Valuing Consulting Services versus Contractor Labor

Sharing the wealthRick and I were recently having a conversation about the value of a consultant or contractor’s time, and how the concept of consultative value may or may not translate into a meaningful bill rate. Rick observed that too often the line of tactical versus strategic advice is backwards, with “strategic” insights being given away for free to secure “tactical” contracts.

This coincides with a tale I had just heard of a woman that is going into consulting for her first time, and has decided that her rate will be $500/hr, based on encouragement and discussion with a life coach. (She has not yet secured a contracted engagement at this rate, but this is the rate she is quoting). I know nothing about this woman otherwise, but can imagine what I would expect of her performance at this rate. Without having met her or knowing anything about her ability, I find this rate to be astonishing – but maybe I shouldn’t. Is she a widely recognized expert in her field, with a track record for successful execution? Is she a dynamic speaker that can inspire and motivate the most burned out personnel? Depending on how your consulting story begins to get around, decisions will be made about the value your can deliver, even before you get your chance to begin bidding projects.

How much is an hour of your time worth? What should a client expect of a professional at different price points? Will you likely get referrals from people that know you at this rate?

If you begin scoping the work at too high a price point without qualifying your expertise, the client will likely begin considering alternative bids. Come in at too low a rate, and you will get bucketed with all the other tacticians being directed and herded.

I view this as the “contracting” versus “consulting” rates. Contractors have technical expertise, contribute as part of a larger endeavor, and are expected to be managed. Consultants have technical expertise AND strong management skills, define and or lead projects with a defined outcome, and are expected to be self-directed in fulfilling their obligations.

If your billable rate seem low, you may have succumb to being positioned as a contractor instead of a consultant. Selling your time as directed, not application of your unique expertise.

When setting rates, it all seems to be a matter of what you are consulting on, and how you manage your client’s perception of your value. If you are seen as temporary staffing, then your rate will most likely parallel the costs of finding a similarly experience resource through a staffing agency. If you are seen as a subject matter expert brought in to deliver a specific solution, your rate should likely reflect the market-defined value for similar professionals that deliver results under a defined methodology or implementation framework. Understanding how you will interact with the client organization is perhaps the most critical part of setting the rate.

Before you start pushing for the $500/hr rate, consider:

  • Self-directed performance is highly correlated with rate. Just like an employee, client companies will be thinking about how much oversight and attention you will require to get the work done. At a lower price point, the client will be comfortable providing direction, oversight, prompting, and a bit of rework. As you begin to push your rate up, be prepared to act more as a consultant than as a contractor – executing with a confidence that reflects expertise, professionalism, and high quality standards.
  • Your rate is all about your reputation – Reputation, Reputation, Reputation. Most folks will land their first few consulting gigs with people they have known from past efforts – and should recognize that they are being sought out based on their reputation. When you take these gigs – and if you’ve done well, you should get a few – be sure to communicate what your reasonably targeted rate is, even if you give them a discount on the face of the billing. Setting your rate too low early on will make for a long slow climb, and you may likely find yourself locked into long term obligations that are well below where you’d like to be billing your time.
  • Past results ARE an indicator of future performance. Be prepared to talk about what you’ve delivered – this is your story, and should be an integral part of your sales strategy. No one knows your story quite like you do, and likewise, only you can effectively describe how your experience can uniquely deliver the client’s project. While big-name employers and clients help, a personable, confident professional with a verifiable track record can find their way into some fantastic opportunities.
  • Credentials are a billing cornerstones. If there is an industry standard credential in the space you are choosing to consult in, be sure to get it on your resume. These independent certifying bodies add to your reputation, in that your earning of the credential effectively positions you as competent in this body of knowledge. Growing your brand should include developing a strong track record coupled with good credentials.
  • You need to be prepared to sell yourself. Which watch is a more valuable time keeping device – the $5 or the $5,000 wrist clock? Just like any product, you need to think about the components of marketing and positioning yourself before you talk about an engagement. You need to be versed in the marketable value of your simple time keeping tasks, but also be aware of when you and you alone can deliver the stunning impressions that only costly bling delivers.

Do you have data points that guide your rate setting practices? I’d love to hear them.

This entry was posted in Entrepreneur, Execution, Experience, Insight, Perception, Reputation. Bookmark the permalink.

4 Responses to Valuing Consulting Services versus Contractor Labor

  1. jennifer says:

    This is a huge problem for me. I know I’m worth the money, but I’m such a pushover. My personality type is A, and I’m a very strong manager. I end up feeling sorry for my clients and shortchange myself every time.

    How can I stop doing this???

  2. Toby Lucich says:

    I think you should take it one step further – give away an entire day. Completely gratis.

    But here’s the catch: your day has to involve your sponsor, the impacted team, and ideally, at least one member of the senior management team that is familiar with the issues you would be brought in to address.

    This shouldn’t be a question of what you are worth (few feel their “worth” in dollars), and the focus should be on the deliverable to the organization. Imagine, an eight-hour sales call where you strut your stuff, and can succinctly summarize the value you deliver.

    – Was the issue (or an aspect of it) clearly identified? Was it widely acknowledged?
    – Did you demonstrate your ability to take the group into an objective vantage point relative to the issue? Did you position the discussion for collaborative assessment instead of blame?
    – Did you help the group envision how the issue could be tackled, in bite-size pieces?
    – At the end of the effort, could this potential client see how you are uniquely experienced to aid this in addressing this challenge?

    A good one-day workshop should really help educate and focus your client. You shouldn’t be thinking about building out task lists, or getting into concrete solutions. This is an opportunity to demonstrate how you can educate their team, align their efforts, and support them in realizing their objectives.

    Not a bad use of 8 hours, particularly if you can sell another 200 at your desired bill rate. If you are a strong manager and have cultivated your soft-side skills, this should come through in your time together.

    Don’t sell yourself short.

  3. jennifer says:

    I have done this (full day gratis) with a current client and thus far, they love me and my work, however, still I’m a pushover for that fee. I feel bad for them as they have had a lot of tough times, but then, who doesn’t right?

    However, I know that what I’m about to do and have done thus far, for their practice will make their revenue increase extremely next year. Since they are not feeling it yet, I feel a little guilty billing so much, and end up “giving” my services at a way lower rate than I should be charging.


  4. Toby Lucich says:

    Sounds like you’re at the “love ’em and leave ’em stage.” You love them, they love you, but you’re just not getting what you need out of the relationship.

    I hope you’ve been showing your total hours at your regular rate, with the “giving” as a discount line item on the bill. If you haven’t, then your effective bill rate is your market rate. Certainly in their eyes, and that is the rate they would communicate to referrals they might send your way.

    Business people understand ROI (return on investment), and this is a challenge that consultants face as well – what is my necessary return on my invested time?

    Plot the ROI of your time, and revisit your statement of work to help the client see the value exchange as well. At the end of the engagement, they should see your fees as a wise investment in their success, and be ready to give meaningful referrals at your market rate – not your guilt rate.


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