find an expert counselor near you
Search your county
adminFebruary 22, 2018

Pricing Models for Consultants

Article by Jeanmarie Tenuto

As a consultant, you may have very specific questions regarding pricing for your services. You want to be fair and reasonable but also strategic.  There are two main components behind pricing strategy.  The financial side and the marketing perspective.  Keeping the two isolated for the first stages of analyses will help but bringing the two together in the final outcome will be most beneficial.  Here we briefly discuss three common pricing models and influences.  For further assistance, related to pricing, we recommend you contact your local NJSBDC.

Five Influencers to Pricing

Scope of Work

Client Involvement

Client-Consultant Relationship

Revenue and Value

Risk and Transparency

Three Common Pricing Models

Cost-Based Pricing

Market-Based Pricing

Value-Based Pricing

 

Cost-based pricing takes into account overhead and variable costs.  Identifying your true cost is an essential exercise.  It is the amount you pay as a business owner to ‘be in business.’ It includes the costs related to office rent, salary, equipment, accountant and attorney fees and other factors.  The total figure is the absolute minimum known as the break even.  The total figure can then be extrapolated by the year, month, day or hour.  The next step is to calculate the ‘billable rate.’ The price markup, typically a percentage of cost, translates into the profit.  It is important to stay grounded in this process because not all ‘work time’ is dedicated to billable time.

The market-based pricing strategy reviews the competition and develops a better understanding of the landscape, overall.  Cost-based pricing shows the cost of operating the business.  This figure (or its range), once finalized, can be compared and then scaled against the external environment.  To understand the external environment, digging in and researching will most likely, take some dedication.  The price structure of the competition, particular inside the service sector, may have elements beyond face value.  To learn about the competitors and the market’s tolerances as with range and willingness to spend, using critical thinking techniques, asking the right questions and locating reliable information are indispensable.

Value-based pricing is the more sophisticated method for developing a strong pricing strategy.  It blends the financial aspects with marketing ultimately linking cost with market validation.  Market validation combines perceived (or estimated value), from the customer’s point of view rather than solely on the cost of the services plus the mark up. The psychology of pricing examines trends, marketing practices, different generation’s attitudes towards value, etc. Perceptions of price can also set its success or failure. In some circumstances, the more expensive, the more valued and the less expensive, the less valued.  Value based pricing strategy and method should only be used if:

  • The scope of the project is clearly defined.
  • The solution you are providing has a proven track record of success.
  • A strong Return On Investment for services delivered can be demonstrated.
  • A direct relationship with the buyer is established on the project.

 

Business frameworks are tools of the trade to all consultants.  Click here for the: The Consultant’s Toolbox.


About the Author:

Jeanmarie Tenuto is the founder of Centaur Strategies and marketing communications consultant. Jeanmarie works with the NJSBDC team to promote essential resources that help entrepreneurs and small business owners start-up, grow and succeed.  Follow Jeanmarie on LinkedIn at https://www.linkedin.com/in/jtenuto.

starting Your Business

If you are planning on starting a small business, with the help of the small business association, we are here to make your small business dreams a reality.

Expanding Your Business

If you are an existing business with an annual revenue of $250, 000 to $1,000,000 and 5 -10 employees, we can help you expand your boundaries as a company, helping you grow your vision into a successful company.

NETWORK PARTNERS & SPONSORS

Annual Key Sponsors

Financial Supporter

Major funding partners

The New Jersey Sustainable Business program is funded by the USEPA, and is part of an EPA Region 2 Toxic Reductions initiative that also includes projects being conducted by the New York State Department of Environmental Conservation (NYSDEC), and New Jersey Institute of Technology (NJIT).

Join our mailing list

Get access to the resources and information you need, from the experts who can help you grow your business

Funded in part through a cooperative agreement with the U.S. Small Business Administration. All opinions, conclusions or recommendations expressed are those of the author(s) and do not necessarily reflect the views of the SBA. All services extended to the public on a non-discriminatory basis.