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Too Much? Too Little? How to Set Fees for Your New Consulting Business

Tips to help you decide how much you should charge your clients so you earn a profit but aren’t price gouging them.

Entrepreneur

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To survive as a consultant in any industry, you need to charge fees that will enable you to stay in business; at the same time, both you and your clients need to feel that your fees are fair and equitable.

What is foul and what is fair?

So how do you find the middle ground that seems fair to everyone involved?

When it comes to fees, the first rule in the consulting business is to be flexible. Sometimes, you’ll find a client really wants to hire you but can’t pay your entire fee.

Depending on the situation, you may want to reduce your fee, either so you can get some much-needed experience or because you believe you can set yourself up for more work in the future by working cheaper now. But don’t sell yourself short; make sure you’re paid what you’re worth, since that fee sets the tone for future fee negotiations.

The figure you arrive at should include compensation for your time, and compensation for your business overhead, such as travel, office expenses and so on.

But when quoting a figure, leave room for some negotiation, because sometimes clients will ask you to reduce your rates by a set amount or a few percentage points to meet their budget. Just be sure you have a bottom line figure in mind when you sit down to negotiate so you know how much wiggle room you have.

At the same time, don’t try to wring out the highest possible fee from your clients. You want to be fairly compensated, but if your fee is too high, you run the risk of losing the business completely.

When setting your rates, you have several options, including hourly rates, per-project fees and working on a retainer basis. Let’s examine each one.

Hourly fees

Consultants often calculate a project cost based on the number of hours they expect to spend on it.

To figure out an appropriate hourly rate, you can either use a source like the Careers in Business website to see what consultants earn in your area, or decide how much you’d like to earn in a year and do the math to turn that figure into an hourly rate. Experienced consultants often double or triple the resulting figure to cover overhead, benefits and other expenses;

It’s reasonable for a new consultant to assume billable time will be around 50 percent, so double your rate so you’ll meet your expenses.. And if you think about it, a consulting rate of $40 to $60 isn’t out of line when you consider the expertise you’re offering.

Project rates

When working on a project rate basis, a consultant normally gets a fixed amount of money for a predetermined period of time (a situation known as “work for hire”).

It can be a little tricky to determine a project rate when you first start consulting because you don’t have historical information on which to base your hourly estimate.

But once you figure out how many hours you think the job will take, simply multiply that figure by your hourly rate, then add 10 percent or so to cover unexpected contingencies.

Retainer basis

Working on a retainer basis gives you a set monthly fee for which you agree to be available for work for an agreed-on number of hours for your client. This kind of fee arrangement is common for computer consultants and other providers of ongoing services.

While in the ideal world you’d have a dozen or so clients who hire you and pay you a hefty sum each month, don’t get your hopes up. Most companies that hire a consultant on a retainer basis have a clause in their contract that prohibits them from working for the competition.

Working and getting paid by this method certainly has its advantages. You’re guaranteed income each month, which helps with cash flow when you’re starting out in your consulting business. Some consultants actually offer a percentage reduction in their fees if a client agrees to pay a monthly retainer fee.

Bonus options

It’s common for consultants to have some type of bonus option in their client contract or letter of agreement.

A bonus may be a percentage of an amount that the consultant saves a client (if the consultant’s been hired to reorganise a department or division, for example) or the amount of money acquired for a client (as in the case of fundraising, collections or grant writing).

Although it’s not always possible to work out this kind of bonus deal, it never hurts to negotiate. If you do, keep in mind that the average bonus is 15 to 20 percent of the funds saved for the client or obtained for the organisation.

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How to Guides

Enterprise Supplier Development (ESD) Provides Opportunity For Entrepreneurs

LFP Training offers ESD support services such as the implementation of sustainable supplier development programmes, profiling and analysis of your supplier database, enabling procurement opportunities for EME’s through collaboration and partnerships and promoting the upskilling of EMEs and facilities the quality of services provided.

Jacolien Botha

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LFP Training’s team spends a lot of time educating businesses on the benefits of BEE. As an entrepreneurial venture, the company understands that you have worked hard to build your brand and as such, BEE should strengthen your position the market.

AJ Jordaan, LFP Training’s National Sales Manager says that while Skills Development remains the most cost-effective, productive and mutually beneficial way to gain points whilst improving the performance of your staff, ESD is too a critical component of the scorecard.

“By partnering with a BEE compliant business, companies can claim additional points towards Enterprise and Supplier Development (ESD),” says AJ.

Both ESD and Skills Development initiatives cover large portions of the scorecard in total so it’s vital to score well overall. “Furthermore, ESD is one of the priority elements of BEE and failing to comply with the subminimum requirements will result in your company being discounted a level”.

In a country where entrepreneurship is recognised as a catalyst for growth, ESD helps small businesses to thrive by gaining access to opportunities through its attractive BEE status. “This in turn helps to ensure the sustainability and success of such businesses in South Africa”.

ESD is a combination of preferential procurement, supplier diversity and development and enterprise development programs used to service a business’s needs.

Trading has never been more attractive and ESD contributions can take on many forms. “While some people are still very cynical about BEE, ESD is not based on the value of a contract given to a black business but rather the contributions towards technical help, the transfer of knowledge and skills, operating cash flow, loans and/or investments.”

AJ does warn that while this is a great benefit of being compliant, in an instance where two companies supply the exact same service, the company with the higher BEE recognition will most likely secure the business. “Here, a customer will partner with the company with a higher rating as they earn more points towards preferential procurement under ESD.”

“Today we are seeing some companies penalising a supplier when dropping a level as it influences their scores on ESD so its once again vital to maintain your current BEE level or to improve” AJ continues.

“There are a host of benefits to making sure that businesses align their efforts to compliant businesses, these include; an improved BEE rating, gaining a competitive advantage and reducing costs, supporting a compliant business, a strong and positive association for your business with a compliant business” says AJ.

LFP Training offers ESD support services such as the implementation of sustainable supplier development programmes, profiling and analysis of your supplier database, enabling procurement opportunities for EME’s through collaboration and partnerships and promoting the upskilling of EMEs and facilities the quality of services provided.

Read next: Enterprise Development Programmes For Black Entrepreneurs

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How to Guides

Three Things You Need To Do When Starting A Business

Like a good game of chess, starting a business will challenge you to think about your long-term strategy and also make sure you’re moving the pieces one step at a time in the right direction.

Stacey Ferreira

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Starting a business is a dream job for many people who have a great idea, are willing to tolerate some risk and are looking to be their own boss. While start-ups are often glorified in the news – as some reach extremely high valuations – starting a company is a big undertaking that typically requires grit, perseverance and a little bit of luck along the way.

Over the past few years, I’ve started two companies, sold one and raised over $4 million in venture capital from some of Silicon Valley’s top firms. These companies haven’t been without their challenges, so here are the top three things I wish I knew when I was starting out:

1. Talk To Prospective Customers Before Starting Your Business

The biggest time killer in a start-up is building a product you think a customer needs, only to find out, after you launch your product, that the customer actually needs something else. Before starting my second company, Forge, I recorded over 50 conversations with prospective buyers to learn about their top three problems, how they define success and how much they’d be willing to pay to have product or solution that successfully helps them navigate their problem. These conversations helped me narrow in on building a product I knew customers needed and gave me my first few customers.

Related: Crucial Skills You Need To Be An Entrepreneur

2. Reference Check Investors Like You Reference Check Employees

Sometimes raising money is necessary to get a capital-intensive business off the ground or as a way to spur growth. But raising capital, as with anything, comes with a cost. The cost is giving up future value of your business in the form of equity. Who you give this equity and other rights to – such as a board seat, which is often paired with financing rounds – can have a massive impact on the long-term business outcome.

It might seem daunting to ask a lot of questions of someone who is willing to write a cheque for a few hundred thousand or million dollars (or rands), but it’s extremely necessary.

  • Have they invested before?
  • Who did they invest in?
  • What value did they provide to those entrepreneurs?
  • Do they understand that most start-ups fail and that they might not get their money back?
  • Can they introduce you to a few people they’ve invested in previously – business founders who went through both good and tough times?

Since most successful businesses are around for more than 10 years, it’s important to know who you’re going to be working with.

3. Do Whatever It Takes To Make Sure Your First Three Projects Are Successful

If you decide to raise pre-seed or seed capital for your business, take the money and spend 100% of your time working with your first three clients. I often see entrepreneurs who accept capital and then worry about how they’re going to rapidly grow their company.

In reality, in the early days nothing matters more than making your first three clients extremely happy, so you can use their success stories as case studies. Their testimonials will help you sell to client numbers 4-10, which will in turn help you sell to clients 11-100. Focus on your first three customers and tweaking your product or solution experience. Your company will grow organically from there.

Related: 21 Steps To Start-Up

Bonus: Passion Doesn’t Help You Make Payroll

The first time I had to let go of someone from my team, very early on in my career, my dad said to me, “Passion Doesn’t Help You Make Payroll.” You can have an employee who is extremely passionate about the work you’re doing, but if they can’t contribute to making it a reality, it’s better to let them go and get back to building the business.

Whether it’s conducting customer research, pitching to investors or learning from your first clients, starting a business gives you unmatched flexibility and the ability to truly learn every day.

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How to Guides

Tips On How to Build Your First Ecommerce Business

Starting an ecommerce business is really important in this day and age because everything and everyone is online. With the sheer number of people populating the internet, only an online business can reach out to them.

Megan Harris

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However, having an online business isn’t just about trying to sell things on the internet. There is necessary groundwork needed to avoid any pitfalls.

Making an online business is extremely lucrative because it can tap markets that can hardly be reached by traditional mediums of marketing. In a study by CMO, it was revealed that 72% of millennial shoppers shop online before they go to a mall or store and these people, who are in the age range of 25-34, are heavy smartphone users when it comes to shopping.

With this kind of information, you can really see how effective having an online store is. So, the question here now is how do you start an online business? Here are a few tips on how to go about.

Decide through market research

Like all businesses, you have to fill in a need or a want. Having an online business is no different. You must first ask yourself what is something that people need and want. Next, you have to ask yourself if you can provide that need or want. After that, you must research if your target market can be found on the internet or not. Once you have all of that down, then you can start.

Related: Watch List: 15 SA eCommerce Entrepreneurs Who Have Built Successful Online Businesses

Develop your online presence

The website will always be the frontline of any online business because this is where all customers will end up. Think of your website as like your store but on the internet. If your store is good and accessible, then your customers will like it there.

In order to build a good website, you’ll need two essential things: a website design and a server. For the website design, you may just design one and use a back-office program like WordPress to manage it. If you want to have a nice design, you may hire a professional website designer for it. Next, you have to think about the server. You’ll want a server that performs well because your server will determine how fast your website moves.

If your service provider is not very efficient, then your website won’t load quickly and smoothly. Before deciding which web host to use, be sure to read reviews about it to get more feedback. Once you have these two things, you just need to learn the process of creating your website then you’re good to go.

Develop a content strategy

So after you’ve built yourself a nice looking website, the next step is to fill it up with information. You have to write well and make sure that your text will cater to the market segment that you are targeting. 

Get found through SEO

SEO techniques are directly related to content as SEO relies heavily on modifying text. SEO stands for Search Engine Optimisation and they are techniques used to give your website a good slot in Google or Yahoo. SEO would primarily make use of keywords that people would often search in search engines. If you know how to make use of these keywords, your site will earn top billing on Google if a person searches for something relevant to your site.

Related: 3 Types Of Ecommerce Business Models

Utilise email marketing to find leads

Using email marketing services along with highly targeted database, is a power tool for pushing your website since email marketing is personalised. People, in general, like to feel special so if you send them an email promoting your online business, you may get them to becoming buyers. The best way to go about with email marketing is to find leads and shoot your emails out. 

Make use of paid channels

PPC ads, or Pay Per Click ads, are quick to drive traffic to a website because advertisers pay a fee each time the ad is clicked. In a sense, the advertiser buys views so that traffic will go into the site faster. This is a quick way to get views and eventually single out the target market.

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