Topic: Pricing Your Services

Decide on what your fee structure and what your fee levels are going to be. In Episode 174 of Unleashed, I go into some real detail sharing all of my experience around how to set your prices. So for more details on this topic, check out that episode 174.

For the purposes here, the most common fee structures are fixed fee for a given statement of work, and time and materials. 

I’d say that time and materials is a little bit more common, particularly if the project is not very well defined. If the project has a very clear scope, then fixed fee can be great and give a little bit more visibility to both sides about what the final price tag is going to be. 

But if the client isn’t exactly sure what kind of help they need, and you aren’t sure either, then time and materials is a reasonable way to go.

In terms of setting the levels of those fees, the main advice is to ask around. Find people who have similar experience to you, who have been doing it for a similar period of time. And, ask them what they charge. I found that most people are actually pretty open and pretty happy to discuss their experience and what fees they charge.  

A very gross thumb rule that could work —plus or minus 50%, but at least gives you some indication is …, take your annual earnings as a professional, getting a paycheck, divide that number by 250 and then multiply by two.

So, for example, if you were earning $250,000 a year, you’d divide by 250, that’s 1,000.  Multiply by two, $2,000 a day would be a roughly reasonable daily rate for someone that would normally be earning $250,000 a year. 

And why is that? Because, a typical utilization for independent consultants can really vary quite a bit. A fairly high utilization would be 75 to 80%. 90% is pretty extreme. Of course, it could go all the way down to zero. But I’d say the typical independent consultants I know are in the neighborhood of 50, 60, 70%. 

So if you’re doing the math that way, dividing by 250 and doubling it, then you would achieve the same income with a 50% utilization. Plus you have to account for the fact that as an independent, you’re now paying for all your own benefits, a bonus, uh, you know, health insurance, all of the other kinds of insurance and benefits that an employer would pay for. 

So that’s a very gross summary. My other tip on pricing is really, start lower, such that you could have a high utilization rate and then raise your rates over time so that you can always maintain a high utilization rate.

For me at least, I’ve always preferred to stay highly utilized because that’s when I’m learning. But if your utilization rate is 90 or 95%, it’s probably a signal to raise your fees so you can have a bit more free time, so you can be using that free time to invest in building more skills. So more tips again, Episode 174 of Unleashed.