New Consultant
Dear Work Wise,
I am new to the freelance consulting world and I recognize that I am not as well equipped when it comes to negotiating contract work of this nature. Is it best to be paid on an hourly basis, or is it preferable to push for a contract with a set amount to be paid per deliverable, or perhaps even agree to a monthly retainer? I anticipate that I will encounter situations where the client prefers a different payment/contract structure than I do. I am also in the process of evaluating how to set my rate. I have heard a number of different things, but many of them are based on using my most recent gross pay, and then adding another 15-20% on top. Should my rate vary depending on the specific type of work or specific company, or should I try to keep it fixed no matter what?
Dear New Freelance Consultant,
First of all, welcome to the freelance, gig economy! Working for yourself has many advantages, including flexibility and autonomy, and also some disadvantages, such as less consistent flow of income and fewer support systems initially. Given that you are new to working as a consultant, I might suggest that the payment relationship is important, but not necessarily something you have to get “perfect” right out of the gate. The first couple assignments will teach you a lot (and even confirm if this way of working is a fit for you!) They also will give you case studies and language to further market yourself in the future. For slightly lower market rates, you may set up a win-win with your first couple clients, where you offer more value to them for their support on back end to give you detailed feedback, references and even willingness to market your services and make introductions to relevant contacts. This is not to say that you should compromise yourself and not get paid fairly; you definitely want to feel there is a fair exchange for your time and expertise, so you do want to ask for rates that feel good to you and your approach stated above is one way to get to that answer.
Generally, I think about working on a project basis with a client in my work, versus an hourly basis and spend a lot of time building detailed budgets for work and have a few rates I use depending on whether the work is client facing or not, but it really depends on the nature of the work and assignment. If a client is quite unsure of what is needed and scoping is required to define the work as part of your role, you might outline an initial phase of work for an hourly rate for a ceiling of hours, before fully defining a more detailed scope with deeper insights of what is truly required at a project rate. A retainer is a coveted arrangement for a consultant (in my experience), but possible in certain fields such as an outsourced function like PR or finance or when you are valued, known expert to the client organization. You might also want to carefully track your time for your first few projects to know how well you are scoping the work upfront as well. Often, we underestimate the amount of time something will take and the administrative costs required to support a small business, so it is a fair and wise move to add administrative costs to your budget for a project. That cost basis probably varies on nature of work itself and investments required to do the work for the client.
Finally, I find pricing is part science and part art. It is something you get better at over time with more experience and talking to other experienced consultants in your direct field and function always helps you know the market ranges. When starting out, I prioritized doing interesting work for good clients over getting the highest, possible rates, but there are many approaches to building a book of business and I may have done so partly to reduce my stress level and allow myself to be in learning mode.
A few tricks I have found that can save you time and heartbreak; one, ask your prospective clients about whether they have a set or desired budget for the work you are discussing; second, ask your prospective clients how far down they are on the path to selecting their potential consultant(s) and what factors are most important in their decision with whom they will work. These questions may eliminate the need to even submit a proposal and/or help you write a much better proposal. One of my colleagues refuses to write a proposal if there is not a clear budget disclosed.
To contradict this advice, however, there are times when a client does not recognize the required investment for a particular outcome and may be convinced to increase the budget based through the sales cycle. You also can offer a client tiered options at different price points to demonstrate the value of a higher investment, but these proposals take more time and effort, and often pose a risk that you are offering clients your intellectual capital to implement on their own (this does happen as well!). There are times when you apply for something you know is a long shot and you should give yourself a deadline and time limit for how much you will invest in the proposal. Your time on one proposal is an opportunity cost that must be factored in, but any experienced consultant will tell you that failed bids are the nature of the game. You will win some and lose out a lot more. Thick skin is required, and resilience as well, are prerequisites for staying on this course.
Still want to join the freelance, gig economy now? Hope so. It’s worth it when you are utilizing your talents and can do great work with respectful, interesting clients! All the best to you on this new adventure.
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