I get a lot of questions about consulting rates. Yes, I think most consultants and consultancies undercharge. There are a lot of tactics (on this blog and elsewhere) to help you figure out what to charge on the next project. But I want to talk about the ongoing process of moving your rates up.

Since price is capped by perceived differential value, the way to grow your pricing power is to grow how valuable clients think you are, compared to their alternatives.

Typically, when you start a consulting company, you’re good at doing a certain task. We’ll call this the “Technical Task”, whether or not it’s really technical, like doing a application¬†integration. Doing some of these tasks well is quite useful and valuable.

However, that task fits inside a larger business task.

Technical and Business Problems

For example, the application integration problem, may be part of a larger sales force transformation project designed to help the company increase sales by $10M the next quarter. There may be many ways to solve the technical problem, and many providers who can handle the task, but there are fewer folks who can solve the overall problem.

I like to make analogies to medical practices– consider that there are many people who can answer the phone and set up an appointment, fewer who can talk to the patient like nurses, and fewer who can handle the next level up, which is the doctors, and even fewer who can handle the complex surgeries sometimes required to save someone’s life. (And note that the hospital provides a system to integrate all of these people at an even higher level.)

So if you want to be able to continuously improve your rates, you have to be able to swallow larger and larger problems. Maybe you start at application integration. Your group reports to a project manager who may work for another company or be an employee of your client. You can expand to handle the project management role, coordinating different pieces to ensure project success. This person reports to a VP or Director who is running the project, including defining the objectives. So to move to an even higher level, you can become a parter with the VP and help her not only manage the project, but set it up. This move “up the stack” means you and your team have more responsibility and more capability. And you can charge more.

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