The 5 Steps to Overcome Undercharging as a Consultant (part 4 of 4 in the Undercharging as an Independent Consultant series)

Mar 11, 2022

The 5 Steps to Overcome Undercharging as a Consultant

This is part 4 of 4 in the Undercharging as an Independent Consultant series

In this article, I’m going to share the 5-step process to tackle undercharging in your consulting business.

It’s imperative to address the areas of your consulting business where you’re undercharging, as it compounds over time. I’ll share more on this compounding effect in a minute.

But, first, a quick reminder that this article is part 4 in a 4-part series on undercharging. You can find the other articles at:

OK, let’s assume you’re undercharging in some way (almost every consultant I meet is).

What should you do about it?

 

The 5 Steps to Overcome Undercharging

You might be surprised, but the five steps to overcome undercharging all revolve around your mindset. All the pricing strategies and tactics floating out there (and there are 100's) will not work unless you have an effective mindset in place. Let me show you what I mean by that, and how to implement the mindset strategies into your business.

1. Identify the areas where you’re undercharging.

Click here for the blog that gives you the methods you can use to uncover if you’re undercharging as a consultant. In summary, the methods are:

  • Look at what the market is telling you
  • Look at the way you calculate your rates/project fees
  • Ask yourself – when was the last time you changed your rate structure?
  • Research your own work, in addition to external inputs
  • Ask yourself – how do I see myself as I’m building up the project pricing?
  • Ask yourself – how do I feel when I craft my project pricing?
  • Ask yourself – where am I not charging for all the work I’m doing?

2. Identify YOUR root causes – the thinking that’s holding you back.

Click here for the blog that gives you the four root causes of undercharging. In a nutshell, they’re:

  • The way you think about you
  • The way you think about clients
  • The way you think about service offerings
  • The way you think about money

3. Then, create NEW higher-quality, possibility-based thinking.

You want to replace your old, outdated thinking about yourself, your clients, your offers, and money with a new, higher-quality belief system that will lead to the results you want in your business. I call this possibility-based thinking.

  • Possibility-based thinking is you purposefully thinking thoughts that lead you to take control and responsibility for the outcomes and results you have in your business.
  • They’re believable thoughts that you have created intentionally, that lead to emotions and actions that create the results you desire.
  • They are also thoughts you can believe without needing to take a huge leap. In other words, possibility-based thinking is different than positive thinking. We’re not putting lipstick on a pig and hoping for the best.
  • With possibility-based thinking, you’re carefully choosing the thoughts you’re thinking so that you feel emotions that serve you and take actions that lead to the results you want.
  • I’ll share two examples below so you can put this into practice.

4. Put your new thinking to the test.

  • After you decide what you want to start thinking about your pricing, you test it out to make sure it’s believable.
  • If it isn’t believable, then you’ve just put lipstick on a pig (as they say).
  • We’re not here to create positive thinking as the solution. Instead, the solution is to upgrade your thinking into believable thoughts that lead you to create and present your pricing in a powerful, empowered way.

5. And finally, take action from this new, updated mental model.

  • The last step is to take action from your new, upgraded mental model. After you’ve replaced your old, default thinking with new, business owner thinking, you then want to take action from that place.

Let’s dive into some examples so you can see how this works.

Putting the 5 Steps into Practice for your Consulting Business - Example #1:

Example #1. You are building up a proposal for a new client. You’re worried that your clients won’t want to pay you that much because you’re solo and you don’t have a well-known company name behind you.

1. Identify where you’re undercharging. As you’re building up a proposal, you decide to cut down your pricing. You’re thinking they won’t want to pay you “that” much because you’re a solo consultant without a big name behind you.

  • You think your client wants a “deal” by working with you instead of with a large consultancy.
  • You think it’s expected that you’ll charge less for your rates than a Big 4 would.
  • You feel smaller.
  • You feel sheepish.
  • You can see how this mental model will lead you to undercharge for your consulting services.

2. What is the root cause here? The root cause that creates undercharging in this situation is how you’re thinking about yourself and your client. Specifically, the root cause is you thinking the client will want to pay you less because you’re solo.

  • These sentences are not facts.
  • They are the result of your brain running wild with fear and worry.
  •  In fact, the opposite could be true.
  • The client could want to pay you more because of your specialized knowledge and lack of bureaucracy and overhead.

3. The solution is to transition out of lower-quality thinking that creates undercharging into higher-quality thinking where you avoid undercharging:

Ask yourself: What can you think about yourself and how much clients will want to pay you, in a way that serves you (vs. undermines you)?

Some examples of higher-quality thinking in this scenario are:

  •  “It’s possible that they aren’t comparing me to the Big 4.”
  • “It’s possible they see me being solo as an asset, a differentiator vs. a detractor.”

4. Choose a high-quality thought and test it

When you think the thought you chose in step 3, how do you feel?

For example, say the sentence - it’s possible they see me being solo as an asset. 

How do you feel?

It could be that you feel curious.

  • You’re curious because you want to figure out how they see you being solo as an asset.
  • You’re curious because you want to figure out how you can better portray your being solo as a differentiator.
  • You’re curious because you want to better understand their perspective and what they value, versus making assumptions.

5. Lastly, take action from this new mental model:

So, when you feel curious, you want to take action (e.g. building up your pricing, co-creating your pricing with the potential client, presenting it).

This feeling of curiosity is created by you thinking that it’s possible they see you being solo as an asset. And so, you feel curious to figure out how to make yourself stand apart, and present your proposal in that way.

This is the opposite of you feeling diminished or sheepish because you’re worried that they won’t pay you as much without a big name behind you.

Do you see how you get to decide the mental model behind your work, and that it’s always to your advantage to put yourself into that possibility-based thinking vs. operating from the worst-case scenario and not giving yourself (and your client) the benefit of the doubt?

In other words, it’s not a fact that they won’t pay you as much because you’re independent. Don’t assume this is the case. Give yourself the benefit of the doubt.

 

Putting the 5 Steps into Practice for your Consulting Business - Example #2

Example #2: Increasing your rates for a follow-on engagement at a client

1. Identify where you’re undercharging. You’re ready to extend your contract and your rates have increased since the first phase of the project. You’re worried that your clients won’t want to pay more and that now isn’t the right time to change your rate structure. You’re tempted to charge them your old rates for this next phase.

2. Root cause here: The root cause of you undercharging (or being tempted to) is how you’re thinking about your client.

  • Now isn’t the right time to change my pricing, later is better 
  • They won’t agree to my rate change
  • I shouldn’t charge them more on this next SOW
  • And as a result of these thoughts, you feel hesitant, tentative, and incapable.

3. The solution is to transition out of lower-quality thinking that creates undercharging into higher-quality thinking where you avoid undercharging:

What can you think about yourself and how much clients will want to pay you the new rates on this upcoming phase, in a way that serves you (vs. undermines you)?

For example, you can ask yourself and answer questions like:

  • How can I articulate the value I’ve already delivered?
  • How do I know more now about the ROI for them (qualitatively and quantitatively)?
  • How is now the best time to propose a change to the pricing structure?

Then, choose a high-quality thought based on those answers. Some examples:

  • It’s possible the client will benefit from my increased rates.
  • Now is the best time to discuss a change to my pricing structure, I can figure this out with them.
  • I get to choose when/where I work. I can offer my new pricing and if we can’t come to terms, I have so many options.
  • I’m a business owner and I have a policy to increase my rates with each new SOW. This is a business discussion and isn’t about me.

4. Choose a high-quality thought and test it:

When you think this thought, how do you feel: I’m a business owner and this isn’t about me.

You might feel confident, clear, and detached.

5. Lastly, take action from this new mental model:

Do you see how much more effective you’ll be at creating and presenting the new pricing when you feel confident, clear, and detached vs. tentative?

When you’re feeling confident, clear, and detached you’ll be able to build up your pricing on this new SOW with the new rate card, define the ROI based on the past results and your deeper knowledge of the client, get creative on getting buy-in from the client as you develop the proposal, and have meaningful discussions about the value of the next phase.

 

For more on this

And many times, it can be very hard to see this for yourself.

If you want help figuring out how to upgrade your mental models from the default, employee-based thinking into a confident and in-command business owner, I’m here to help you do that.

This is the work we do in my 90 Day Independent Consultant's Bootcamp. We implement the strategy, tactics, and mindset to transform you from a consultant into a consulting business owner so you can make more money, have more impact, and have more freedom in your life.

  1. Click here for more information on the IC Bootcamp.
  2. Click here to schedule a time for a coaching consultation.

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