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December 9, 2008

Raising consulting rates

When to raise rates? This is an ongoing theme of conversations with consultants all over the world. When to raise rates? How much can I raise them by? And the inevitable, how can I "fire" unprofitable clients?

The standard answers offered are "often" and "a lot". Yeah... I disagree, pretty strongly actually.

First, if you don't have a robust relationship then raising rates is something that will cost you clients and reduce potential revenue sources. Leaving you with less clients to draw the same level of income from.

Rate increases are not your right, they are not even a guaranteed part of what we do.

It's the relationship stupid!

Where are you today? Do you add value that others cannot? Do your clients prefer to work with you? Here are some  metrics for you to consider.

20 - 30% of your revenue should be from repeat work. Call backs from clients who are impressed with what you did and are happy to work with you again.

And 80% of your client base, at least, should be willing to give you repeat work.

We have all worked for companies where the initial engagement started off wonderfully well. Where the client had a great opinion of the firm. Only to watch it all dissolve into a pool unmet expectations and an adversarial relationship.

Is this your firm? Do you think they are going to come back and pay higher fees, or is it only for the "lucky" firm that is about to hire you next?

...and the Brand!

The second element is your personal, or corporate, brand. Who are you? Is there a willingness to do business with you specifically? Do you have clients and ex-clients lining up to vouch for your track record? Has somebody they respect and trust referred you to them? Is your track record one that is provably paved with gold?

In the end, it's not about raising rates - it is about charging what you should be charging from the beginning. Don't start low and try to scale the mountain - start near the top! Tie your price to the outputs of your efforts. And relax, you're a good investment - you're track record says so!

In summary - rates shouldn't need to be raised. They should always reflect, in some form or other, the value that the work will provide. And secondly, if you are still in a situation where you need to raise rates, then it is your brand and the strength of your commercial relationships that will decide if it is possible or not.