Using our consulting business pricing calculator

Lots of KAMCT clients are in the consulting or B2B spaces and all, at least at some point, have struggled invariably with the task of setting their prices. So we thought it was about time to write a blog on it. Plus at the bottom – we’ve included a consulting business pricing calculator – to make sure you’re at least covering your bases.

Now according to marketing lore, there are three ways to set price;

Cost plus – now this can be as simple as I want to make $X (and it’s usually a nice round number) and then I’ll need some extra to run stuff and so you add a bit. Or it can be really complex if you’ve got to account for manufacturing, retail, margins, etc. But as we’re discussing a consulting practice (and manufacturing usually doesn’t come into that), we’ll use the following example.

Competitor benchmark pricing – plus or minus a bit depending on where you see yourself in your industry pack. Ie: you know other people charging $80, $100 or $200 an hour for what you do. So you charge (usually) just a little bit less, to get a foot through the door.

Value pricing – changing your price depending on how much your client values what you do, the size of the deal, what the client will tolerate, etc. Ie: you have a tiny small business start up who thinks $100/hr is horribly expensive, so you drop your rate to $90 vs: a big corporation that’s happy paying $150-200/hr – so you pick somewhere in the middle.

Now, having been doing what we do for well more than 20 years, we’ve come across another that is often chosen – the random guess. Ie: I think I’m worth (pick a figure, any figure) an hour.

Now all of the above can be fine, but you need to make sure that whatever price you use is going to make you what you need it to make in order to pay yourself a decent salary and cover your costs.

The biggest problem with any pricing model is that there are things that don’t get taken into account, especially when you’re just starting out. Now having a good accountant on-side is incredibly handy for making sure you’ve got your bases covered, but many, many people don’t.

What gets missed in consulting business pricing calculations?

Well, if you’ve come from the corporate sector, you’re probably not use to working out that there aren’t really 52 weeks a year, nor are there 40 productive working hours a week. Sure, you got paid to turn up 40 hours a week, but you didn’t actually produce ‘work product’ 40 hours a week, every week – well not unless you were at the office around 60+hrs a week and even then it would have been unlikely unless you were quite junior.

But regardless your calculations for your business consulting pricing go something like this.

I use to make let’s say $100,000 a year and I think I’ll need another $20,000 for costs. So I have to earn $120,000 a year to meet my budget. Now, most people’s maths takes them in this direction => 120K/52wks/40hrs=$57.69/hr. And so you add a bit to make sure you’re covered and charge say $75 or even $100/hr.

But especially when you’re just starting out, you’re highly unlikely to be producing 40hours of work product a week unless you’re contracting 40 hours a week for another employer except this time just under your own ABN – and on that you need to be careful as that looks a lot like sham contracting to the ATO and then your deductions won’t be recognised either (not good).
And now you run a business, you’ll also have to do marketing, admin, accounting, etc and you need to allocate some time for it (and time that’s not on the weekend – or at least for terribly long or you’ll burn out).

So you need to really think about how many hours you can legitimately (and are likely to) bill in a week (and only on working weeks).

Use the consulting business pricing calculator below and you’ll see why. Don’t forget to allow for the 17 working days (or 136 working hours) you’ve lost before you even begin – ie: 7 public holidays a year (xmas, new year, Australia Day, 2 for Easter, June long weekend, October long weekend) and you’ll need at least two weeks a year off to refresh your brain (yes, really).

If we can help you with a marketing program that will increase the amount of time you have to spend creating your work product and increasing your billable hours and building your reputation so you can charge more, we’d be delighted to help. You can contact us on (02) 9994 8005 or drop us a note.

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