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#275: Pricing Your Services

Posted By Mark Haas CMC FIMC, Friday, April 2, 2010
My market is pretty transparent about daily fees paid to management consultants and the range is pretty tight. But it amazes me how some of my colleagues seem to thrive while other struggle at the same rate.

First off, consultants should be looking for opportunities to charge on a value basis. Selling time as a commodity will get you commodity pricing, i.e., competition for the lowest price. When you are compensated for the value you bring to a client, there is no issue with daily fees being too high (to the client) or too low (to the consultant).

Nevertheless, if you are going to charge daily fees, then how long has it been since you took a hard look at your cost structure? If you conducted an activity based costing exercise on your business, how much does it cost you to provide a day's consulting services? Have you included insurance, overhead (all of it, not just your variable costs), transportation, research, conferences and professional development, amortization of your certifications, etc.? This is where you may find your costs too "high" for your market.

Reevaluate your costs every year to make sure that they can still provide you a profitable business and to highlight opportunities to maximize value. Remember, consider expenses as investments and consider the loss of value from eliminating it. For example saying "I can't afford to go to a professional development conference," is just looking at the expense and not the new skills, visibility, contacts and business revenue to be gained over the long term.

Tip: If you are familiar with Activity Based Costing (ABC), you might look into a variation by called Time-Driven Activity Based Costing that addresses a long-standing weakness in the original ABC method - how to deal with down time (sounds like something consultants sometimes experience). See Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits for a good summary of this new approach (something to adopt conceptually for your consulting services but it is not necessary to rigorously follow the full methodology).

© 2010 Institute of Management Consultants USA

Tags:  efficiency  fees  performance improvement  practice management  your consulting practice 

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