Value what you provide
When you start consulting, it can be easy to devalue the service you provide. Even as you become a more seasoned consultant, devaluing your services can creep into your projects and practices, so it pays (literally) to guard against it.
When you start a consulting business, your first priority is to get clients–and, of course, to get work from those clients. You might be tempted to agree to work for a lower rate than you originally planned–or even for free–just to land a consulting project or client. You might think that charging less than the competition is good for your business. Most of the time, it’s a bad idea. Charging less than competing consultants can make your services seem less valuable to clients, or indicate that you lack expertise. You’ll also end up having to work more hours to earn the same revenue as you could by charging a higher rate.
As you start your consulting business, you might be thinking, “but I was getting paid $X to do this at my last job, so I should charge $X for my consulting rate.” Bad idea. You need to consider all your benefits (insurance such as health, disability, life; retirement; vacation; etc.), overhead, etc. It might seem crazy to charge double or triple what your hourly rate was as an employee. Let go of that thought. Instead, focus on what other consultants in your niche are charging; your rates should be in the same ballpark. I currently charge about 6 times my hourly rate when I was an employee.
In my post about maximizing revenue by finding your niche, I mentioned that you’ll almost always lose out if you compete on price. A consulting business is built on selling expertise, not a commodity, so charge what you’re worth. When discussing your consulting fee structure, be matter-of-fact with clients–they probably already have an idea of what you’re going to charge anyway. Don’t be embarrassed about your hourly consulting rate.
Writing down (i.e., no-charging)
Besides trying to compete on price, another way I’ve seen consultants devalue their services is to write down (i.e., no-charge) services. While this can be occasionally useful as a goodwill gesture for clients (personally, I write down quarter-hour tasks, but show their value as a discount on the invoice to clients), you don’t want to get in the habit of writing down big chunks of time.
The best way to avoid having to write down consulting time is to accurately estimate projects, and even pad your estimates to take unforeseen issues into account, so that you can charge for any problems should they arise. Of course, accurately estimating projects can take some practice and trial-and-error, and I’ve gotten burned in the past by underestimating–typically on project types that I’m less familiar with.
In my standard consulting agreement, I include language specifying that the client will be billed for the actual time & expenses incurred, and that the project cost is just an estimate; however, I’d rather not have to resort to the legal language in my consulting agreement to get a client to pay. It’s far better to overestimate, and then deliver under-budget.