3 tips for setting your rates as an independent IT consultant.

Are you an entrepreneur who sells your time as a service provider in some capacity? Maybe a billable consultant in the IT space? Here is some simple rate setting advice that I’ve learned over the years.

You are probably charging too low of a rate for your time.

I don’t know what you do and I don’t know how good you are so I can’t say what you should be billing your customer. But my experience tells me that most billable consultants are charging too little and this is especially true for folks new to the business.

It’s easier to lower your price than to raise it.

It’s very rare that a customer would be so offended at your starting offer that they would simply refuse to chat further with you over rates. So starting a bit high and then coming down is almost always a better business strategy. Also, if you do decide to offer a lower rate from your initial quote it’s often helpful to explain that “This isn’t my normal price. But that in this situation I am able to offer you a slightly lower rate for the following reasons x, y, z. But future engagements may need to be billed at the higher rate.” This gives you a better opportunity to explore higher rates in the future without being stuck at your initial ‘discount’ rate forever. I was an allegedly successful consultant and business owner for many years before one of my sales people point this tip out to me. Hopefully you are stumbling across this tip earlier in your career.

Opportunity cost cuts a few ways

Billable hours have a shelf life. I can’t reuse or sell billable hours from last week that I didn’t sell, right? That means that in some cases you should compromise on rate for short term work if you short term calendar is a bit sparse. However, it’s all too easy for billable consultants to fall into the trap of constantly settling for lower rates. Ranges for some specialties in the SQL Server tuning space (one of my specialties) can easily range from $125/hr to $300/hr. I’ve personally billed within those ranges and higher. It’s tempting to take a low rate for short term work if  you’re not booked.  But, over time, I found more and more that if I took lower rates than I tended to be booked when higher rate opportunities came along. Doubling your rate means you only need to sell ½ as many hours to net the same amount of money, right? I know this is basic math. But still, I find that many new consultants don’t think through this billing issue in enough detail.

I’ll be spending much more time on pricing issues in my blog. Let me know if there is a particular topic you’re interested in reading about. Hopefully, one of today’s tips will prove useful for you.