Let’s talk about the elephant in the room … money.
I’ll preface this by saying I am well aware that money doesn’t buy happiness which is why you won’t see a suggestion of what to charge or how much is reasonable to charge because there are way too many variables.
I left a corporate role with a $125k salary 8 years ago because it was killing me at a soul level. And no, it has not been a journey full of wine and roses, rather it has been an epic tale of the universe throwing everything it had at me to get me to see that the world is grey and not just black and white.
I don’t have a Cinderella story for you, but I do have a story that includes divorce, emotional abuse, being fired during probation while pregnant, becoming a single mum to a new baby, walking into a centrelink office as a last resort and wanting to cry, being depressed enough that I wanted to stay in bed and never get out, struggling to find the courage to put myself out there and dare to think that I knew better than anyone else, sitting at my desk crying because I had no clients and a ton of debt wondering what the hell I was doing trying to work for myself and now being a reasonably paid consultant and coach who’s got things roughly together most of the time.
This is not a how-to solve your money problems post:
Full disclosure I’m not a money coach, a business coach or a productivity guru and I’m not suggesting I have mastered this stuff. This piece is written with the intention to inspire you the think about the whole issue of money and more specifically professional service fees differently, whether you’re a client of said business or the provider.
It’s based on my own experience over almost 8 years of working as a freelancer, contractor, coach and consultant. And the things I’ve learned through both trial and error (and coaching).
When I say professional services I mean brain work, stuff that involves the application of a combination of skill, experience and perspective to help a client solve a problem, create something, optimise something and offers them new insights – consulting, coaching and advisory services. Some of the same principles apply to creative and other personal service providers – but probably not in exactly the same way.
It’s an issue I think about, grapple with and talk to other consultants about often. How much can I reasonably charge? How much am I entitled to expect to make? Do I deserve to be really comfortable and not work insane hours even though I really like what I do? Will my clients freak out and reject my proposals if I charge what I really feel the work is worth? Am I worth it?
Money generally and fees specifically seems to be something we struggle to wrap our heads around as both clients and providers. This week alone I’ve had conversations with two women who run service based businesses – they each have 10+ years experience in their fields and are total rockstars but they’re in businesses that are cyclical by nature, so are always looking for new clients to some extent.
We were talking about the issue of fees – how much is too much and how best to balance client expectation with delivery reality. One of the girls had had a spate of rejected proposals based on fees being ‘too high’ and the other was lamenting that all too common issue of the client seeing the gross $ value of the proposal and not realising that a lot of it goes to tax and overheads before the consultant even sees it.
It’s like consulting kryptonite – it can seriously mess with your mojo and massively impact your ability to deliver, win new clients and your mental health too.
So I reminded them of the things we all need reminders of form time to time, stuff like “Not everyone is your customer” and “The right people will see value in your work so don’t settle for shitty clients who want low prices but expect you to be world-class and deliver the earth” and “They don’t deserve you.”
All very true, but none of those things help with actual clients being secured or bills being paid. And even more importantly they don’t help give you the validation and confidence you need to go out and get those perfect clients at your standard rates.
Let’s look at some more useful information and see where we get to …
Most people who quit a job to start their own thing are giving up a salary of between $100-$150k and in consulting that’s often more like $150 – $200k. Now that’s not including the peace of mind of knowing you have a pay cheque each week, 9% superannuation, the social aspect or 4 weeks paid holidays.
And yes, some people make $40k a year working at Coles and are happy and manage to survive, I’m not saying you have to earn 6 figures a year to be happy or survive – but we’re not talking survival here – we’re talking laying it all on the line and working hard and owning the fact that it’s ok to want to at least be compensated for the value you’re adding to your clients businesses and create a comfortable life for yourself that you enjoy living.
But as most consulting types are leaving behind their corporate lifestyle and salary, and taking a massive risk, it’s not unrealistic that they’d want to be compensated at least to the level that allows them to live comfortably, feel secure and leave enough headspace to be able to do the creative problem solving work or strategic thinking they need to be able to do.
Some Truth Bombs about consulting:
- It takes YEARS of working for someone else, study, investing in yourself and working for next to nothing for clients to ‘get established’ even to a bare bones basic level. This actually costs money – yup – both hard cash and opportunity cost of not earning money.
- Then it takes TONS of courage to go out on your own staring down the barrel of no salary and no paid leave sick leave or superannuation.
- You have to dedicate hours each week (regardless of smart systems) to basic admin and compliance each week. And the hours you have to dedicate to business development or promotion – whether that’s cold calling, content creation and distribution, proposal creation, initial meetings, pitch meetings etc.
- You need to dedicate a few hours a week to learning, personal and professional development and ideally coaching or mentoring one you have your business off the ground. Or you’re not going to be much good to your clients for very long.
- There are hard costs to be in business – even with super low overheads – you’ve got phone, laptop, software subscriptions, accountants fees, bookkeeping fees, insurances, basic networking costs, memberships or associations, internet connection, stationary, a workspace of some kind.
- You have to pay GST + income tax on whatever you make. So minus 10% then an average of 28.5% on everything (not counting expenses).
Your time = your inventory (even though you’re not selling it by the hour)
Let’s say you decide you’re prepared to work 55 hours a week – say from 8am – 6pm Mon – Fri and 10am – 3pm Sat.
NOTE: Please, please don’t tell me that people who work for themselves should be prepared to work 100 hours a week and say that in your gift hamper business you worked 100 hours a week to get started. Sure … some people do that and packing gift hampers and dispatching them is not the same as consulting, so please can we put that argument aside and be realistic here. I’m not writing an article about “How to make a million dollars in 6 months on your own” – this piece is written from the perspective of what is reasonable and realistic for most consultant style businesses with 12 – 24 months of trading history.
I challenge any of you to honestly say you are capable of solidly and productively working for 10 hours a day x 5 days a week + a 5hr Saturday in a consulting business on a consistent basis. If you can then I want some of what you’re having – email me at email@example.com and tell me where I can get it.
My feeling on this is that an ideal scenario would be more like a 6-8 hour day 4 or 5 days a week to allow plenty of time to learn, think, rest and recover. But back to what I feel ‘most’ of us are roughly doing based on discussions and my rough estimate week.
We have a total of 55 hours. Say we take 10 hours away for admin & bus dev. Say you allow yourself a conservative 6 for travel and 6 for downtime between tasks and you allocate a measly 2 hours for learning & development. Allow another 6 hours a week for networking (on and offline).
Now you have 25 hours to bill out.
This is still a very ‘tight’ schedule as it’s not allowing for down time to be creative or to think strategically. And you’re not factoring in kids or husbands or any of that – so if you have either or both of those you’d have to fit the hours in at other times of course. No biggie though right? “Doesn’t mess with my flow at all” said no consultant ever.
Anyway … flow aside … you’ve got 25 hours to sell.
This is your inventory.
So when you do send out a proposal you agonise over the pricing … you want the client to be happy and to go ahead but you don’t want to do a ton of work for nothing because you simply can’t afford to and you know the value of what you do. But there are always client expectation to manage too because most small business clients have a thought process that goes something like this …
“If I’m paying you $x on money I expect that you’ll be able to solve all my business problems because that is a lot of money.”
Sure, to some small businesses $5k may seem like a lot of money, the reality is that after GST, income tax and overheads $5k to a consultant is worth about $2.5k. And it’s always important to consider what the work that’s being proposed is worth to the business if it’s done right. Is it going to potentially get you $25k worth of new business over the next 24 months? Well then it’s not expensive, it’s a 400% ROI.
The bigger issue isn’t so much about just the fees themselves but what the small business client is not telling you that they’re expecting your work to deliver for them in addition to what is stated (regardless of how clear you are on actual deliverables).
The “You should be grateful for the work” thing …
Having the attitude that the consultant should be grateful for the opportunity to earn your money. If any of you reading this are thinking that I urge you to reconsider. Engaging a consultant is a peer to peer arrangement. They are delivering services to you in exchange for money.
You are expecting that their work will deliver an ROI, so what you want is in essence for them to do work for you that allows you to profit from it.
That’s fine, BUT … you can’t realistically expect them to be grateful for the opportunity to help you solve a problem and make a fantastic ROI on their time and effort because you’re willing to pay them to do it.
Have a think about how absurd that sounds.
So the next time you’re temped to think that someone should be grateful for you hiring them, have a think about why you’re hiring them.
If you’re hiring a service professional for anything that’s beyond transactional (e.g. you’re not telling them what to do – you’re asking them for advice and guidance and assistance) you’re hiring them for their ability to solve a problem for you that you can’t solve on your own. And I’m guessing that if you want the problem solved then solving it has value and as such you’d expect there would be a fee involved.
Now what this fee is will very much depend on what the project involves, what it’s worth to solve, how hard it is to solve and how experienced your consultant is.
But remember that whatever the fee you’re quoted – the consultant is NOT charging that equivalent pro rated hourly or daily rate x 40-50 hours a week x 52 weeks a year. Using my assumptions above it’s more like 25 hours a week for 45 weeks a year (and even then only when you’re established, not just starting out).
This kind of work takes time.
It takes time because you have to get to know the client and their business, you have to spend time thinking about the challenge at hand, do research, think creatively, often work with other professionals to some extent and allow things to percolate in your mind.
It takes time because you spend hours trawling podcasts, books, blog posts and your own IP to get to the right solution.
You also never know how long it will take to get to the amazing big idea aha moment or solution and sometimes it’s the day before the deadline and you’ve still got nothing … or you spend a week on a concept you’re pumped about and pitch it to the client who rejects it out of hand … fun.
All this means you can’t just take on 10 clients at a time and bang out the work. Each client occupies a space in your brain almost 24/7 – you’re thinking about their problem, their business and how to best approach things all the time, you’re recommending them, promoting them and passing on referrals whenever you can. You’ve only got space for a few at a time and they’re getting way more of you than just the billable hours they may be paying for included in their project fee.
Clients often complain that fees are ‘too high’ and consultants often lament that they’re not high enough considering everything they put in.
There’s no right answer but here’s my take on it.
Professional services businesses are best marketed through word of mouth and referral, the best way to get this kind of referral is through doing great work. The best way to do great work is to be able to afford to. The best way to be able to afford to is to charge fees that give you the breathing room and headspace to be able to deliver great results.
If you are charging too little then you will have to work way harder and way longer and for way more clients and the results are likely to be less fantastic, especially over time as you burn out and struggle to keep up.
For me I’d rather know that my consultant wasn’t stressing over where their next client would be coming from, juggling 15 clients at the same time and was so stressed about the number of hours they were working or how little money they were making that they couldn’t really dedicate the amount of headspace needed to my project.
Fees are never ‘too high’ it’s all relative, it very much depends on what you’re getting for your money.
And as a client you shouldn’t be baying for blood. Yes, you want a fair price, but at the same time you want a great result. You should be looking for a consultant who’s straight with you about not being a miracle worker, about what is achievable and what it will take time and fee wise to get you to the next stage.
I know I would rather pay $5k for something and feel I got a great result and a great experience than to pay $2.5k and feel like I didn’t get what I wanted, I wasted time and money and now I needed to go and find someone else who could help me because I know I’m probably going to have to spend $5k on it this time to get what I really want.
As a consultant you should be honest with your clients about these things. Learn not to over promise in terms of deliverables and timeframes and not to undercharge for the value you’re delivering.
It’s a win-win if you charge a rate that makes you feel valued and that allows you to do your best work because the client get’s a great outcome and you will definitely get more work from referrals when you do that.
Yes it is scary and it isn’t always easy. But it is possible to find clients who value your work and are a great fit for you. Especially if you can demonstrate your value through free 15 min calls or creating some other free and easy to consume content that can be sent to prospective clients.
Don’t be afraid to say no to clients who push you on your fees and explain to them that you can’t afford to do the work for them for that rate because you won’t have the time to dedicate to their project and they’ll be disappointed with the result.
And always remember …