Back when I was an inexperienced entrepreneur, I had no idea how to charge for my services or set my boundaries.
I was in a cycle of undercharging and attempting to over-deliver, and clients would take advantage of that. They’d ask me to come in for an unplanned, unpaid meeting—and I’d say, “Sure thing.”
Of course, they started thinking because Sam came in for one meeting, he’ll come in for another. And another. Now, we’re expecting Sam to show up every day and take on much more than he initially agreed to.
As a result, my five-hour per week project snowballed into a 40-hour per week project because I didn’t understand how I should charge for my work.
I know a lot of entrepreneurs, freelancers, and consultants are in the same boat. If my story sounds familiar, don’t give up hope. Use what I learned over the years to discover your value and charge what you’re really worth.
Start by figuring out how much value you provide.
The more value you provide, the more you can charge. The problem for a lot of consultants is that they don’t know how much value they provide. Not a clue.
Now, you may be able to get a ballpark figure of what people in your industry charge by doing a little research. But that baseline price isn’t going to apply to the high-rolling client you want to land.
The best way to figure out your value is actually simple—just ask the client.
The benefit here is twofold. First, you get an accurate picture of what you’re worth. Second, if you approach it the right way, you make the clients do the mental math on what they’re paying you, instead of saying what you’re charging them.
That’s extremely important because if you say you charge $50,000 for five months of work, most people will reply, “Good to know. There’s the door.” You can’t be the one doing the math. You have to bring them along so they can articulate your value. Here’s a simplified version of my strategy:
I always ask how much they expect to save or make if we work together.
Most times, people tell me they’ll save 20% of expenses. So I push it further. “Okay, how much would you save in the next six months?” They say $100,000. I then ask what the total savings will be over the next two years. Well, they guess it’s at least $400,000—probably more because they want to scale.
That’s when I dig in a little. I ask what will happen if they don’t do this and save that money? We both know the answer—they won’t be able to scale and realize their dreams. So now I can say, “Great, I’m going to save you $400,000 and help you increase your income and scale your business. And it’s only going to cost you $50,000.”
The same people who would have kicked me out of their office five minutes ago are looking at this deal like it’s a no-brainer. All because they did the math themselves.
Keep in mind, if you’re a consultant and a company won’t share that information, you may just need to walk away. If they refuse to give you numbers, then they’re not really excited to be talking to you. A financial advisor has to know the status of your finances before they can really help you. The same principle applies to sales.
Knowing how much value you provide is only half the battle. You also have to figure out how you’re going to price your services.
If you’re selling services, you should be charging a per-project rate rather than an hourly rate. And you can choose from a couple of standard pricing strategies:
1: Performance-based pricing
Performance-based pricing is simple—people only pay you when they see results.
You’ll have to be fairly confident in your ability to get those results if you want to use performance-based pricing. But the payoff will be worth it if you’re a high-performer.
For example, I have a friend in IT who makes $60,000 a year base pay. He also made $1.2 million in commission last year. When agreeing to the job, he specifically negotiated a lower salary with a higher commission percentage because he’s been in the industry forever—and knew he’d be able to make way more money by his own initiative.
2: Package payment
A package payment strategy means you offer specific pricing options for different services.
If you opt for this method, just make sure you’re thorough when explaining what you will and won’t do (at least not for free). Think about what clients may want from you, and set your prices accordingly so you don’t end up doing way more than you agreed to for the same fee.
No matter what type of service you’re providing, work to set up an agreement, consider the extras, and stick to your guns. If a client is consistently giving you a difficult time, find a new client. There are millions of small and medium-sized businesses in the U.S.
Once you know what you’re worth, you can decide how you want to charge your clients. All that’s left is to go get your money.