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RATES AND PROJECT FORMATS

👟 TL;DR (1m read)

• There’s no hidden formula of X years of experience means Y rate, you’re charging based on a number of factors but ultimately what matters is the value (perceived and real) you’re delivering to your clients.
• A lot of variables can influence rates, such as Niche/Expertise, Years of Experience, Geography, Market conditions, Project urgency.
• There are 3 main types of project formats (Pro’s/Cons in the expanded view)
  • Retainers (top choice): You bill a certain amount regularly after you define the scope, independent of what gets done tactically.
  • Project-based: You charge a fixed fee for a project based on the estimated hours you’ll need to put in.
  • Hourly pricing: You define a rate and keep tabs on the number of hours you’re putting in, and then send the output to clients on a weekly/monthly basis.
• How to define your rate:
  1. Figure out what you need and want to earn. Be honest with these, and try to do the math backward to understand how much you need to charge to get where you want to be.
  2. Decide the hours you want/can work as a freelancer.
  3. Understand the different contract types for freelance consulting.
  4. Come up with a number or range you want to charge based on your experience, market conditions, and client profile
  5. As you start engaging with client conversations, you can adjust rates accordingly based on their reaction. You should push these up over time.

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<aside> 💡 Defining your rate can be a tricky task, especially for first-time consultants. The bottom line is that you want to charge based on the value you’re delivering. Nevertheless, other factors also need to be considered in the mix.

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Variables that influence rates

• Niche Type: Think of how strategic (or mysterious) your niche is to the company, as well as how hard it is to find other professionals in this particular field. More strategic and harder to find usually should translate to higher rates - E.g. Cybersecurity, Solar sales consulting.

• Experience: The more “proven” in the market you are, the better. Usually leaves less space for “errors” and clients are willing to pay a premium to get things right the first time.

• Geography: This can work for better or worse. Geography creates arbitrage opportunities to look for clients in locations where finding talent is expensive, which can leave room for more consulting opportunities and generally higher rates. Nevertheless, it can also become counter-productive since clients may want to push rates *down if you’re based somewhere with a low cost of living.

  *This can be frustrating when the deliverable is tactical and unrelated to your area, our suggestion is to double down on the expected ROI you’re bringing to the table in these cases. If you’re looking at more complex tasks where clients rely on your network of local contacts/partners, expect more pushback based on where you live.

• Market conditions:

  • Law of supply and demand: Clients are willing to pay more when there is a limited supply. E.g. it was harder to find ML engineers 2 years ago, but naturally more people are going into the field and competition is driving prices down.
  • Cost of capital: if getting money is harder and more expensive it usually means clients will be focused on their unit economics and try to pay lower rates. It’s also good to consider that they will prioritize outside counsel that will help them find efficiencies (aka cut down costs) rather than implement high-spend activities that don’t have a clear ROI tied to them.

• Others / Examples

  • Sense of urgency: The company is raising a round of capital soon, and you are helping them with their deck, and pitch. Urgency creates higher demand, which drives prices up.
  • Consulting Experience / Testimonials: You have done similar work for 2 clients already. You can hike up your price based on the results you have delivered.
  • Personal branding: Establishing yourself as an expert to the public (E.g. through social media) creates brand equity that will “prove” your worth and tend to drive prices up.
  • Specific experience: Worked for XYZ company that is leading in that space; raised with investors the company is looking for. The client is looking for something you’re uniquely positioned to deliver which gives you leverage.