Every customer has a choking point—the point at which the cost of a service becomes unacceptable. However, it is important to understand that sometimes it’s not what you charge but how you charge that makes the difference.
Not all customers, for example, are amenable to paying an hourly rate. For some, the term “hourly rate” means that the clock will start ticking out of control. A customer who chokes at a quote of $75 per hour may be receptive to a flat fee of $750 for work you estimate will take 10 hours to complete. The end cost may be the same, but it eliminates the risk of the customer being unpleasantly surprised when they receive your invoice.
Before you perform consulting work for a customer, it is important to agree upon a mutually beneficial fee arrangement. There are several possible fee arrangements to choose from, and they may be used separately or in combination. Keep in mind that not all fee arrangements are appropriate in all circumstances, and some are considered more “professional” in certain fields than in others. The following describes some common fee arrangements:
The customer is billed for the actual amount of time you spend working for them—no more, no less. This fee structure can be worrisome for customers if it is unclear how much time it will take to complete a project.
Some people charge an hourly rate plus expenses. If you intend to do this, talk with your customer ahead of time to agree upon allowable expenses—your customers don’t want to be shocked by unexpected expenses any more than you do.
Flat Fee/Project Basis
The customer is charged a pre-determined, set fee to cover your time and expenses. If you complete the project under budget, you make more money. If the project takes longer than anticipated or you have unexpected expenses, you lose money.
If you aren’t accustomed to pricing your services on a project basis, it is easy to make costly mistakes. Take the time to think through and plan every detail of the project before you establish a fee.