How to lose potential clients and look incompetent: the #1 mistake when setting your rate

A low rate makes you look incompetent

Do you want to look unprofessional and incompetent?

I didn’t think so.

But if you set your rate too low, that’s exactly what will happen.

For example, plumbers in my area typically charge about $75 an hour.  Now, if I find one that charges $50 or maybe even $40 an hour, that price might look enticing–because I’m a cheap bastard.  But I’m going to wonder why he isn’t charging $75 an hour.  Is he bonded and insured?  Doesn’t he have enough experience to be able to charge $75 an hour?  Maybe he can’t charge what everyone else charges because he’s slipshod or unskilled.  And if I hire him, will he screw up something and end up costing my way more than I expected?

Whatever the case though, I’m probably going to hire someone else, much as I don’t want to spend more than I have to.

Don’t raise red flags

By having a substantially lower rate than your competition, you raise red flags about the quality of your work.  You might have the snazziest marketing materials and website, but if you’re charging significantly less than the other guys & gals, potential clients will wonder why.

How to screw up

A lot of aspiring consultants look at how much they make at their day job, calculate their pro-rated hourly wage, and then figure they should charge something above that.  Maybe you make $60,000 a year; at 2,080 hours a year, that works out to roughly $29 an hour.  Maybe you figure you can charge about double that–$60 and hour as a consultant.  After all, $60 an hour sounds like a lot.

A low rate makes you look cheap, unprofessional, and maybe even incompetent.

A low rate will make you LESS competitive, since clients will go with what feels safe:  the prevailing market rate.  You’ll lose potential clients.  You’ll attract difficult clients.  You’ll work more and make less.

But what if you charged $100, $150, or more an hour?

Sound unreasonable?

When you first start consulting, you may feel like you’re charging too much.  You might even feel like charging so much is gouging your clients–even if you’re charging the prevailing market rate.

Get over it.

You CAN charge more.  A higher rate can actually attract better clients, since they’re willing to pay for quality.  Better clients will value your time more than a client who’s cheap and wants to squeeze everything they can from you.

Don’t be squeamish about your rate

When discussing your rate, be matter-of-fact.  Don’t be apologetic, or wishy-washy.  Something like, “My standard hourly rate is X.”  Period.  Practice saying it with a straight face, without blinking, and while maintaining eye contact.  Practice with a friend or in front of a mirror if you need to.  This may sound silly, but it’ll make you a more successful businessperson.

A higher rate can give the appearance that you’re an expert (you are, right?) whose skills and experience demand a premium.  Price can be a good indicator of quality, and clients who want high-quality work expect to pay accordingly.

If a client can’t or won’t pay your rate, fine.  You won’t be wasting your time with a cheap client or one who’s difficult to get payment from.  Whew!  You just dodged a bullet.  Trust me on this–I know from experience.

Want to know how to set your rate?

If you haven’t already, check out my earlier article on how to set your consulting rate.

To figure out your rate, rather than make some complicated calculation based on your current salary, projected expenses, the number of hours you realistically expect to bill each week (hint:  it’s going to be way less than 40), or the phase of the moon, do something more practical.

Find out what other similar consultants charge.  My favorite way is to call other consultants doing work similar to your own, and find out their pricing structure–after all, you’re a business owner now, and are shopping around for consultants who you may want to hire/subcontract for potential work.

What do you think?

Are you scared to set your rate high?

What’s holding you back?

Have you already set your rate too low?

Click Here to Leave a Comment Below
Anthony - July 19, 2011 Reply

Great advice. I am just starting my consulting business now. But I reckon by January I will double my rate.

Please come out with more blog posts, as I am learning from you but keep forgetting about your blog.

    Greg Miliates - July 19, 2011 Reply

    Thanks for your comment! I’m glad you find the info useful.

    You may not have to wait until January to double your rate. You could keep current clients on your existing rate, but bump new clients up to a higher rate.

Losing consulting revenue? Guard against this pitfall | Start My Consulting Business - July 26, 2011 Reply

[…] As for your rate, don’t discount it.  As I’ve discussed before, be matter-of-fact when discussing your consulting rate. […]

Gil Zeimer - August 3, 2011 Reply

Hey Greg, Great advice! I wrestle with my rate all the time and find that a sliding scale works best for my new clients. So when I give a client a choice of my minimum or my maximum, and it’s about $25 per hour difference ($100 to $125), they pick which they feel best about… and I have a new project to write because I empowered them to choose a rate. Thanks, Gil

    Greg Miliates - August 4, 2011 Reply

    Thanks for your comment, Gil!

    That’s an interesting pricing strategy. It reminds me of another pricing strategy where you can nudge customers to a particular price point, based on what each price point offers. For consulting rates, if you really want your rate to be, say $125, you could have your sliding scale rates be from $125 – $150; that way, you’re making at least $125, no matter which rate the client chooses.

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