EP. 052 The 5 Steps to Overcome UnderchargingMar 10, 2022
In EP. 50 we discussed the five methods that you can use to determine if you are undercharging in your IC business.
In EP. 51 we talked about the four reasons why you might be doing this and what to do about it.
And in this EP 52, I share what to do now that you know where you’re undercharging and the root causes leading you to undercharge in your consulting business.
Listen in to learn more about how to stop undercharging in your independent consulting business once and for all.
- [02:34] The impact of you undercharging
- [04:18] Examples of the impact of you undercharging
- [09:00] Overview of the 5 Steps to overcoming undercharging
- A walkthrough of the 5 steps Steps to overcoming undercharging
- [11:56] Example #1
- [18:26] Example #2
- [24:54] Example #3
- [30:25] Recap of the 5 steps
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**note: This is an automated transcript, so please ignore spelling errors and grammar mistakes*
Welcome to the Grow Your Independent Consulting Business Podcast. I'm Melisa Liberman, a fellow IC and business coach. On this podcast, I teach you to become a consistently booked independent consultant without becoming a pushy salesperson or working 24/7. If I can do it, you can too.
listen on To find out how. Welcome to the podcast. I am so glad you are here. And today, I want to focus on pulling together the series we've been doing on undercharging as a consultant. So today is part three of the three-part series. And we're going to focus on the five steps to overcome your undercharging as a consultant. So welcome; we're going to dive in and pull all of this together. If you haven't yet listened to the prior two episodes, which I think are 50 and 51. No problem, I'll give you the quick cliff notes. And you can go back and listen to those two episodes after we're finished here today. So just stay with me. And I'm going to walk you through a little bit of a recap. And then we're going to dive into those five steps so that you can truly uncover where you're undercharging and then do something about it from a really effective place. So with that, today, we're going to talk about number one, the impact of you undercharging, because I think a lot of people overlook the impact when they're undercharging as a consultant. And I want to give you some really solid examples. To help you see what that impact truly is, in a way you might not have been thinking about it before. And then I'm going to walk you through the five steps for you to overcome that undercharging. Assuming you are, for most people, most independent consultants, I find that even if you feel like your rates are, you know, at the high end of the range, there are pockets in your business where you are undercharging. So I want to help you make sure that you're overcoming that undercharging, whether it's kind of across the board in your business or in these little pockets. So we're going to walk through those five steps. And then, I'm going to give you three examples so that you can very clearly see how to put the steps that I'm sharing with you into place. Okay, so let's dive in and talk first about the impact of your undercharging. Here's what most consultants think when they think about, oh, I think I might not be charging as much as I could, or I, I could be undercharging. Most of the time we think about it in the sense of well, it's only $5 an hour, it's only $20 an hour, it's only $500 per day, it's only maybe, you know, $1,000 here or there from scope creep, or where I undercut an estimate. And so, you know, in the grand scheme of things, when I'm talking about a six-figure contract, for example, it's not that big of a deal. And when you think about it that way, it isn't that big of a deal. If you're thinking about it well, it's $1,200 here or there, you know, in the grand scheme of a $100,000 contract, it doesn't you know, it's thought about the big picture, right. And in some cases, that's true. In some cases, you make strategic decisions that you are going to eat a little bit of whatever the scope creep is right. But that's not what I'm talking about here today; what I'm talking about is you getting very clear on the compounding impact of making that same decision over and over again, over time. So that you're really clear when you're choosing to take a discount of some sort or not bill someone for some reason, you really see how that adds up over time. And that informs your decision about how it is you're going to approach your pricing and invoicing strategies and change order strategies. So let me give you some examples here. I had one client who, you know, as we were looking into their business, we realized that they were undercharging by about $50 per hour. If you look at $50 per hour, and you know we're not talking about starting at $100 an hour, right? We're talking about, in this case, $175 an hour. So 175 versus 225. If you look at $50 an hour over the course of a year, if you're working let's say 30 hour weeks, and you're taking a month off, that's $72,000 over the course of a year, it becomes very, you know a different conversation right? It's no longer $50 an hour, or even $5 an hour if you look at it over the course of a year, is $72,000. In this case, or think about it from a day rate perspective, another client, we, when we started looking into their business, and even raising their rate by $100 per day, would be a $19,000 rate over the course of a year, without changing anything, you don't have to take on more clients to capture this type of additional revenue. Another example, I had a client who found 40 hours of work that she had underestimated on a project, and that would have cost her 10k. This happens over and over again, right where we estimate something. And typically, we kind of err on the side of, we do one of two things, we there err on the side of optimism, or we add everything up and come up with our Pricing Proposal. And it freaks us out; it seems too big. And so we start cutting things, and it costs us money because we still need to do that work. And then we're not getting, you know, paid for it. We're not being compensated for the value of that work. Another example is another client they realized that they could be charging for the onboarding and kickoff work, which they typically in the past had considered as non-billable or part of the sales process, kind of the cost of doing business. And so this is such low-hanging fruit, right? It's like $1,500. To onboard a client times eight of those a year is another 12k. And the last example that I'll share with you today, there's so many but the last example that I'll share with you today is, you know, a client to realize that the work they were doing in the sales cycle in the business development cycle was so incredibly valuable and produce deliverables that they decided to start charging $12,000 for that strategy session. So they ended up starting to get paid to do some business development, the tail end of the business development, it was great for them because it was quick, you know, half-day project, it was great for the client because they had a strategy. And then my client could come in and start helping them implement that strategy if they so chose, or that client could go in, take that strategy and start working against it internally; doing that kind of work once per quarter is $48,000 a year. So think about these different components and how they add up where you might be undercharging or not even charging at all, and have the ability to really add up to something meaningful over the course of a year. And let's not even think about it over the course of a lifetime, right? I shouldn't say let's not think about it. Let's definitely think about it over the course of a lifetime. Think about just that simple case that we started with, with someone who raised their rates back up to, you know, what was probably the mid-mid-range in the market. And now you have a new baseline from which to be increasing, again, the lifetime value of that type of shift in your pricing model. It compounds itself year over year. So hopefully, now through those examples that I'm sharing with you, again, some of those numbers, even if it was $5 an hour, it adds up over the course of the year and of the lifetime of your business. So now that you know, based on what we've been doing in this series, right, there are places where you're undercharging in your business or not charging at all. If you don't know that answer, then you can use the tools that I gave you in Episode 50 to figure out that answer. And now you see the impact of you doing this even in such a slight way if it's $5 an hour, $10 an hour, $50 an hour, $100 a day, or not charging for onboarding, whatever it is, hopefully, you can see the impact to your bottom line over the course of time, not just that one unit of measure. With that, let's dive into these five-step processes so that now that you know where you're undercharging and why it's so important to address this for your business. Let's talk about the five steps to overcome undercharging. So the five steps are number one, you've identified the area where you're undercharging. There are most likely multiple areas. So again, don't leave now but go back to Episode 50. And I'll help you with the tools to figure out where you're undercharging. Number two, then we figure out your root causes. This is what we talked about last week and episode 51. Again, no need to go back there. The root causes are really at the heart of it, the way that you're thinking about yourself, the way you're thinking about your business, the way you're thinking about your clients, the way you're thinking about your offer, and the way you're thinking about money. So I'm going to give you some examples. So this becomes very tangible here in a minute. The next step The five-step process is that you need to replace those root causes of the thinking that's holding you back with new, higher quality, what I call possibility-based thinking. I want to pause here for a moment. I'm not telling you just to start thinking positively. That's not an answer. It doesn't work. First of all, it's like putting lipstick on a pig. It's much more strategic than that. So I'm going to give you some examples of what this really means what higher quality possibility-based thinking is. I'm going to give you some really tangible examples. So you know what that means. And that it's not just you trying to trick yourself into being positive so that you can start overcoming the undercharging, that was step three, step four, is to put this to the test to test out these new hypotheses and to figure out what's going to work for your business right now and with your clientele, and what's not. And to know that there's no right or wrong answer, that this is constantly you testing things out in the market and figuring out what's the best model for you at, you know, at any given point in time. And then finally, you're going to take action, going to take action, you've created this new go higher quality possibility thinking, you've tested it out. And now you want to take action from this new updated mental model that we're putting in place. Okay, so I'm going to teach you how to do these last three steps, really all the five steps through these next examples that I'm going to share with you. So I'm gonna give you two examples of building up an array structure for a new client or a new statement of work in some capacity. And then the last example is going to be an example of you raising your rates for an existing client; you're raising the way that you know, the pricing structure for an existing client. Okay, so let's start with example number one. So I can really walk you through these five steps and make them tangible for you. I'm sure you can relate to this example. Let's take the example where you are building up pricing and a proposal for a client, and you start thinking, again, our root cause of undercharging is our thinking. One of the thoughts you have as you're building up that proposal and starting to think about how you might approach this is that you think my clients won't pay me that much. I'm just a solo; I'm just an independent. I'm not part of a boutique consultancy or a big consultancy. So the root cause, if you keep going down this path of you undercharging, would be you think they don't want to pay you as much as they would a quote-unquote, real firm. Those are air quotes, for sure. So when you think that your client doesn't want to pay you that much, and you think it's expected that you'll charge less for what you do, then what a big four would charge, for example, you diminish yourself, you feel sheepish, as one client put it, you feel inadequate, right. And from that place, you end up slicing things off; you end up undercharging, whether it means that you the way you've built up your Pricing Proposal, you know, it doesn't matter what kind of rates you're charging in these examples, whether it's hourly, or value-based performance, base, whatever it is deliverable-based, doesn't matter. The way you're building up, if you continue down this path, thinking they won't want to pay me that much, I'm just as so low, you end up cutting things out because you don't want it
to look too big. So the root cause here of you undercharging is not the fact that they won't pay you that much that you're because you're a solo; it's the way you're thinking about yourself and your clients. I'm pausing there because this is so important. A lot of times, we point to things and say, well, that's just how business works, or, well, that's just how this client operates. Or, well, that's just the rules of the game. And when you say those things to yourself, then you don't question how it could be different? Don't you question how the opposite could be true? You just take these perceived rules of the game, either you've assumed them or at face value, and you're running your business off of assumptions, which we now know how that ends, right? We don't want to run our business off of assumptions. Just like you wouldn't run a project off of a bunch of assumptions without validating them. So the root cause here again is the way you're thinking about yourself in this example and about your client. They're not facts. Let's look at the opposite way. They could want to pay you more because you have such specialized knowledge. And you don't have bureaucracy, all these layers of partners and, you know, people Who are adding into the cost structure that are actually delivering for the client? That was step two, right? So step one is to find this scenario where you're undercharging. In this scenario, we're building up a pricing model and thinking that my clients don't want to pay me as much because I'm so low. Step two is to see the root cause, the way you're thinking about yourself and your client, and what they value. So the solution, here again, is that new, higher quality, possibility-based thinking. So what does that mean? What it means is, what can you think about yourself and how much your clients will pay you in a way that serves you versus undermines you. So let me give you some examples of what I mean by that. You could be thinking in this case, as you're building up this pricing model, that it's possible; they aren't even comparing me to the Big Four; this isn't even relevant. If I'm solo or not so low, then it opens up the possibility for you to have ways to look at the way you're building up your pricing model that has nothing to do with some perceived governor or comparison that you're trying to put in place mentally. The other example you might want to leverage is, it's possible they see me being solo as an asset. So it's a differentiator versus a detractor, kind of back to you have specialized knowledge and a lack of bureaucracy when they're paying you, they're paying you directly for results versus all these layers. So that would be two really good examples of new, higher quality possibility-based thinking that you want to shift into that you want to think purposefully, versus just letting your default brain run the show, which is keeping you at the place of undercharging. So then step three is to test the new thought. When you think it's possible, they see me being solo as an asset, then how do you feel about that? Curious, maybe? Curious, I wonder how I could better build up the value they'd be getting by working with me, and the results that I deliver to you start thinking about how could I describe to them in a way where they really see me as that specialized knowledge and that I don't have this bureaucracy over the top of me, you test out the thought that higher-quality possibility based thought, to see what it does for you, does it send you down a positive direction, where you can start really opening up and thinking more creatively. And if it does, then you want to take action from that place. You want to build up your pricing from the space of curiosity, for example, or confidence versus feeling diminished and sheepish. That's how the five steps work. That's how you put those five steps into place. And just to be clear, when you test it, and you don't feel an emotion that you want to be, that's going to lead to a positive result. Let's say you put you create a sentence. And in step three, the new higher quality possibility-based thinking, and you create a sentence to try out in your brain. And you notice that it makes you still feel insecure or diminished in some way, then you just keep testing until you find one that does give you a positive emotion, like curiosity or confidence. Okay, so that's example number one. Example number two is another example of a scenario where you're building up your pricing model. And your thought could be something like, Well, my clients are on a tight budget. This situation feels really tricky, right? Because what is a tight budget, first of all, a client might have given you a number, they might have given you a number, you'll know if that number is in a ballpark of what you would type of client, you would take on or not. If it's completely out of the ballpark, then why are you even providing a proposal in the first place would be my question. So let's just say that you have some sense, or maybe you even don't, but you think they could get there, that they're going to have the ability or willingness to pay you, you know, the amount that's commensurate with the proposal you would be providing them, you're giving them a draft and you're co-developing it with them would be the best practices. But here we are starting off thinking about what this proposal would look like, and we either have a range from them, or we don't matter. But we have this thought that they're on a tight budget. So again, let's look at that. What does the result of you think they're on a tight budget? First of all, as I know very repeat myself tight is not a thing. That's not a math equation. We can't quantify what a tight budget is. It's a way for us to think about what the client might be willing to pay and create kind of a box for ourselves without really knowing what it means to make ourselves feel comfortable, right. And when you think they're on a tight budget without actually knowing in most cases what the budget is, or if you do know what the budget is, assuming that they're not going to move out of some range, and keeping yourself limited in that way, you don't get creative. You try to fit into that tight, quote, unquote, tight budget by squeezing your rates or your scope. And you end up undercharging and doing the scope anyway. And so you feel trapped or stuck. And in some form of a take it or leave it situation sometimes. Now, you might be arguing with me on your head right now? Well, Melisa, it is a tight budget; that's a fact, when you're thinking about what they're able to pay you in a way that isn't a mathematical number. When it's a judgment, you end up turning off your ability to get creative, you end up turning off your ability to have a meaningful dialogue and conversation with them about what their parameters are, about what they value and what they don't value, what they want you to do. And what might other people be doing that are part of the team. When you just think I'm stuck with this tight budget, then you end up creating constraints for yourself that almost all the time don't exist. It's just that the client loves to use that type of term. I'm on a tight budget, it was even me when you make assumptions about what it means. It almost never goes into your favor, right? So look at that, and say, Where am I just taking what they're giving me. And assuming a bunch of things without getting creative, without really looking at the facts of my pricing model and figuring out what makes the most sense. And creating the proposal, or at least the starting point or the straw model to be discussed with a potential client from there. So we are at the place. Now in this scenario where you think your clients are on a tight budget, it makes you feel constrained. It makes you feel stuck and trapped because of the way you're thinking about it. Because it's a judgment and a qualitative versus quantitative thought process. And so the solution here is that you want to again move into higher quality possibility-based thinking. What can you think about yourself and how much your clients will pay you in a way that serves you versus in a way that undermines you? So the example, in this case, would be asking yourself, How can I better understand what their budget actually is? What questions, so maybe they've even given you a range? What questions can I ask them to understand where the budget came from? Whose budget is it? Why was that number selected? What else might this be impacted? That it would also pull from that particular budget? What is the ROI for this project in the short term and over the over three years? You know, they're going to think or say their budget is tight. Think about it, how do you figure out together with the client, so you and they more fully understand the benefits of doing the work that you're proposing, as well as the opportunity cost of not doing the work? When you think about these types of things, it just opens up so many more possibilities versus just agreeing with them that they're on a tight budget and taking that as the gospel. Another thought that you could use in this vein of higher quality possibility based thinking is to think my pricing and my value don't have to be constrained by an initial budget they spitballed, most of the time, even if they are on whatever a tight budget is, someone made it up, right? It's just completely made up. So then test it if you choose one of those new higher quality possibility-based thoughts like my pricing doesn't have to be constrained by an initial budget they spitballed. How do you feel when you think that? Or how do you feel when you think, of course, they're gonna think their budget is tight, it's not a problem, we can figure out a mutually beneficial proposal. Maybe you feel resourceful; you want to be acting, taking action, which means building up your pricing, which means co-creating your pricing and your proposal with the potential clients, which means presenting that proposal, which means not taking things out that you know, need to be there. That's the action you want to be taking. And you want to be taking it from the place of feeling resourceful versus feeling stuck or trapped. So hopefully, that executor example gives you a really good idea. Now you're starting to get the idea of how these five steps can be put into place. Let's talk about one last example for you, and then I'll give you a recap and what to do next. Okay, examples number three is raising your rates. So we're raising your rates when you choose to Send the contract. And again, it doesn't matter what kind of rates they are. It doesn't matter if they're hourly or daily or monthly or retainer or value-based or performance-based any of that, right? It doesn't matter. What does matter is you're thinking about it. So let's say that the scenario here is that you, you know, you're raising your rates, and your thought, by default, is that they won't want to pay more, they're already used to this structure, or now isn't the right time to change my structure. So then, if you just kept going down that path, it would result in you undercharging, it would result in you not figuring out, oh, you know, these are the areas where I can increase the value of what I'm delivering maybe, and therefore the cost structure. Or it could be, here's the area where I can, you know, start charging more, which is commensurate with the value of already been providing them. If you keep going down that path of thinking, Now isn't a good time, they won't want to pay more; you are just continuously under charge and perpetuate that impact we were talking about in the beginning. So the root cause here, again, is how you're thinking about your clients, you think it's not a fact, you're thinking, they won't agree to my rate change, I don't want to risk the relationship, we'll just eat that extra $20 an hour. I shouldn't charge them more on this next, so who may be the one after that, or now isn't a good time, right? All these excuses as to why now isn't good? Why isn't the right time? I don't want to lose a burden on my hands. And as a result of that thought process, you feel hesitant; you feel tentative; you might even feel incapable of negotiating. And so as a result, again, if you keep going down that path without interrupting this thinking, which is step three, to interrupt the thinking, if you keep going down the path, then you're going to end up undercharging, and that compounds over time. So now that you know the root cause, you move into step three, which is creating on purpose, new, higher quality, possibility based thinking, which again means what can you think about yourself, and how much your clients will want to pay you, even in the case of rate of an extension, or a follow on the statement of work in a way that serves you versus undermines you. So some examples of this new higher quality possibility-based thinking could be how do I articulate the value of what I've already delivered? Or another one? How do I know more now about the ROI for them, both qualitatively and quantitatively, to discuss that with them, to show them that I love this one? How is now the best time to propose a change to the pricing structure? We're constantly looking for, you know, by defaults, we look for why is now not a good time, of course, you're going to find a bunch of evidence for that. Ask yourself something that actually gives you a more productive answer. How is now the best time to propose a change for the pricing structure and answer it? Once you choose your higher quality possibility-based thinking for raising your rates, then you test it. So when you think the thought now is the best time to discuss a rate change or change to my pricing structure, you might think even now is the best time to discuss this, and we can figure it out together, you might think I get to choose when and where I work, or I can offer new pricing. And if we can't come to terms, I have so many options, test out a bunch of thoughts. And when you feel confident, when you feel clear, when you feel convicted. That's where you want to start working on Step five, which is to take action from this place. Again, action means building up a pricing proposal based on the new structure that you know, want to propose to them; that isn't you undercharging taking action means co-creating the pricing with the potential clients with your sponsor. And the stakeholders. Taking action means how you're presenting it and the energy with which you're showing up. Of course, you want to be taking action from feeling confident and clear and committed and convicted, using those thoughts. Like how is now the best time to propose a change versus from the place of tentative, oh, they're not going to agree to my rate change? This is going to put me at risk that's gonna have such a different outcome. When you come at it from that place. You either never propose it in the first place, or you propose it. It's kind of like putting something out there and like running away and hoping they say yes, but if they say no, you've like already left the building, right? So think about this with these five steps. These are the five steps for you to get into the right headspace to overcome or not go down the path of the root cause anymore and get yourself into a productive headspace where you've got that higher quality, possibility based thinking, and you're taking action from an effective emotion like confidence and clear and committed versus feeling tentative or sheepish or insecure underqualified. Okay. That's what I've got for you these five steps. So let me tell you what to do next here to put this into action. I'm going to recap these five steps to start with. Number one, uncover the areas where you are undercharging, give yourself an audit. I like to do this a couple of times a year, take a look at all the areas where I'm undercharging. Again, you can go back to Episode 50 if you need the tools to figure out those pockets of where you're undercharging because it's not just about your rates; it's about what you're not charging for, in some cases, right? Then step two is to identify the root causes, figure out where your brain is at in a way that's holding you back so that then you can replace it. So then step three is for you to create that new, higher quality possibility-based thinking. Number four is to test out that thinking and see if it creates the emotion that you were expecting, like confidence or clear or curiosity. And then number five, only take action from those emotions, versus from an emotion of hesitant or tentative or insecure. Alright, so those are the five steps for you to overcome; you're undercharging. It's a bit of a mouthful if you need help with this, which honestly most people do. It's so hard to see for ourselves where we're holding ourselves back, versus having other people see those patterns and sneaky areas where we're keeping ourselves earning the same amount over and over again, year after year, or continuously undercharging, because we're letting all those self-doubts get in the way. If you want some help with this, reach out, you can book a time with me on consultmelisa.com. And we'll talk about where you're at in your business, what could be holding you back, put together a strategy for you to move forward if coaching is a good part of that strategy, I'll invite you to work with me. And you can decide if it's a good fit or not. And if it's not a good fit for you, then we'll talk about what would be and help you to move forward in your business so that you're not undercharging and creating this compounding effect that we talked about today. Alright, thanks for tuning in. If you love this podcast, go on to apple the Apple app and leave me a rating five stars would be amazing if you feel up to it. And also a review so that people can find this podcast as you have. Alright, have a good one, and I will see you again next week.
Thanks for joining me this week on the Grow Your Independent Consulting Business Podcast. If you liked today's episode, I have three quick next steps for you. First, click Subscribe on Apple podcasts or wherever you listen to make sure you don't miss future episodes. Next, leave me a review in your podcast app so other independent consultants can find it beneficial too. And finally, to put the ideas from today's episode into action, head over to Melisaliberman.com for the show notes and more resources to help you grow your consulting practice from your first few projects into a full-fledged business. See you next week.