’s Fiverr.com
I’m in no way saying that you need to price your services for $5 or $10 per package.
What I want to point out is that you can go to Fiverr.com and look at the sellers and the packages that they’ve created in your niche or industry.
You’ll get a lot of ideas on how you can bundle your services together. And figure out what your ideal customers want. This way, you can put your services into a package.
One common objection that I always get is this:
What if the client doesn’t want my offer? Like I do things on Google Analytics and Google Ads. But they’re looking for Facebook Ads.
Well, welcome to real life. That’s how every consultant has to do business. You have to say NO to things that aren’t in your competency.
Because there is an extreme opportunity cost when you work with people who aren’t your ideal customers.
You need to draw the line regarding your prices and your package.
These are your prices. This is what you do. This is what I want to become an expert in.
Because every time you take a project, no matter how lucrative it may seem, that’s not in the core competency that you’re working towards; it’s the time that you’re not spending in finding your ideal clients or creating a case study so you can get more ideal clients.
You don’t need to grab every side project that comes your way.
They might seem to make you more money in the beginning. But in the long run, you’ll just hurt your consulting practice.
So, don’t fall into the trap of just trying to get everyone under the sun. You need to create your packages and decide on what your core competency will be. Be a master of what you decided to do and just stick to it.
Hourly + Package
Before we move on to the third pricing strategy, there is a way to combine the first two strategies – an hourly rate and a package.
Let’s say, you’re a web developer. You want to come up with a package for creating a website and set up some sales funnels or automation sequences.
So, that’s your package. Maybe you also have three or four different tiers, and that’s what you deliver.
Then, your ideal customer might need support or might want to change some things in the future. For things that aren’t explicitly outlined in your package, then you can have an hourly rate at the backend.
You can also offer something like a monthly retainer or a monthly fee for helping your ideal customer with their website app.
The point is you need to separate anything that’s in your package from an hourly rate.
The big advantage of your package is your protecting yourself from scoop creeps. Because these are huge brains and energy drains.
And more importantly, they’re a money drain on your business.
You want to have a package and not start with an hourly rate. But an hourly rate is something great to add at the backend.
Once you have gotten the package you have to fall back on, so you don’t deal with scope creep.
Key Takeaway: Packages Are the Best Way to Start
The last pricing strategy is a percentage.
This is the hardest one to put together. But the best in terms of aligning what you want and what your client wants.
This is performance pay.
The best way to do this is to go through an example of what we do with our agency.
We charge a percentage of ad spend up to $100,000.
What you need to do is figure out how you can tie your results and what you’re working on to how much your client is making.
You can think of it as a commission structure.
The better you do, the more money your client makes. And the more money your client makes, the more money you make.
So, you are both in alignment on the harder you work and the better your results, the more money they make and the more money you make.
For us, we charge a percentage of ad spend.
It means the more money our client spends on ads, the more we get paid. Because the more work that we’re doing, and hypothetically they’re spending more money because we’re giving them a positive return on their ads. Right?
If we weren’t doing a good job, they wouldn’t increase their budget. They would probably have fired us.
So, that’s one example of how something like this could work.
We have capped our commission. So, when a client spends over $100,000 in ad spend, we cap out the percentage because it doesn’t make sense to keep charging.
There is a point where the diminishing returns for the client and you’re asking for more gravy than you should be asking for.
So, that’s something you want to keep in mind.
Of course, you know if you have clients that are spending $100,000 or $300,00 and you’re running into that problem.
Well, you’ll be happier when you run on that issue as opposed to the opposite end where you try to figure out what your minimum should be in terms of spend percentage.
You don’t want to have some sort of minimum in terms of spend or percentage so that you’re not spinning your wheels for too little money.
4) How Much?
Now, let’s figure out how much you should charge, irrespective of which one of these you choose.
Well, this will be the hardest part.
I’ll give you two strategies to use – one for hourly and one for the package or percentage.
Hopefully, we know how much it costs to deliver those results.
We should know the results that our clients are looking for. But we also need to figure out what’s the worth of those results to our clients.
And this is where you might need to change your ideal customer or client.
So, let’s go back to digital marketing.
The value of a customer to a local restaurant versus the value of a customer to a car dealership will have a huge difference, right?
Going to a restaurant will only cost $5 or $10 per head. If it was a really expensive restaurant.
But if someone goes to a car dealership, that might be $10,000 or $20,000 per person.
But we’re doing the same work.
Even though you’re doing the same work, the value of the restaurant owner will be a lot less than the value of the car dealership owner.
That’s what you keep in mind with your pricing.
So, the car dealership owner has no problem paying $5,000 or $10,000 a month for us running their advertising. Whereas if we did that to a restaurant, that would make no business sense.
We decided to go after clients with business models that would allow us to get to that $5,000 to $10,000 per client range versus going to a local business where we’ll only get a couple of hundred dollars a month.
And we put the same amount of work into it.
How do we figure out what our price should be?
The best way to figure out the price is to add a profit margin on top of it.
Well, if it sounds so simple. It should be. Because it needs to be simple in the beginning.
You need to make sure that you’re getting paid enough to put food on the table at the end of the day.
When I first got started, I looked at how many hours it takes to put together a Google Ads account from scratch.
It takes about 2-3 weeks.
And over those 2-3 weeks, it’s 25 to 30 hours.
Now, the rate for someone who does Google Ads is around $25 to $30 per hour. I just went the low end at $25 per hour.
Tip: You can check sites like Freelancer, Guru, and Upwork to figure out how much freelancers are charging.
So, $25 an hour at 25 hours is $625 in cost.
Then, if I wanted a 20% margin, it would be an additional $125.
This brings my fee up to $750.
And that’s exactly what we charged in the beginning.
Yes, it’s very basic. And that’s your package price.
It’s the best way to start. Because it makes sure that you’re not charging too high. But it keeps you out of that hourly rate camp.
So, you have to keep time-tracking and figure out how to become more effective.
As you become more effective, your profit margin will get larger and larger.
We did wind up going from $750 to $1500 for an account set up. Because we got better and more efficient.
And we started with a proven track record of success with setting up accounts.
Pricing is one of the things that you need to consider when it comes to your business.
You need to ensure that you have enough income to provide for your needs also.
And there is a pricing structure that you can be sure of so that it will be fair for you and your clients, too.
I hope that you get some value out of this blog. And you have much understanding of how to price the services that you offer in your consulting business.
If you want to learn how to maximize your sales in a digital course, just click here.
Until the next, keep building the business you love.