Pricing Your Services as an Independent Contractor

Determining the price to charge for your services always seems to be a tough hurdle. How do you set an appropriate value on your services? Whatever you do, do not expect the customer to provide this answer for you. Start with looking at the different ways you might structure your contract, keeping in mind that certain styles are more common in certain businesses.

Work can be contracted for as needed or "on demand"
The contractor is on a retainer to a firm. This retainer guarantees that the client will have a certain number of hours of work from the contractor over a given time period. The client can call as they need your services. Once you have met the hour requirement, additional hours are billed at a contractual rate. This is great business if you can get it because it gives a guaranteed cash flow over time.

Fixed Bid
You bid for a defined scope of work, defining in writing what your charges are to complete that piece of work. Once your bid is accepted, there is little renegotiation of terms. Government contracts are usually managed in this manner.

Hourly Basis
Often when the scope of the project is unknown, an hourly rate for services is negotiated.

Day Rate
Many consultants charge by the day instead of by the hour, assuming that most of a day is taken up with any one consulting job. This is fine if the day is less than or equal to eight hours, but if it is significantly more, this type of charging can be stressful. Most mainstream consulting firms charge on this basis.

Fixed Term
This is a time based work assignment in which the firm contracts for a certain amount of your time at a fixed rate for that time interval. Many times this is an exclusive arrangement during the time of the time of the contract.

The usual approach is either an hourly rate or a flat fee for a particular assignment. For flat fees you need to accurately determine your time commitment for the assignment to make certain that you are charging an appropriate fees for the time involved. Your hourly rate needs to be at least the minimum it is going to cost you to stay in business. If your service is of value to the business, you may be able to charge more than this base rate, but always keep the base rate in mind. Charging too little quickly puts you in a position of working hard, but not being able to pay the bills. If the business is not willing to pay even this much for your time, you don't need or want to work for them.

To determine you actual rate first estimate an appropriate number of working hours for the year. Be certain to include vacation time, professional meeting and improvement time and time for managing the office and client paperwork in your overhead (these are not hours available to work). If you only want to work a 30-hour work week, plan it. Otherwise it will not happen. Once you know the available hours for consulting and the total budget costs (from your business plan), it is simple arithmetic, dividing the costs by the available hours, to determine what your hourly rate must be. If you know what others are charging for similar services, you can use this as a benchmark to see how competitive you will be, but do not use their rates as yours. You have your own unique skills and expenses. Your rates should reflect who you are and what you bring to the table. Don't shortchange yourself.