March, 26 2009
Consulting Bill Rates: Competitive Market Pricing
Posted by Liz GreeneToday's post is on market based bill rates for independent consultants. The subject of consultant bill rates is complex, so we have broken it down into a series of posts, each focusing on one aspect of figuring out your bill rate. In our last post, we discussed “cost based” bill rates and some of the pros and cons of that particular approach. Today, we are taking a closer look at market based rates, a slightly more labor intensive approach.
While cost based bill rates are black and white (what do you spend to get the job done + what other expenses need to be covered to keep your business on budget and profiting), market based rates are based on, well, your particular market and how you fit into the competitive landscape at that particular time and for that particular kind of work. That means you are taking not only your expenses into consideration, but also looking out at your competition and seeing if you can meet or beat their rates.
A key to getting your bill rate “right” under the market based approach is research. But first things first. Before you can go out and find out what your competition is up to, you have to make sure you’re comparing apples to apples. Since this approach is based on supply and demand, make sure you are working with a common definition for what it is you do. Next, make sure you are using the most current rate data from a reliable source. You can get this data from any number of sources. A few include Payscale.com, RealRates.com, and Salary.com – just make sure on each of these sites, you are looking at “bill rate” vs. salary information. If you look around and find that your rates are way off the average, examine how you came up with you bill rate in the first place.
There are definitely some positive aspects of this model: Because your pricing is aligned with the market, it will meet client expectations and may make the “sell” easier for you. But consider the drawbacks, as well: Could this make you a commodity? If you sell yourself as someone strictly in line with the market, you could wind up undercharging for the added value you bring as a specialist in your field.
Just remember this: the three strategies that we recommend for calculating your bill rate are not mutually exclusive. We think of them as “data points” to look at when considering what to charge. The final strategy, value based bill rates, will be tackled in the final post in this series. For a detailed discussion on consulting bill rates and each of these strategies, join us for our upcoming free webinar, “Independent Consulting Bill Rates: Figuring Out What To Charge,” presented by Gene Zaino, CEO and President of MBO Partners. Sign up here!
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