Should you ever use hourly consulting fees?
At Consulting Success®, we believe that there are more reasons NOT to use an hourly fee than to use one.
However, there are 2 scenarios I’ll go over in this article where it can make sense to use hourly fees when pricing your consulting services.
But before we get into the 2 situations where we recommend using an hourly fee, I’ll uncover a hidden truth about hourly fees that you might not be aware of.
Let’s dive in…
Your Hourly Fee Sends A Signal
Consultant, remember this: pricing is positioning and it has an impact on your marketing.
The amount you charge hourly is sending a signal to the marketplace.
For example, if you’re based in the USA or Canada and you’re charging less than $150 per hour, it sends a signal that you’re either new, inexperienced, or not very good at what you do.
Even if you are great at what you do, if you charge less than $150 per hour, you’ll be compared to others in your industry who are charging much higher.
When hiring consultants, buyers don’t want to just save money. They want to feel confident about their investment and that you, the consultant, will deliver the results they seek.
If you’re going to charge hourly, charge appropriately. That means you must be comfortable charging $200 per hour, $250 per hour, or $300+ per hour.
At this level, your fees communicate to the market that you must be good at what you do.
More experienced and senior consultants in established organizations or highly specialized consultants are charging $500+ per hour. These consultants have a proven track record and command premium fees because of their experience and the results they’ve created for their clients.
But if you want to be earning more than $500 per hour — which many consultants can do — hourly fees are NOT the best way to do that.
But before we get into that, let’s discuss when it makes sense to use hourly consulting fees.
2 Reasons To Use Hourly Consulting Fees
Here are 2 scenarios where you might consider using hourly fees.
1. You Are Brand New To Consulting
If you are brand new to consulting (or offering a brand new service), then you don’t know how long the project is going to take. In this case, it makes sense to use an hourly fee instead of a project-based rate.
For example, a newer consultant offering a new service might charge $20K for their service — only for the service to take 2-3x longer than they expected.
And the more consultants or subcontractors you employ, the riskier it gets when your estimates are off. You can end up losing money on the project if you underestimate how much time the project takes.
With hourly fees, you won’t lose money on the project because you’re charging for the time it takes to complete the project.
2. You’re Running The Consulting Firm Model
If you’re the founder of a consulting firm with employee consultants — and they are involved in delivery with billable hours — hourly fees can also make sense.
For example, you might bill your client $300 per hour.
You pay your consultants $100 per hour to deliver the project.
You, as the owner, are capturing the margin between that.
NOTE: We don’t recommend hourly fees for everyone running the firm model, nor does every consulting firm use hourly fees. However, hourly fees are a common, reasonable pricing method for consulting firms.
3 Reasons NOT To Use Hourly Consulting Fees
Here are 3 scenarios where you should consider NOT using hourly fees.
1. You Want To Scale Beyond $500 per hour
You might think of $500 per hour as a lot of money — and it is.
If you think about billing 50-60% of your working hours at $500 per hour, it adds up pretty quickly.
But there aren’t many consultants charging $500 per hour. It’s difficult to do unless you’re very experienced or a recognized specialist.
However, there are consultants using project-based rates, value-based fees, performance-based rates, and productization who are earning $1000 per hour, $2000 per hour — and some even significantly more than that.
(Check out examples of these consultants on our Clarity Coaching Case studies page).
You’re far more likely to reach premium fees ($500+ per hour) using these other pricing models.
2. You’re Not Running The Firm Model
If you’re not employing consultants to work on projects for you (and capturing the margin), then you’ve built yourself more of a job than a consulting business.
You’re not capturing the full potential of what you could be earning.
If it’s just you delivering work for your clients, there are several better alternatives to hourly fees.
3. You Want To Achieve Exponential Growth
If you want to scale your consulting business, it’s impossible to do that with hourly fees.
To achieve exponential growth in your consulting business, you’ll use other pricing models like value-based fees, productization, retainers, and performance-based fees.
These pricing models “unlock” the potential for exponential growth because they aren’t linear.
For example, if you’re bound by time, then you can only work with a set number of clients for a set number of hours per week.
But with these other models, you could go from 5 clients per year to 8 clients per year — and each of those clients is worth twice as much. You can serve more people and raise your fees at the same time.
Consultant, the key here is this: when you charge based on value and outcomes, you can charge far more for your services than you would if you simply charge for your time.
Get Help Mastering The Art & Science Of Consulting Fees
Do you feel stuck with your consulting hourly rate?
Like you want to experiment with a more advanced, higher-leverage pricing strategy…
…but you don’t know how to put your ideas into action?
If you’d like personalized coaching and the support of an entire consulting community to help you raise your fees, we can help.
In our Clarity Coaching program, we’ve helped over 1000 consultants to build a more strategic, profitable, and scalable, consulting business.
LEARN MORE ABOUT CLARITY COACHING
Whether you’re struggling to price your services based on value, want to build in more recurring revenue, or want to know how to structure an equity deal properly, our program will help you increase your pricing with confidence.
You’ll learn how to make more money with every project you take on — and how to land more clients than ever before. Learn more about Clarity Coaching and get in touch to talk about your situation and goals.