By Marion McGovern
Founder of M Squared Consulting
Blog editorial note: In a recent blog post here, the director of GGU’s Small Business Program Programs pointed out that all of us will be “entrepreneurs,” working for ourselves. at one point in our lives. Price setting is part of any business venture, but freelancers such as Web developers, creative professionals, or digital marketers are not necessarily MBAs. In the new Gig Economy, these “entrepreneurs” have to know how to set fees – or whether or not to charge an hourly or project rate – as much as how to draw attention with blogs or profiles on LinkedIn or UpWork. Marion McGovern, the author of Thriving in the Gig Economy and a recognized expert on the subject, provides some answers on how much to charge for professional services.
Recently, there was a great article in Medium advocating that all freelancers adopt rush fees. The idea is that urgent projects require special attention that may shuffle the priorities of their existing workload. So, between the extra hours and other client considerations, a premium is due. I heartily agree, not only with the premise but also with the idea that one set price is seldom the answer when pricing a project. There are many considerations that come into play, not the least of which is its urgency. In my recent book, Thriving in the Gig Economy, I point out some other important considerations:
Risk and return are directly correlated. The more risky a project is, whether due to the scope or aggressive goals, the more it should pay. It may seem to some that you are taking advantage of your client; but, the truth of the matter is, a project that could be doomed for failure will not be good for your reputation either. Turnaround situations are a case in point. The potential for failure is high so the rewards should be as well. Conversely, if a project is very low risk, because you have done something similar a thousand times, then a lower fee may be warranted.
Capital formation is a long-term investment. If an engagement is going to build your intellectual capital by broadening your skill base, you should be willing to do it for less than you might otherwise. Because in the long run, you become more marketable and potentially can command higher fees because of the upskilling. For example, launching a project for a different type of branded good, via a new channel, or in a new geography or country could open you up for a whole new array of opportunities. Consider it an investment in your practice and price it accordingly.
Car-sharing firms and rental cars charge differently. Denis Russel, the co-author of my first book, A New Brand of Expertise, had a great pricing analogy for consultants that compared the difference between cabs and rental cars. Today, ride-sharing companies may be the better example. The idea is that people use Lyft rides and rental cars for different purposes. Uber charges much more per mile than a rental car, since it is a short stint with convenience and urgency at a premium. Similarly, a client who wants a small urgent project yesterday, versus one who is open to a 6-month study should have very different pricing algorithms.
The 1% rule for setting consulting fees helps. Here is another handy rule of thumb; a person’s daily fee should be 1% of his/her equivalent annualized salary. A marketing consultant, who feels $200k would be the going rate for her expertise, should then charge $2000 per day for her services or $250 per hour. A more junior person, who could command $80k per year, should charge $800 per day or $100 per hour. That said, though, keep in mind it is the work, not your pedigree that should determine the price.
Anchor clients deserve a deal. Before the retail world was so disintermediated by online selling, the estate business would refer to the primary retailer in a mall as the anchor tenant. Not only was that key store bringing in the shoppers, they were also paying a significant portion of the rent. An anchor client is one that pays your rent, so to speak, by giving you recurring business. Having that project year in and year out from that one client is a wonderful thing. Some consultants may want to increase the fees after a few years. Unless your costs have risen dramatically as well, resist that impulse. Being able to plan your year with a known piece of work on the books is a luxury for some, and one that should be managed carefully.
Too often freelancers may default to a standard hourly option, but there are many others. Some may or may not be possible if you are working through digital talent platforms.
Government contracting is not for the faint of heart. The state and federal governments are two of the largest consumers of consulting services. The General Services Administration spends about $50 billion annually, much of it earmarked for small businesses. However, doing business with the government as an independent contractor is not easy. No surprises there… To be eligible to win government contracts, you will first need to obtain through Dunn & Bradstreet a D-U-N-S number, a unique nine-digit number. In many cases, you may need a security clearance. You will also need to register with the System for Award Management (SAM). If this seems a bit complicated, that is because it is.
In addition to these considerations, there are also many ways to structure fees. Too often freelancers may default to a standard hourly option, but there are many others. Some may or may not be possible if you are working through digital talent platforms.
Check out my book for more details on pricing so you can better appreciate the beauty of the art.
Marion McGovern’s will be speaking about her book at GGU on Monday, August 13 from 12-2 pm (Rm. 5210). Online registration is required for this special “book review” event. Follow GGU on Twitter or Facebook for registration information when it becomes available.
Marion McGovern, author and entrepreneur, is a recognized expert on the Gig Economy. She founded M Squared Consulting nearly 30 years ago, which was one of the First Gig Economy companies before the term was even coined. She also started an independent contractor compliance company, Collabrus. Now, she is an active Board member and mentor to CEOs. Her new book, Thriving in the Gig Economy was published in July 2017. Since then, she has appeared on numerous radio shows, including Techonomic, Wall Street Business Network, and School for Start Ups, as well as podcasts including Nerdstalker, Money Matters and Business radio. She recently presented to the International Women’s Forum and was a keynote speaker at the Staffing Industry Analysts, Collaboration in the Gig Economy conference in September 2017.