How to price consulting work

The pricing approach you choose has huge implications for the profitability of your project. If you price the work with the time and materials model, scope changes won’t hurt you, but the project might be less profitable than if you use a different pricing approach. The time and materials approach means the client pays you for every hour of work you do as well as paying for any materials you use on the engagement. If you price your projects with a flat rate, the project could be much more profitable, but you could suffer a loss due to scope changes. Basically, you’re selling the project for a fixed price, no matter how much or how little effort it takes on your part to satisfy the client expectations on your deliverables. You’ll need to be mindful of how you describe your rates, discounts and rebates, because that description comes into play during negotiations. During one client interaction that I had when I was selling some Thought Leaders work, I had a discount schedule for the client. What we said was the first 25 people in the class were at a certain rate. The five people after that were at a 10% lower rate, and the five people after that were 10% lower. I knew what I meant. The first 25 were at full-list rate. Well the procurement person on the other side of the table decided well no, what this really means is the first 25 are at this rate, but if we go to 26, then that discount applies to everyone. That was a big number. I refused to sign that contract until we had a precise understanding of what I really meant from a pricing standpoint. If possible, make pricing part of your master services agreement so you’re not negotiating it every single engagement. Pricing’s a big lever. Make sure you give it the attention it deserves.