The professional services industry is highly competitive and competition is constantly growing. Therefore, improving margins and cash flow should be a priority for any organization. Finding the right pricing strategy and focusing on the right metrics can help professional services firms stand out from the competition and achieve sustainable growth.
In this article, we focus only on the pricing of consulting firms.
Typically, consulting firms bill their clients using average daily rates (ADRs) or hourly billing rates. For small businesses, average daily rates are more commonly used when a project proposal is sent to a client. The ADR parameter aims to be transparent with the client about the added value of the team of consultants working on the project.
A consulting firm can assign the client 3 tasks:
Project-based fees : Consultants have a specific project to complete and receive a fixed amount, regardless of the time spent on the project. In the client's proposal, the consultants indicate the number of days they estimate the project will be needed. The number of days is multiplied by each team member working on the ADR project. Below, we describe how ADRs are configured. Number of days (estimated) x Average daily rates = Project-based charges. If the consultants manage to finalize the project in fewer days than expected in the quote, the consulting firm will show a positive outcome. On the other hand, if the consultants take more time, it will be at a loss for the consulting firm. Tracking the progress of a project compared to the initial plan is therefore a good practice to ensure that projects remain profitable.
Time and material costs : As opposed to fixed costs, time and material billing means that consultants bill based on the actual time and expenses required by the project. This type of invoicing is typically used for seconded consultants working on long-term projects that are likely to change. A large number of IT consultants charge for time and materials, for example.
Performance-based rate : Part or all of the project is billed based on the results of the project. For example, in a cost reduction project, the success fee may be a percentage of the savings achieved or, in the case of a product launch, it may be a percentage of the revenue generated by that product.
See below for some examples of consultation fees (per day):
VIEW AVERAGE DAILY RATES
Note: These figures are averages to give a general idea. Depending on the company, the type of project, the seniority of the consultants, they can vary greatly.
TECHNICAL DEVELOPERS AVERAGE DAILY RATES
Calculate your hourly wage base
Set the hourly wage you would expect if you were working for another company. Add up the benefits and taxes a company would pay if you were an employee: consider your overall salary, the value of the benefits, the number of annual working days, and the number of hours worked per week.
Ex:
Salaire annuel: 70 000 $ Avantages (valeur annuelle globale): 20 000 $
Nombre de jours d’absence / année (maladie, vacances, formation): 20
Heures travaillées par semaine: 42
Votre salaire horaire de base est de: 44,64 $ = {(70 000 + 20 000) / [(52 x 42) – (42/5 x 20)]}
Adjust it to account for time and non-billable expenses
If you have to pay expenses and if you are self-employed and spend time prospecting for new customers, you should take this into account in your hourly rate. For example, it is common to consider that one-third of the rate corresponds to the base salary, one-third to expenses and one-third to administrative and commercial tasks. So you need to multiply your base hourly wage by 3: $44.64 x 3 = $133.89
Adjust it to one business day
In some cases, you will choose to charge for a full day or half a day. Simply multiply by the number of hours in a workday, which is 8 hours: $133.89 x 8 = $1071.12
I suggest approaching both the hourly rate and the average daily rate to the nearest $10: $1070 in this case.
Sources:https://www.forbes.com/2006/11/06/bostonconsulting-marsh-mckinsey-ent-fin-cx_mc_1106pricing.html#9b61ef067812http://consultantjournal.com/blog/setting-consulting-fee-rateshttps://www.consultingsuccess.com/2017-consulting-fees-studyhttps://www.wavestone.com/app/uploads/2016/07/SOLUCOM_SFAF_RA201314_04062014_VF-Web.pdf[
