2 Reasons To Use Hourly Consulting Fees (& When NOT To)

Must you ever use hourly consulting charges?

At Consulting Success®, we consider that there are extra causes NOT to make use of an hourly charge than to make use of one.

Nonetheless, there are 2 eventualities I’ll go over on this article the place it will possibly make sense to make use of hourly charges when pricing your consulting companies.

However earlier than we get into the two conditions the place we suggest utilizing an hourly charge, I’ll uncover a hidden reality about hourly charges that you just won’t concentrate on.

Let’s dive in…

Your Hourly Price Sends A Sign

Guide, bear in mind this: pricing is positioning and it has an influence in your advertising.

The quantity you cost hourly is sending a sign to {the marketplace}.

For instance, if you happen to’re based mostly within the USA or Canada and also you’re charging lower than $150 per hour, it sends a sign that you just’re both new, inexperienced, or not excellent at what you do.

Even if you’re nice at what you do, if you happen to cost lower than $150 per hour, you’ll be in comparison with others in your trade who’re charging a lot larger.

When hiring consultants, consumers don’t need to simply lower your expenses. They need to really feel assured about their funding and that you just, the advisor, will ship the outcomes they search.

Should you’re going to cost hourly, cost appropriately. Which means you should be comfy charging $200 per hour, $250 per hour, or $300+ per hour.

At this degree, your charges talk to the market that you just should be good at what you do.

Extra skilled and senior consultants in established organizations or extremely specialised consultants are charging $500+ per hour. These consultants have a confirmed monitor file and command premium charges due to their expertise and the outcomes they’ve created for his or her shoppers.

However if you wish to be incomes greater than $500 per hour — which many consultants can do — hourly charges are NOT one of the simplest ways to do this.

However earlier than we get into that, let’s focus on when it is smart to make use of hourly consulting fees.

2 Causes To Use Hourly Consulting Charges

Listed here are 2 eventualities the place you may think about using hourly charges.

1. You Are Model New To Consulting

In case you are model new to consulting (or providing a model new service), then you definately don’t know the way lengthy the venture goes to take. On this case, it is smart to make use of an hourly charge as an alternative of a project-based fee.

For instance, a more moderen advisor providing a brand new service may cost $20K for his or her service — just for the service to take 2-3x longer than they anticipated.

And the extra consultants or subcontractors you utilize, the riskier it will get when your estimates are off. You’ll be able to find yourself shedding cash on the venture if you happen to underestimate how a lot time the venture takes.

With hourly charges, you received’t lose cash on the venture since you’re charging for the time it takes to finish the venture.

2. You’re Working The Consulting Agency Mannequin

Should you’re the founding father of a consulting agency with worker consultants — and they’re concerned in supply with billable hours — hourly charges may make sense.

For instance, you may invoice your shopper $300 per hour.

You pay your consultants $100 per hour to ship the venture.

You, because the proprietor, are capturing the margin between that.

NOTE: We don’t suggest hourly charges for everybody working the firm model, nor does each consulting agency use hourly charges. Nonetheless, hourly charges are a standard, affordable pricing methodology for consulting corporations.

3 Causes NOT To Use Hourly Consulting Charges

Listed here are 3 eventualities the place it is best to take into account NOT utilizing hourly charges.

1. You Need To Scale Past $500 per hour

You may consider $500 per hour as some huge cash — and it’s.

If you consider billing 50-60% of your working hours at $500 per hour, it provides up fairly rapidly.

However there aren’t many consultants charging $500 per hour. It’s troublesome to do until you’re very skilled or a acknowledged specialist.

Nonetheless, there are consultants utilizing project-based charges, value-based charges, performance-based charges, and productization who’re incomes $1000 per hour, $2000 per hour — and a few even considerably greater than that.

(Take a look at examples of those consultants on our Clarity Coaching Case studies page).

You’re much more more likely to attain premium charges ($500+ per hour) utilizing these different pricing fashions.

2. You’re Not Working The Agency Mannequin

Should you’re not using consultants to work on initiatives for you (and capturing the margin), then you definately’ve constructed your self extra of a job than a consulting enterprise.

You’re not capturing the complete potential of what you might be incomes.

If it’s simply you delivering work to your shoppers, there are several better alternatives to hourly fees.

3. You Need To Obtain Exponential Development

If you wish to scale your consulting business, it’s inconceivable to do this with hourly charges.

To realize exponential development in your consulting enterprise, you’ll use different pricing fashions like value-based fees, productization, retainers, and performance-based charges.

These pricing fashions “unlock” the potential for exponential development as a result of they aren’t linear.

For instance, if you happen to’re sure by time, then you’ll be able to solely work with a set variety of shoppers for a set variety of hours per week.

However with these different fashions, you might go from 5 shoppers per yr to eight shoppers per yr — and every of these shoppers is value twice as a lot. You’ll be able to serve extra folks and lift your charges on the identical time.

Guide, the important thing right here is that this: while you cost based mostly on worth and outcomes, you’ll be able to cost much more to your companies than you’ll if you happen to merely cost to your time.

Get Assist Mastering The Artwork & Science Of Consulting Charges

Do you’re feeling caught along with your consulting hourly fee?

Such as you need to experiment with a extra superior, higher-leverage pricing technique…

…however you don’t know the right way to put your concepts into motion?

Should you’d like customized teaching and the assist of a whole consulting group that will help you elevate your charges, we may also help.

In our Clarity Coaching program, we’ve helped over 1000 consultants to construct a extra strategic, worthwhile, and scalable, consulting enterprise.

LEARN MORE ABOUT CLARITY COACHING

Whether or not you’re struggling to cost your companies based mostly on worth, need to construct in additional recurring income, or need to know the right way to construction an fairness deal correctly, our program will show you how to enhance your pricing with confidence.

You’ll find out how to make more cash with each venture you tackle — and the right way to land extra shoppers than ever earlier than. Learn more about Clarity Coaching and get in touch to talk about your situation and goals.