6 Methods To Uncover If You’re Undercharging as a ConsultantFeb 25, 2022
The Consultant's Gut Punch
Have you ever felt that gut punch, or the moment when you realize you've been undercharging a client for your consulting work when just moments before you thought you were being compensated fairly?
The independent consultant faces a challenge when it comes to project pricing. Consultants can often find themselves in situations where they're undercharging and not realizing it or knowing why or how.
By using the six methods outlined in this article, independent consultants will be able to better identify situations where they're undercharging -- and reverse this trend so they're able to make more money and feel more valued and fairly compensated for what they do.
Method #1. Look at what the market is telling you:
To use this method, look at your pipeline of potential clients and consider these dimensions:
- Do you have more work than you can handle, and you're not sure how you'll do the work if you do land it? And so you don't pursue potential opportunities. You're effectively have a "closed to new business" sign up on your business, not making yourself visible to potential clients or referrers. What this means? You can be charging more as a way to cull out the best, most ideal clients who will pay for your expertise.
- Are you always told yes when you discuss your consulting pricing, without any negotiation or discussion? This could be a sign that your potential client was willing to pay more, and that you're undercharging.
Method #2. Look at the way you calculated your rates/project fees:
Some independent consultants find themselves undercharging because their project fees aren't calibrated correctly from the start. To apply this method, ask yourself:
- Are you're charging an hourly rate for your consulting work? If so, why not shift into value-based pricing?
- If you're charging time-based rates (e.g. hourly, daily, weekly) have you accounted for the value you're delivering to your clients? Or, is your rate based off of what you'd make if you were still in corporate? This is a common way that consultants undercut what they could be making, by calculating their fees based on what they'd make if they were still in corporate and not considering the ultimate value you're creating with your expertise.
Method #3: Ask yourself – when was the last time you changed your rates/project fees
When is the last time you changed your project rates or fees?
For most consultants, their answer is last year or even that it's been several years.
If you don't have a business process to adjust your pricing after every engagement, this can be an indicator that you're undercharging.
This often occurs when independent consultants allow themselves to become too comfortable with what they're charging; instead of continuing to update their project fees as market conditions change - independent consultants who make this mistake often charge far too little as a result. In order to avoid making this mistake, independent consultants should regularly review their rates or fees, and base their project rates off of the value they're creating for their clients and against the market.
Method #4: Research your own work, in addition to external inputs
To avoid undercharging independent consultants should regularly research.
To do this,
- review examples of past engagements where you helped a client achieve a result that was important to them - whether it be saving time, boosting profits, increasing revenue, etc., then
- determine how much financial benefit they got as a result of your consulting expertise.
- Once you've documented these benefits with dollar values attached, you can use this data when deciding on new consulting engagement fees.
Independent consultants would do well to document what they're worth by reviewing the work that they've done and doing some hard thinking about what was accomplished as a result of their independent consulting expertise.
In addition to using your own work as inputs, you can gauge your project rates/fees by
- Looking at what other independent consultants in similar fields are charging.
- Finding friends in the field who are willing to share their rates/project fees can be invaluable; especially if you know for a fact that they are charging similar rates/fees.
- Evaluating rates in marketplaces or with recruiters, and then add a 5%-45% mark-up to account for the fees they typically take out of the consultant's reimbursement.
- Looking up public government contract rates and calculating what you assume the private-sector equivalent of the rate would be.
Method #5: Ask yourself – how do I see myself as I’m setting up the project pricing?
When you're thinking about yourself and the value you bring to the table, do you give yourself credit for your expertise? Or, do you think about yourself as the lowest level version of what you're capable?
For example, do you:
- Think of yourself as "just a" ________, and dismiss your more strategic, expertly capabilities?
- For example, do you consider yourself to be great as a project manager when really you're a strategic-thinking and visionary?
- Do you think of your title as "Program Manager" when you're actually an expert as a Chief Advisor to the COO?
The way you think about yourself as you're building out your consulting proposals and consulting pricing makes all the difference. If you are thinking about yourself as more of a commodity, then you are most likely undercharging for your expertise.
Method #6: Ask yourself – how do I feel when I craft my project pricing?
How do you feel at the moment of truth - when you add up your consulting rates? Do you feel anxious, nervous or panicked?
And then ask, what do you do when you're feeling panicked?
If the answer is that you worry the consulting pricing will be too high and so you cut your estimates and reduce the pricing even before your potential client weighs in.
If your process to price your consulting work is to base it off of fear and panic, this is a great indicator that you could be undercharging for your consulting work.
In Summary: Many independent consultants don't have a good process to evaluate what they're charging for consulting engagements.
To uncover if you're undercharging as an independent consultant, apply these six methods to your business:
- Look at what the market is telling you
- Look at the way you calculated your project fees/rates
- Ask yourself when was the last time you changed your rates
- Research using your own work, in addition to external inputs
- Ask yourself how you see yourself as you're building up the pricing
- Ask yourself how you feel when you're crafting the project proposal and what you do as a result of that feeling
To Take This One-Step Further
I've created the IC Bootcamp where we transform you from a contractor-consultant into a consulting business owner so you make more money, make more impact and have more flexibility and freedom for yourself. To determine if that's a mutually good fit, book a call with me by scheduling a call: https://melisalibermancoaching.as.me/ic-strategy