Justifying your Consulting Rate

April 19th, 2012 admin Location: Raleigh, NC, Topic: Web Design | Digital Media

So let’s say that you are a consultant, therapist, lawyer or any independent professional that makes a living with one-on-one interactions. Some people call this interactions “consultations”, others call them sessions, but it doesn’t matter what you call them, at the end of the day, as a business owner you have to decide what to charge for them.

Some people like to give the first one for free,  as a way of “promoting” their service or expertise, they think, well if the client really liked it then he will come back and then pay for the services. So in this article, we are not going to be talking about those cases. The promotional rates need to be for the purpose of increasing the consumption of your services. Pretty much like that piece of chicken that the Chinese restaurants at mall give you. It is meant to be a teaser. We have in fact, talked about teasers in another post and therefore we will skip this particular kind of rate.

In this post we will be talking about the justification of your rate through value proposition.
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So how do you justify your price point?

In my work as an interactive marketing coach, sometimes I get to sit down with awesome professionals that really are at the top of the careers and that they know what they talk about in their respective fields. But when it comes down to business, they are not as clear to what to do. Some of them are scared of charging more because they feel like they have difficulty justifying the premium price. Some others are afraid that their clients won’t come back. Whatever the reason to be afraid, most of them (not to say all of them) are scared of charging MORE, not less.

So here are some pointers that have been learned along the way that can make it a bit easier to define and justify your consulting rates:

Before we begin, let’s however understand that value is about perception. It is not about reality. The reason why people value things is based on their own perceptions and belief systems. So you may say: that is not true! We all know the true value of things! Ok, so let’s put that to the test. How much are you willing to pay for a bottle of water after three days with no water in the desert? Is that the same amount than you are willing to pay for at your house? Let me give you another example: scarcity. If something is more difficult to get you will assign more value to it. Such is the case of numbered products, or signed memorabilia. Of course a baseball bat signed by Babe Ruth is more valuable than a wood bat at your closest Sports Authority store.  So far we haven’t introduced the concept of perception. Let me do that now. There are many people that forge these signatures and the people end up paying for those baseball bats as much as if it was signed by the right guy. However, it is no different than the bat from Sports Authority. Let me give you a final example. At some point, people in the United States were attributing more value to white eggs. The probably thought that they were more hygienic or cleaner. At some point the population changed their “perception” and brown eggs started getting more popular. People all of a sudden started “believing” that they must be better because they “look” more organic. Now, of course, you could charge more for the popular eggs and less for the ones nobody wanted. In other words, value is assigned in our minds. And our minds are anything but objective. We simply can’t take the world for what it is and so we make a summary of the world, and in the process we use all sorts of filters. Pretty much like a video camera takes in a party. Not everything that happened is recorded, and depending on the filters, you will see it differently. That doesn’t mean that the party was in truth like the recording.

So now that we understand that value is attached to our perceptions, what that means is that our value proposition for products and services always has to be first attached to the influence of our perceptions. Of course, if the perception is all that you change, one day your customers can and will change those perceptions on their own. Therefore it is important to backup the perceptions with true value. Imagine you purchasing a car that you perceive as fantastic but as soon as you start using it breaks every so often. The perception changes extremely quickly because it is not backed up with real value.

So based on all this information, how do you justify your consulting rate? How do you ensure that you are charging enough to sustain your business? How do you know that you are maximizing your revenues? Let’s take a look at some steps on how to do it better.

1. The first thing to do is a cost analysis. This one is pretty straightforward and most people know how to do this. For the sake of brevity, I am just going to say this: Don’t charge any less than what your expenses would be. So calculate the number of clients that you expect to have, and also calculate the maximum capacity of clients you can have. Then take that number and at least (being extremely optimistic) chop it in half. Then multiply that number by the price you are planning to charge to see if it covers your monthly expenses. If it doesn’t then of course, you would be charging too low *NOTE: it doesn’t matter if other people or businesses are charging less than that number, either you charge more, or you find a way to reduce your expenses, OR you will be out of business and then you don’t get to choose. This exercise is better to do it before you start your business of course. Why? Because there are plenty of good ideas that are not profitable.

2. Take a look at what are the alternatives for the client (target audience). For example, the reason why a bottle of water is more expensive at the airport is because you are trapped, and therefore you have less alternatives. You have to purchase that $10 bottle of water. If you are competing as a real estate lawyer with 200 other lawyers in your area, then chances are that the alternatives are easy to reach for the client. Either you make your business unique in such a way that you prohibit the alternatives (because you are very unique) or you have to be competitive in pricing. If those other 200 lawyers are charging $200 an hour, then you are pretty much trapped into doing the same – at least until you figure out a way to be different in something that matters (perception).

3. Remember that as a professional, you should have two personalities in one. You have to be a Business Owner, and you have to be a professional (lawyer, dentist, doctor, consultant, etc). The only way that your private practice can make it is if both of those personalities do a good job at what they do. If you are great at one but poor at the other, you will be shown the door fairly quickly.

For some of my consulting clients, the Business personality is the one that is out of control. The reason is because individual professionals really want to help. And they want to make a difference and it is difficult to charge people that “can’t” pay – they have so much on their plate. This last point is very important, either your clients are clients or they are not. If they are clients, then they want you to succeed.

I don’t know how many times I have recommended my family members, my friends and everybody I know to buy a Mac computer. It is not that Apple won’t charge them way more than a PC. So why do I find it so easy to recommend them? Why do I want them to succeed? Because they are good. They are good for society. I want more of them, and somehow I understand that if they are good, and they grow, that I’ll get to enjoy more good stuff. Plus, recommending something good to the people I care about makes me valuable.

Your clients either want you to succeed or you are doing something wrong as your second personality. When your clients want to recommend you and talk about you all the time, you know well that they may not be terribly excited to pay large amounts of money for a service, NOBODY DOES, but still they will and they know that is how it works.

4. Sameness versus Difference. In our world, we look at sameness (comfort) as invaluable. Of course, it makes sense, if you happen to have chicken for lunch every day of the week, if your partner takes you out for a special dinner on Saturday night and you end up going to KFC – you simply won’t value it. No matter how good KFC may be that day. I am not saying that you won’t enjoy the chicken, what I am saying is that it won’t be perceived as valuable. If you go to a river, and your kid picks up a rock and gives it to you as a present, you say: Thank you, but still you throw it away. Why? Because it has no value, the river had hundreds of millions of rocks just like that. However, if your kid gives you a rare diamond of course you’ll find it very valuable. Another example would be hamburgers. If you go to McDonalds and get a double cheeseburger, you know that the value is not too high. You pay for it $1 and it is great for that price. However, it would be very hard for McDonalds to justify a price of USD$5.00 for one of them. Yet if you go to an upscale restaurant, they seat you in a nice comfortable booth, they bring you a big plate with a perfectly cooked hamburger with 100% beef patty and great fresh mozzarella cheese then of course you have no problem paying $12.99 for it. The difference between them is the uniqueness. By making something unique and different you add value, by making something programmatic and constant you make it less valuable.  It is important to note however that we expect a certain level of “sameness” in our purchases. For example McDonalds is the biggest hamburger restaurant in the world because they are same. The burger is exactly the same no matter where you buy it.

5. The size of the target audience. For example if you are an specialist at something that nobody desires, it is going to be difficult to make a business out of it. To the contrary, if you have a very large target audience (want, can, show the need, are available) then it is about justifying the rate. For example, a real estate lawyer won’t ever have a problem finding a target audience as long as governments require paperwork signed by lawyers. Plastic surgeons won’t ever have a problem finding target audience, as long as advertising and media continue to idolize perfect bodies and faces. Unfortunately that is not the case for some professions. For example for depression therapy. The target audience needs the help, they know it, however since the pain is not physical, the urgency of the remedy is certainly lower. Another example is book keeping advisers.  People don’t necessarily care about accounting until they have a problem. So either they feel like they need nobody or they now need a tax expert. They jump the need for the book keeper.

6. Finally I want to share with you one tip that even though is far from scientific, it has helped me also a bit: “If less than 20% (2 out of 10) of your clients complain about you being too expensive then you are too charging too little. ”

I hope that this few recommendations can help you make a more informed decision about how to justify your consulting rate.

Until next time,

Alex Centeno MBA.

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About the Author

Alex Centeno MBA., is an international creative director and digital media strategist. Currently residing minutes away from the Research Triangle Park (RTP) - North Carolina, and with over 10 years of interactive marketing training and experience, Alex leads Merkados' international clients to maximizing their online business strategies. One of Alex's biggest strengths is his world-class capacity to effectively combine interactive marketing, digital media design and web development.

You may find further information about Alex Centeno MBA. at: and Twitter.

Sobre el Autor

Alex Centeno MBA., Es un director creativo y estratega de medios digitales reconocido internacionalmente. En la actualidad reside a tan solo minutos del Research Triangle Park (RTP) - Carolina del Norte, y con más de 10 años de entrenamiento y experiencia en marketing interactivo, Alex lidera a los clientes internacionales de Merkados™ para maximizar sus estrategias de negocios en línea. Una de las mayores fortalezas de Alex es su capacidad global de combinar de manera efectiva, mercadeo interactivo, diseño de medios digitales y desarrollo web.

Para más información sobre Alex Centeno MBA. puede visitar: y Twitter.