The best antidote to a sleepless night is finding the price setting method that works best for you. It is essential that you receive fair compensation for your work so you can stay in business and rove from one successful project to the next, maintaining your independence and building your reputation.

iStock 000019217684XSmall guitarist smilingWe have already explored three billing approaches, the daily rate, fixed fees and the standing offer (see Blog #1) but consultants use other price-setting methods as well. An option that works in one context may not fit the next so be aware of your choices.

Retainer. Historically, retainers were a popular arrangement between organizations and their consultants; however, they are less common today. The consultant’s monthly fee is calculated on a typical number of days at an agreed-upon daily rate. The retainer is paid even if less time is actually used. This results in steady income and security for the consultant and ready access to expertise for the client.

Evaluators often go into small agencies or government departments on a retainer basis to provide technical assistance, update databases, act in an interim management position, or develop policy. This option provides insight into how an organization works and can be a great learning experience. Criticisms of the method include the lack of a defined scope of work and indeterminate deliverables. The tax department may ask you to justify your self-employed status. Over time you can be seen as ‘just another employee’ by internal staff. Relationships need to be managed carefully. You don’t want your client to feel resentful about your monthly bill or to question if you are earning your keep. My solution to this problem is the trusty status report. I list all the activities I have accomplished during a given month and attach the status report to my monthly invoice.

Contingency fee. First let me say that I don’t recommend this approach. Contingency fees have been the topic of heated debate in management consulting circles for years because the consultant’s fee depends not on the advice provided but on the extent to which the outcome is successful. While the consultant’s motivation is obviously high, the risks are significant. One can only imagine the impact this approach could have on research ethics!

For evaluators and applied researchers, a version of a contingency arrangement exists when the client asks you to write a funding proposal for free and then promises you the research or evaluation component of the project if they get the funding. Many colleagues work this way but for me there is no guarantee you will be hired if the client wins the grant. I have actually been asked by a successful grantee to write a proposal for the work I designed. Guess what? I didn’t get the project.

One of my colleagues uses a brief agreement stating that if the client obtains the grant, she will be hired to do the evaluation. I am not sure how enforceable this arrangement is but at least the potential client is making a commitment in writing. If I am asked to write a grant, I ask for a very small contract (say the equivalent of two days’ work) and then I let fate run its course. At least I know I will be paid for my time.

Other pricing methods. A variety of other pricing methods are tied to market factors.

  • Using your competitors as a benchmark. Once you find out what your competitors charge you can set your fees accordingly. Easier said than done. Many consultants keep their rates a closely-guarded secret. Apart from the market imperative, there is no real logic to this approach. Your cost of doing business may be quite different from that of your competitor so be careful what benchmarks you select. Don’t use consultants in larger firms or those with more years of experience. If you price yourself below the competition, you will have to manage the service you provide very carefully as it may be difficult to sustain at a lower-than-market rate. Pricing yourself above the competition suggests that there must be a good reason for a premium rate. Clients may be willing to pay more for your speed, knowledge, quality of service, or proprietary product or technology, but be sure that your rate is perceived as fair market value.
  • Charging different fees for different market segments. You may want to charge lower fees for non-profits and small or start-up organizations and higher fees for foundations or government departments. Some consultants feel that it is fair to have the big fish help the little fish in this way.
  • Doing pro bono work. You may want to offer your services for free to organizations whose causes you support. It is a good idea to get a tax receipt for the amount of your contribution. Some of my colleagues proudly do pro bono work and I applaud them. While I am happy to volunteer for my favorite organizations, I do other types of work for them. I don’t volunteer my evaluation services.
  • Reaching celebrity status. A very few consultants reach the status of guru and can charge whatever their audience will pay. No longer troubadours, they are now rock stars. Sadly, for most of us a fate like this will remain a dream.

So select the pricing method that fits your situation but be sure to track your time. When you find out how long it actually took to complete a fixed fee contract, for example, you may think twice before using that price setting method again.

Remember that you are in business to stay in business. Only turkeys aren’t accountable. Troubadours flourish because their clients recommend them on to their next gig, knowing that these consultants offer both excellent and ethical work.

Next up: How determine your billable rate.

Also see my new book:

Barrington, G. V. (2012). Consulting Start-up and Management: A Guide for Evaluators and Applied Researchers. Los Angeles: SAGE.

Photo: iStock

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