How to Start a Consulting Business: Determining Your Rates - Entrepreneur

How to Start a Consulting Business: Determining Your Rates - Entrepreneur


How to Start a Consulting Business: Determining Your Rates - Entrepreneur

Posted: 10 Mar 2020 09:39 AM PDT

The rates you set send a message to perspective clients.

9 min read

Opinions expressed by Entrepreneur contributors are their own.

How much should you charge as a consultant? This can be an extremely challenging question to answer because it involves doing research, taking risks and proper planning. Fortunately, all three of these skills will come in handy as an entrepreneur so you may as well get used to it now. 

In most cases, I strongly suggest asking the prospect what their budget is. If they have a number in mind, you can see how well that aligns with what you were going to charge. You might find the prospect has a much higher budget than you anticipated. However, they may respond to that question by asking what your rate is. To avoid volleying back and forth before one of you gives up, you'll need to have this established from the start. 

It's important to remember the rate you charge will have a direct impact on how people perceive you. Too low? They could take that as a sign that you aren't that good. Too high? You better really good — and prove it — or people are going to pass. I'll always be in favor of doing what is required to deliver what your client needs and charging for a more premium service. You have the opportunity to build your own businesses, why wouldn't you want to be the best solution out there for your specific audience?

Keep in mind, "premium" for your audience may not be viewed as premium — or even applicable — for other audiences. That's why it's so important to do deep research on who you'll be helping. This allows you to genuinely say, "I understand you have this challenge, this is the impact it's having on you, and I've developed a solution to alleviate it. Would you like my help?"

Once you've honed in on your audience, it is time to figure out how much to charge them for the solution you've developed. Here are some simple methods. 

Related: How to Start a Consulting Business: Determine Your Business Model

1. Ask people how much they paid for a similar service

This is an approach I stumbled across by accident when I first started consulting. I asked a friend if she needed help optimizing her Instagram profile so she could land more clients. She politely informed me she was already working with a consultant, with whom she was very happy. I was somewhat disappointed but decided to turn it into a learning opportunity. I asked her how much her consultant charged so I could get a feel for the going rate in New York City. I then asked her another question, "What else could they do, that would justify you paying even more?" This is a crucial question for all of us to ask. If you charge the average rate, you'll get average results. Her response let me know exactly what I needed to do in order to be positioned as a more premium service. 

If possible, get input from 5-10 people. If you operate locally, you'll want to inquire about the rates in your area or a similar metro. 

Related: Grow Your Side Hustle With Instagram Direct Messaging

2. Research competitors rates online

Some consultants publish their rates on their site, including me. The reason being, I don't like yelling "Surprise!" at the end of an enrollment call as I finally disclose my rate. From my perspective, being upfront about my rate is a huge timesaver for both me and the prospect I'm connecting with. If I can't help them on their terms (which includes their budget) it's not worth spending 30 minutes to figure that out. I should note, the value of publishing your rates is hotly debated. Jake Savage, Sales Coach at Grow Savagely, states, "Having pricing on your website leaves everything up to a numbers game. It becomes an endless battle of trying to increase your conversion rates. Instead, get your potential client on the phone. Be persuasive and close the deal."

That said, being able to openly disclose a rate is more aligned with a time-based or retainer model as some projects can be challenging to scope without bespoke input. For example, Jake Savage trains sales teams. If he's training three people the rate would be lower than if he was training a team of thirty. 

Do some competitive research and keep track of the results you're seeing in a spreadsheet. Be sure to take note of the services your competitors are offering, too. It could help improve the value you deliver to your audience. 

Related: How Not to Benchmark Your Way to the Bottom

3. Directly ask other consultants what they charge

This one may sound counterintuitive but you'll be surprised at how many "competitors" are willing to help you out. If you offer in-person public peaking consulting in San Francisco, you're not much of a threat to someone who offers the same service in Chicago. Consider reaching out to other consultants on LinkedIn and asking for some friendly advice. 

"Hi Mary, I see you're a Public Speaking consultant in Chicago. I'm starting a similar business here in San Francisco and would greatly appreciate it if you could answer just one question for me. How much do you charge for your services?"

One of three things will happen:

  • Mary will ignore you or refuse to disclose her rates. If that's the case, keep it moving and ask someone else. 

  • She'll get back to you with a quick response. Thank her and continue doing your research.

  • She'll get back to you with a longer response and potentially offer to connect with you via phone.

In the last scenario, you could potentially pick up some valuable tips that will help you accelerate the growth of your business. 

You can also ask consultants who serve the same audience, with a different service. This will give you an idea of how much they typically pay for outside help.

Related: The 7 Deadly LinkedIn Sins

4. Charge based on the value you create

Being able to determine the return on investment a prospect can expect is a gift to any consultant. It's much easier for a prospect to justify an investment if they understand what they'll get out of it. If you operate in a market that allows you to do so, it's worth digging deep and crunching the numbers.

Heads up, there's some math coming at you. 

Let's say you're a business process consultant, and you help clients keep better track of their leads. You're currently talking to a prospect who has the following data points.

  • Leads per quarter: 200
  • Conversion rate: 20%
  • New deals per quarter: 40
  • Average deal value: $6,000
  • Average revenue per quarter: $240,000

During your enrollment call with the prospect, you discover their process for tracking leads is horrendous. They forget to call people back, aren't taking proper notes and don't have a clear handle on their sales pipeline. With your help, it's obvious they could increase their conversion rate by at least 20%, which would give them a new conversion rate of 24%.

Through working with you, here's how the new scenario could look.

  • Leads per quarter: 200
  • Conversion rate: 24%
  • New deals per quarter: 48
  • Average deal value: 6,000
  • Average revenue per quarter: $288,000

By helping them get a better handle on their business process, you can help them generate another $48k in just one quarter. Over the course of a year, all things being equal, that's almost $200k in incremental revenue. Assuming they're going to be in business for more than one year, the benefits of your work will continue to pay off. If you show them this data and tell them your rate is $25K, it's much easier to justify the investment. 

You may be working with clients who generate more or less revenue, but the process is the same. That said, if you want to increase your rates, solve more expensive problems. 

This same approach can be applied when you're consulting individuals. Helping an established keynote speaker further hone their public speaking skills will most likely yield greater results than helping someone who is just starting out. The established speaker knows they can get on stages, they just want to get on more, and be able to increase their rates. You can charge more because you're solving a more expensive problem. 

Related: How to Forecast Revenue and Growth

5. Do a feasibility analysis

Once you arrive at a rate, you have to determine whether or not it makes sense based on your desired income and lifestyle. If you want to make $100k/yr before taxes and charge $2,000 per project, you need to book 50 projects per year. That's a whole lot of enrollment calls, emails, admin work, etc. I'm not saying this isn't doable, but you may be better off creating a solution worth $10,000 and connecting with an audience that can afford it. You'll only need to land 10 clients per year, and will most likely have a deeper relationship with them. This can easily lead to more business through referrals and testimonials. 

6. Close with confidence

Your rate will evolve over time, but it shouldn't evolve over the course of your first conversation. Never say "It depends" or "That's negotiable." Tell it to them your rate like they asked you what time it is. I know its tempting to discount fees just to win business, but that can easily throw off your projections and lead to more people wanting to work with you at a reduced rate. Referrals are one of the best ways to grow your business. If you do a good job, you'll earn them. However, you don't want people to say "You should work with Spencer Bell, he's amazing, and he only charges . . ."

Establish a reputation based on the quality of service you provide, not a discounted rate. 

If you need any help, I'm available for remote consulting on Entrepreneur's Ask an Expert platform. Be sure to follow along on Instagram as well. 

Interested in Starting a New Business? 8 Helpful Tips on How to Begin - Entrepreneur

Posted: 10 Mar 2020 10:56 AM PDT

Taking a long-term view and breaking up projects into manageable tasks are key.

11 min read

Opinions expressed by Entrepreneur contributors are their own.

In my travels, I speak to so many people who dream of starting their own business. They say they're tired of working to make someone else's dream come true, and they really want to take control of their life and future. I always ask them: Why don't you just go for it? One of the most common responses I hear is that they have no idea where to even begin. I understand why they feel this way. Starting a new business is a big, overwhelming endeavor. However, if you take a long-term view and break the process up into a series of small tasks, starting a new business can feel safe and manageable.

If you've made the decision to move forward, where do you even begin? There are eight key actions that I suggest new entrepreneurs take early on to get their business started and to build a strong foundation. 

  • Define your product or service
  • Join a trade association
  • Choose the name of your company
  • Create your legal business entity
  • Open a business bank account
  • Get legal advice
  • Create your logo
  • Get your product or service ready to market

Define your product or service

The type of person who decides to enter into entrepreneurship is typically very creative and often has many ideas for a new business. With many great options to choose from, it is not always clear for the new entrepreneur which one they should begin with.

Select an idea that you are passionate about, that ties in with your core strengths and is economically viable. You might have to start by listing out those strengths and passions and cross checking with your ideas. If there's something that falls into all three camps, it's a winner. If there's more than one idea there, narrow them down by utilizing other key factors for success such as whether you have previous experience and/or have a strong network in the chosen industry. Then you can begin.

Many people are looking for that "silver bullet" for their business idea. That perfect idea that would bring unimaginable success and wealth. The truth is that finding the absolute perfect idea will likely never happen, and you might end up thinking about building your business for 20 years without any action.

Related: How to Research Your Business Idea

During the time when I was thinking about starting an adventure travel company, I was working as a fixed income portfolio manager in the financial industry. I had a great career, but I didn't feel connected to what I was doing. I thought about the things I was passionate about: adventure, history and storytelling. I wanted to wake up one day and have my work embody the things that I loved. However, creating a business that reflects your true passions must also be economically viable. Karen E. Spaeder provides an excellent foundation in her article on research, noting that you should utilize an extensive research process to "determine a potential market, to size up the competition, or to test the usefulness and positioning of your product or service." For me, this process culminated in creating an adventure travel company called The Explorer's Passage, where we would tell history's greatest stories through travel experiences across the globe. In my research, I did not see any other company in the market conduct trips in this manner. I saw a market opportunity to provide people with the opportunity to travel in a very different way. Today, we operate these experiences all seven continents and in the Arctic. Guests from over 50 nations have joined our trips.

Join a trade association

Almost every industry on the planet has a trade association, which can help you meet people who are already where you want to be with your business. You can find support and great contacts in these associations such as lawyers, consultants and business owners.

When I started my adventure travel business, the first thing I did was to join the Adventure Travel Trade Association (ATTA). The ATTA is the governing body of the global adventure travel industry. They are run by a travel visionary named Shannon Stowell who believes that travel should be used as a force for good in the world. Stowell is constantly asking questions of the future of our industry and promoting what he calls "positive peer pressure" to ensure we are all looking for ways to develop our individual businesses and the industry as a whole. I often tell friends and colleagues that my business would not exist today if it were not for the incredible resources that I leveraged by being a member of the ATTA. If you do a search, I am sure you will find a great industry association that can help you elevate your business too.

Choose the name of your company

You now have an idea for the product or service you want to market to the world, but what are you going to call it? When I was thinking about a name for my new adventure travel company, I wanted it to be an expression of our trips. I ended up choosing The Explorer's Passage. Anyone who knows me well knows I have a deep fascination with exploration. I particularly love reading stories about the old explorers such as Ernest Shackleton, Sir Francis Drake and Roald Amundsen. I knew I wanted the word explorer in my company name. 

In the history of exploration, traveling through The Northwest Passage (a sea route in Canada that connects the Atlantic and Pacific oceans) was always seen as an impossible route to achieve, though it was eventually achieved by the Norwegian explorer Roald Amundsen. Because my first three trips would be based on extraordinary stories in history where people had to go through a rite of passage to achieve their goal, I felt the word passage was appropriate to include in my company name. This guide gives a step by step insight into naming your business, integrating creativity, research, analysis and expert help. Find a name that strongly embodies your brand and what you are trying to sell. You may want to have a brainstorming session with friends, family or colleagues.

Related: How to Name a Business

Once you come up with the company name that you love, it's a good idea to work with a trademark lawyer to see if anyone else has it trademarked and is utilizing it in commerce. It may be wise to trademark it to avoid potential complications down the road. Secure the related social media accounts (Instagram, Twitter, Facebook, LinkedIn, etc.). Purchase the website domain name. If the .com name you have chosen is already taken, think carefully before spending thousands of dollars. Other URL versions, like .biz, can be just as effective.

Create your legal business entity

At this point in your entrepreneurial journey, it is a smart idea to work with an accountant and lawyer to create your legal business entity. You will by now have realized that you are incurring some expenses to start this business, and it's best to have them assigned to your business entity so you can benefit from the tax savings. It's unlikely you will generate revenue in your first year, but by creating the business entity your expenses can be properly tracked. Your tax professional and lawyer can also help ensure you have the correct business type that matches your liability risk and long-term company goals.

Related: Choose Your Business Structure

It may be wise to not name the legal business entity name the same as your product or service name. You can't predict the future, and you may end up changing your product's name multiple times — you definitely don't want to have to keep changing your business entity name in the process. My suggestion is to keep the legal entity name as broad as possible. For example, Jane Smith Enterprises could be your legal entity name and your business could operate in the public domain as your product/service/trademarked name through a Doing Business As (DBA). There's plenty more information about understanding different business types and structure on Entrepreneur here.

Open a business bank account

As soon as your legal business entity is established, open a business banking account. This will make it much easier for you to track expenses and revenue while keeping your accounts clean and orderly. You can use a business credit and your business checking account to make all of your company-related payments. Consider your business needs: the potential need for a business loan, how much flexibility you might need and what accounts offer the best features for you before committing to a particular account. 

Related: What Should You Look For In A Business Bank Account?

Get legal advice

Although I've mentioned that it's wise to get a lawyer's assistance with the set-up of your legal business entity, it's also a good idea to get legal advice on your general liability or risk. This guide offers a variety of ideas around what to research, analyze and observe within your business and its market before you proceed. It's a long list, but it's important to proceed carefully and spend plenty of time considering any ways you or your business might be impacted by risk. This is where expert help can be especially important. Find a lawyer who has extensive experience in your business' industry. He or she is more likely to understand the ins and outs of the risks involved in your particular industry and will therefore be better equipped to help you navigate it.

Create your logo

A fun and important step in your startup process is to work with a designer to create your logo and brand identity. As suggested in this guide, "Your logo is a visual representation of everything your company stands for. Think of McDonald's golden arches or the Nike swoosh — these two impressive logos embody these companies well. But many companies still skimp on developing this key identity piece." It's an opportunity to really clarify your vision for your business and give it a visual form.

Related: How to Create a Logo

I've noticed that something amazing happens when an entrepreneur sees their finished logo for the first time. It not only energizes the entrepreneur, but it makes them feel like their endeavor is real. It provides excitement and momentum to move onto the next step in the journey. Just wait until you see your new business cards for the first time, with your name as CEO of "NewCo Inc." It will be a very proud moment.

Get your product/service ready to market

This is perhaps the most exciting step and one that entrepreneurs love: actually building your first product. I suggest starting your company with one or two products and/or services. You are building a new company, and you need to focus your attention and time on getting some success going with your new product offering. I see so many entrepreneurs feel that they need to start their company with a full product line to match well-established companies. They end up spreading themselves too thin, get overwhelmed and fail.

Start with a small number of products and/or services, make them better than anything in the market and deliver flawlessly. Strong customer feedback will help to power your company forward. 

I hope this piece helps you on your entrepreneurial journey. Although it's impossible for me to cover every single step in starting a new business in this single article, I hope it gives you a good understanding of the key tasks that are critical in laying a strong foundation for your business. I look forward to one day reading about your success!

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