The truth is that big-money consultant may not be pocketing as much as you think. When setting rates, consultants must take the following into account:

1. Taxes

Virtually all countries have increased tax requirements for businesses. If based in the U.S., a self-employed business owner pays both the employer and employee portions of FICA (known by the misnomer, “SE tax”). So, rather than paying approximately 7.5% of earnings for Medicare and Social Security (as traditionally-employed workers do), an independent consultant pays the full 15%.

As a result, many U.S.-based consultants pay roughly 43% of every dollar earned (28% tax bracket + 15% social security) to the IRS (the tax rate is marginalized, so this figure is rounded up). While the ability to deduct business expenses from income softens the blow a bit, there is no doubt about it – being a business owner comes with increased tax responsibilities.

2. Unbillable Time

It’s important to realize that working 40+ hours a week is not the same as billing 40+ hours a week. Consultants don’t get paid for time spent bookkeeping, networking, marketing, and a variety of other non-billable activities that need handling when you run a business. Consulting fees must take this downtime into account.

3. Expenses

Everything from professional memberships to paperclips – a self-employed consultant buys it all. There’s no company credit card for covering travel expenses, conference fees, or computer repairs. All of these charges come directly off consultant’s bottom line, and have to be built into the overall rate.

4. Support costs

You may not see their names on the company roster, but self-employed consultants and business owners usually have an accountant, possibly a lawyer, and other support vendors (such as virtual assistants, tech support, etc.) on call. The cost of these services is absorbed by the consultant, and must be reflected in client fees.

A consultancy is a business – one that comes with many of the same responsibilities as larger agencies. We’re firm believers that the rewards (monetary and otherwise) of being a solo PR pro far outweigh the downsides. But if you’re a new independent consultant, don’t learn about the additional financial requirements the hard way – make sure your fees are sufficient to cover these items and still provide you with a sustainable living.

If you’re looking to hire an independent consultant, before you balk at their proposed fee, realize the majority of it isn’t going into their wallet. Please keep these additional burdens, which you may not have considered previously, in mind.

What’s been your experience? If you’re a solo PR pro, were there any expenses that surprised you when you started out?

This post contributed by Heather Rast, Content and Community Specialist for Solo PR Pro.

In the corporate and agency worlds, there are resources to help career-minded professionals assess their financial place in the talent stream. I remember a rule of thumb I picked up somewhere along the way – the rule was, if you aren’t earning at least twice your age, then you aren’t getting paid enough.

J.O.B. Drones Know Where To Look

Now, I picked up that little jewel a long time ago. And it’s pretty general. Much more statistically reliable cues can be picked up from the Bureau of Labor Statistics, industry and trade groups, professional organizations, talent and recruiting properties (Aquent, Monster, etc.), and some post-secondary schools (those which publish reports and studies covering the earning potential of individuals with varying degrees of experience and skills, often broken down by geography).

Indies May Be Less Certain About Pricing

Resources of these types are a little harder to come by for self-employed private practitioners. Even if you have a solid peer network and friends/acquaintances working in related fields, it can be difficult to determine what the market will bear due to concerns about personal privacy.

2012: Time To Get Your Financial Act Together

The topic of setting fees is such an important one that we’ve approached it from several different angles here on Solo PR Pro. And since 2012 is approaching in just a few short weeks, it seems like a good time to review what we’ve learned so that we can start the New Year off on solid footing.

Expenses. What Expenses?

When thinking about how to set consulting rates, a good place to start is with your expenses. Confused? Well, before you can reasonably determine how much you need (and want) to make, you need to first know the outgo you’ll have to cover just to be in position to do business.

So you say you already own a laptop and printer? Well, what would you do if your hard drive crashed tomorrow? To effectively work with multiple clients, cloud storage, back-up UPS, and even a secondary computer are all necessities. Are you prepared to repair, upgrade, or replace those hard systems? Don’t forget incenditals like printer ink, thumb drives, a supportive chair, a computer case…the list goes on. And oh yeah, you may even need a new supercharged Internet package. Consultant Jenny Schmidt has some valuable things to say about identifying expenses in this video with Kellye as she talks about setting indie fees.

Pricing Framework

One of the things you learn when you figure out the minimum expenses your business must cover is where you want to fall in the consideration spectrum with clients. Do you want to be the 99designs of the PR or communications world? Do you aspire to have a premium pricing model that ensures you work exclusively with a certain type of client base? There’s a lot of in-between to consider (especially if you don’t have a wad of savings stockpiled when you launch). Greg Brooks had some inspirational thoughts about pricing in his post discussing how to run a solo business instead of simply hold a low-paying job.

Fee Transparency

In one of our August Twitter chats, we discussed the advantages and disadvantages of publishing your rates online. Our friend Mack Collier had recently posted pricing for select services on his website and shared his reasons for doing so. Other members of the chat offered their opinions for or against.

Making The Job Match The Price

Knowing your ideal billing rate is part of the financial budgeting equation. An often-overlooked factor is the product you deliver for that rate. Like Goldilocks’ search for the right bed, independent consultants have to offer just the right amount of product for the fee. Over deliver and you’ve lost revenue and diminished your profits (perhaps exponentially so, if another project opportunity arises while you’re wrapped up in the never-ending assignment). Under deliver and you risk your professional reputation, a dissatisfied client, and any opportunity for return business. Kellye has some good advice about managing scope creep.  It can be hard to discipline yourself and learn how to communicate boundaries to clients, but to build a sustainable business it’s a must.

Documentation: Your Friend

Finally, when you’re comfortable with your fee schedule and have defined service scope for the work you do, the next logical piece of the puzzle is to protect your interests by making things all legal-like. Jenny Schmidt and Kellye teamed up earlier this year to produce the eBook “Get It In Writing,” a great resource designed to identify responsibilities, expectations, and courses of action for both you and your clients.  Good consulting contracts can cost money, and poor contracts will most certainly cost you money (and time and aggravation).

As you can see, there’s a lot to think about when planning and growing your indie business. The Solo PR Pro community is here to help with great resources like those mentioned & linked to above.  If you’re ready to turn thoughts into action, consider joining the Solo PR PRO membership site for access to resources like our new Show Me The Money! eBook course, time management templates (so you can track time spent on multiple clients), and much more.

Image courtesy Alex Muse on Flickr.

This week on the Solo PR PRO Premium membership site, as everyone prepares for 2012, we’ve released Part One of a multi-part series called Show Me the Money!, which steps members through the process of managing expenses, setting rates, and maximizing profits with multiple 20+ page ebooks, worksheets and templates. Being able to produce resource-intensive courses like this is why we launched the Premium site in November, so we’re excited to birth this baby!

As we worked on this course, we’ve identified some of the most common mistakes consultants make when setting their fees. I had a chance to sit down with Show Me the Money! co-author, Jenny Schmitt (@Cloudspark on Twitter) and chat about this critical topic. (note: there were technical difficulties and the video on my end wasn’t recorded, but that’s OK — Jenny is the one you want to see!)

If you can’t see the video, you can watch it on YouTube here.

Do you agree? What mistakes have you seen consultants make, and what issues do you still struggle with when it comes to setting your rates?

In that time, there have been some opportunities missed because of the public nature of our various channels. Many of you have also stated this – there are things you’d prefer not to send out to the whole world, but you’d be happy to exchange this information with others in our community.

To meet these needs, we’re happy to unveil the premium Solo PR PRO membership site, now in public beta (at special beta pricing). Specifically for us, this premium PRO content offers road-tested deliverables and downloads, a members-only Forum, a special upcoming Show Me the Money! series on setting rates, and much more.

Why do we need a PRO membership site? I did a quick video to explain the reasoning, and some of the benefits:

If you can’t view this video, watch it on YouTube.

Though some of the Solo PR PRO membership site features won’t be available until after the first of the year, we wanted to go ahead and share this beta content with you at a low initial rate (locked in for life for those who sign-up early), which will increase slowly over time for new subscribers as more content is added. That way, you can start putting the current content to use as you plan for 2012 (never too early to start!).

What does it cost?
As indie consultants, price is always a key consideration – as it should be. Though we’ve seen membership sites that cost $50 a month or more (and they have generic content that often doesn’t apply to indie consultants like us), we’re doing our best to keep costs low so everyone can participate.

The deal: While we’re still in beta for the next few weeks, you can join for just $14 a month, and be a Charter member! The cool part is: you’ll lock in this monthly rate for as long as you maintain your PRO membership (but, at the risk of sounding like an infomercial, you can cancel any time). We’re also offering a money-saving Annual Subscription for just $120 for the year. In addition to the price break, the Annual Subscription offers the tax benefits of purchasing now for the year ahead.

For more details of all the offerings and to sign-up, just visit: Become a PRO Member.

We’re excited to offer something that can help you be more efficient, effective, and profitable in your business, and we fully expect that this content (especially the fee-setting info) will help many PRO members increase their profits by thousands of dollars in 2012. That’s the mission that will drive everything around this effort.

If you have any questions, just let us know in the comments. Hope you can join us!

1. We’ve seen posts lately from @MackCollier, @spinsucks and @ericamallison on this lately: do you post your prices online? #solopr

2. @KeithTrivitt of @prsa reminded PR pros today not to use the earthquake in unrelated pitches. When do current events make sense? #solopr

3. Reported that StumbleUpon drives half of all social media traffic to sites (with Qs around quality of traffic). Experiences? #solopr

Be sure to check out the transcript in PDF for the full discussion. Note that the transcript is in reverse chronological order.

If you weren’t able to join us this week, please let us know how you’d respond to the chat questions below!

The #solopr chat – held each Wednesday from 1-2 p.m. Eastern – is a weekly ritual for some of the most savvy Solo PR Pros on Twitter. Anyone with a Twitter account is welcome to participate – see Join Us for the #solopr Chat on Twitter to find out how!

Thanks to Jennifer Spivak for compiling this post.

I’m happy to announce that Solo PR Pro’s first-ever ebook is now available for download: Get It In Writing! The Communications Consultant’s Guide to Contracts. Co-authored by me (Kellye Crane) and Jenny Schmitt of Cloudspark, this 30-page free ebook includes plain-language explanations of the critical elements of a legal agreement, as well as seven full contract examples for easy reference.

Did I say it’s free?

Yes, and it’s not just free monetarily, it’s free from hoop-jumping – I’m not asking you to register for the download, or even “pay with a tweet.” It’s my hope that you’ll find it valuable enough to share with your networks after you read it (a novel concept, right?), and that everyone will choose to sign-up for the free Solo PR Pro e-newsletter.

To download the ebook, just click the downward arrow below:

If you can’t see the embedded document above, click here to download.

To hear about news, special deals, and new releases moving forward, signup for the e-newsletter (also free!):

If you can’t see the subscribe form above, go directly to the website version.

What are some of your top tips for handling contracts? Have you ever encountered anything unusual that you didn’t know how to handle? Let us know in the comments!

Scope creep is the bane of any independent consultant’s existence. It happens when your client adds things to your to-do list that you didn’t foresee. Or from misunderstandings that occur when you don’t communicate firm boundaries around a project.

Scope creep will cost you money, enthusiasm, and (it often feels like) your sanity. Note that the scope creep affliction isn’t limited to nasty clients who are trying to put one over on you. “Cool” clients, who may not understand the specifics of your proposal or the amount of time they’re requesting, can be culprits, too. Don’t assume that having a good relationship with your client will prevent scope creep – only good contracts can do that.

The way to manage expectations is to tightly define the scope of a project, both within your initial proposal and in the final written agreement/contract. Sample wording for these clauses could include:

Example #1:

This project will include research, writing and editing of one news announcement, one four-page brochure, and one FAQ (to include up to 12 questions). The fee includes two rounds of revisions for each document.

Out-of-scope activities include: facilitating internal approvals at the company, graphical design and layout, and wire service distribution. Additional service requests will be billed at the rate of $X/hour.

Example #2:

The monthly retainer fee includes X, Y and Z. Additional services are available and can be quoted separately upon request.

When working on a project with a portion to be billed upon completion, it’s also helpful to state something like “if two weeks pass without communication from X company, [your PR firm] reserves the right to bill for services rendered to date.” This is important protection for occasions when a client can’t get the final approvals on a deliverable, but your work is largely completed.

Though out-of-control projects can happen to anyone, spelling out the deliverables and managing expectations up front are key to keeping these misunderstandings to a minimum.

Have you ever experienced the horrors of scope creep? What tips can you share?

Photo credit: chego101

I was fortunate to attend the SXSW session, “How to Abolish the Hourly: How Value Pricing Wins Clients, a session from John Lax and Lee Dale. Their presentation focused on cultivating long-term partnerships with clients rather than perpetuating a model based on hourly billing.

Envision a scenario where a client hires you for a revenue solution that yields $5000 in new sales…that takes you just 1 hour to implement.

Traditional hourly pricing disconnects the cost of a consultant’s time from the value the client receives. Most solo entrepreneurs (and even consultants and larger agencies) who maintain a fixed hourly rate risk devaluing their own expertise — and future revenue — by billing the above solution at one hour.

The traditional solution? List more deliverables, bill for “scope” and “research,” justify a higher invoice amount, and…you get the picture. Is there a better model?

Avoid Deliverables, Focus on Outcomes

What are your clients buying from you? What are you selling?

Value pricing requires that both clients and vendors focus on outcomes. It is always a challenge for clients and vendors to measure return on investment. Understanding and focusing on high priority outcomes maximizes time, value, and impact for both the client and the vendor. This strengthens your clients’ correlation between your partnership, advice, and expertise & their progress toward business objectives, goals, and successes.

Pay special attention to how your clients introduce or describe you to others. If they reference deliverables (rather than outcomes), you may want to reexamine how your position your services.

Uncreative Results

Lax and Dale provided the following example of value pricing in action: an amusement park desired a fixed number of season pass-holders prior to a set deadline. The client and vendor agreed on a project fee, and quickly determined that quick sales were more important than an elaborate publicity campaign. As a result, the season passes were posted on Craigslist and sold in record time.

Tracking Resources

How do value-priced organizations monitor time?

Both of the session’s presenters have moved away from hourly timesheets, and Lax and Dale acknowledged that every tracking system has inherent flaws (web browsing on company time, anyone?).

Tracking time as Half-Day and Full-Day, while still imperfect, reinforces the depth of effort and creativity required to produce meaningful and measurable outcomes for the client without the temptation of multitasking or focusing on minutiae.

Ethics on the Margin

Following the presentation, audience members (and undoubtedly a few readers here) questioned the ethical implications of value pricing and potential for corrupt business practices. While I share these sentiments, I am equally intrigued by the potential for service professionals to reshape their identity around value. It is especially difficult to consider value pricing in this difficult economy, as cost-cutting is of primary importance for many organizations.

In principle, however, value pricing deserves some consideration for how it shapes and guides clients and vendors into a partnership, seeks to create shared trust, and focuses on profitable outcomes rather than simply fulfilling hourly quotas.

For more in-depth content on the subject, the speakers recommend Ron Baker and Tim Williams, pioneers of value pricing.

Garrett Kuk, of Speakeasy Media, consults with businesses on social media strategy, is a member of the Social Media Club of Atlanta, and holds leadership positions with PRSA Georgia and the Notre Dame Club of Atlanta.  Connect with Garrett at his Speakeasy Media blog.

This is a guest post from Alison Kenney of KPR Communications.

Recently I met and won over a new client (thank you) but was surprised when presented with a contract that offered bonus payments for achieving media coverage (in addition to a decent monthly retainer). I instinctively turned to the #soloPR community and asked other PR veterans how they handle this situation. They didn’t let me down. As you may know, I posted the question on the SoloPR LinkedIn page and Kellye presented it during a recent Twitter chat. There was a good range of thought-provoking feedback:

A majority of chatters were offended by this “pay-to-play” approach, for ethical reasons:

@jgombita: A1: Wasn’t there some industry buzz a few years ago about an agency that “guaranteed” X number of media stories? Sounded dodgy.

@BevPayton: @MomonMars Yes, promising placement IS a violation of PRSA ethics policy. The only way to promise placement is to place an ad.

@erica_holloway: A1: I prefer following the Barcelona Principles to focus my efforts with full buy-in and measureable results.

Or because they thought it represented a lack of understanding of the value of PR:

@AmazingPRMaven: A1: Usually when those deals are offered, they don’t include a retainer, typically the offerer is ignorant of #pr workings

@KellyeCrane: A1: Many clients who want to pay only when X is met are cheapskates who don’t really value the time things take. Not all, but many.

@erica_holloway: @KellyeCrane Right, like expecting to lose 20 pounds after two months in the gym. Not reasonable.

@cidokogiPR: If someone wants to pay you a commission only for this type of job, they don’t value this type of job…

@3hatscomm: time IS money

@krisTK: A1: Would NASA build rocket only to go to moon? PR has better ways to evaluate results than clips, fans

And devalued the strategic role of PR especially:

@fransteps: A1: Placements are NOT measure of blding relationships & trust? Pay for play people don’t get that long term investment strategy

@farida_h: A1: Was asked for a social media project once – if I could get guarantee x followers – told them engagement more imp than numbers

@MomonMars: @PRjeff I think that’s a very short view of PR, which is more a long-term process

@dconconi: A1: pay for performance is also only related to media relations. We do so much more. How do they pay 4 strategy and counsel then?

@DebInATX: I think clients who only want to pay when X goal is met don’t understand the long term relationships necessary for PR

@karenswim: A1: It can also backfire by providing incentive around a tactic while diminishing long term strategy

@juphilpott: @karenswim Absolutely – why waste the effort planning a successful long-term strategy if client is only interested in end tactics.

Mark Buzan (via LinkedIn) I think the value of PR professionals is not in us becoming “pitch machines”. Instead, we are there to help craft and build reputations. For that to occur, it’s strategy before tactics. Perhaps that’s one of the reasons I don’t work with small biz

Colin Sanford (via LinkedIn) Agree with Mark here. The process of helping a company get straight on its messaging / strategy (which is a central part of pitching/planning) as valuable (and often more valuable) than the articles. I would avoid a “pay-for-performance” approach for all the reasons others have cited as well as the fact that it deepens the perception that all we provide is tactical support in coverage.

Or because they thought it would be a “slippery slope”:

Mark Buzan (via LinkedIn) I think you’re heading down a slippery slope if you start down that path. Often media coverage can result months after a pitch. Also, how much control do you generally have over the content written? What if it’s only a mention in passing or worse yet, something negative even after the best of efforts. There’s a lot out of the control of publicist’s realm in this area. What you need to be pushing instead is WHAT ACTION resulted as a result of the media coverage?

My two cents worth.

Joshua P. Romero, MA (via LinkedIn) I’ve worked at an agency where we had a “pay for performance” model. I didn’t like it because there were no qualifiers on the pricing, specific to the media type, circulation, range, etc. It was print/web, TV, and radio – that’s it. The pricing framework didn’t leave much room for editorial content that appeared via new media channels or online supplements to print or broadcast.
It sounds like what Regine is doing is best-case-scenario pricing for a pay for performance model.

@REDMEDIAPR: A1 DON’T work for free – too many factors like a press event that no one comes to bc of nat disaster news or Today seg gets bumped

@krisTK: A1: too many factors not in my control to consider “pay for performance”

But a few offered examples of how they’ve made it work:

Regine Nelson (via LinkedIn) I’ve had some success with “pay by performance.” However, generally I’ve restricted it to small businesses that need coverage for specific time frames, i.e the holidays or summer. In my opinion, this fee structure works when you a client wants to secure 20 media mentions or less.

In my practice, I offer this option to small businesses such as florists, retail boutiques, cupcakeries, etc. I design their press kit, develop a media list (no more than 15 outlets) and angles for a fair fee. Then I qualify each media opportunity, whether it be print or television. Each publication has a fee according to its circulation and range (local, national, regional). I only invoice the client once the story/mention appears.

Again, as Mark says it can be a slippery slope. You need to manage your time wisely and set goals and parameters with the client. The intention is to help them move sales and create a level of awareness for their product or service. Let me know if you have any more questions. I’d be happy to help - regine@allure-pr.com

@karenswim: A1: In a corporate environment it makes more sense but not as an indie biz owner

@PRjeff: A1: We should be results based. I say if you have a base, find a client w/great story to tell & commish is high enuf, y not?

Diane Pinnick (via LinkedIn) I did it only once. I warned my client he’d be paying more because I was good. He paid a lot more–end of story.

Joshua P. Romero, MA (via LinkedIn) Diane, that’s another great point to make. The price seems more affordable than a retainer, on the surface, but can get costly fast (especially for seasonal clients).

Our agency had a clause in the contract that media mentions made in outlets on the approved media list, within 30 days after the contract’s termination, would still be billed based on our efforts. That made for some interesting phone calls from the agency’s accounts department.

Julie Rogier (via LinkedIn) Just jumping in here – sounds like the consensus is we better serve clients with systematic programs and reputation management, and I agree. However, in niche PR (such as high tech marketing via case studies) I got my start writing Business to Business “case studies” that served multiple purposes besides a media placement – (i.e. content could be repurposed for brochures, direct mail, web, etc) With the client contract, I got paid for delivering the completed case study; and was then compensated for each time the material was published in key trade journals for a set period. This was a fair arrangement to both myself and the client. It’s a good way to start a relationship with a client, as well, to prove value on a per-project basis – then move the relationship to a more regular engagement.

I am impressed and appreciative of the feedback the #soloPR community offered. I discussed the issue with my client and tried to get a better understanding of why they wanted to work this way.

They told me they liked the model because it mirrored the way their sales team is compensated (base pay plus incentives) which is a model they like. I think they also felt unable to justify a large monthly retainer, like the ones they had paid bigger agencies in the past, without some “guarantee” that there would be results; they saw this model as a way to bridge that divide.

My situation isn’t as risky as some of the commenters may have assumed (the monthly retainer appears very fair) and I view the bonuses for media coverage as just that: bonuses. They are not affecting the strategic plan I’ll be creating for this client.

So, I agreed to try it. I’ll try to update this blog or other channels in the #soloPR community with our progress. What do you think?

With more than 15 years of PR consulting experience, Alison Kenney has worked with organizations spanning the technology, professional services and consumer industries. Alison spent the first half of her career at the leading high-tech PR firm The Weber Group, now Weber Shandwick, working with both globally recognized brands and dynamic startups in the technology industry.  She has spent the second half of her career at KPR Communications, putting those connections, lessons learned and experience gained to work for a range of technology, professional services and consumer organizations while serving as their outsourced PR director, virtual PR team member or general “PR Girl Friday.”

1. Have you ever worked on a pay by performance basis? e.g., a bonus if you hit X objective, or only get paid when the objective met?

2. When responding to an RFP, how do you keep from coming in too high (or too low) on budget?

3. In proposals, what percentage of a project do you allocate for planning and eval/measurement?

Be sure to check out the transcript in PDF for the full discussion. What’s your take on these important topics?

The #solopr chat – held each Wednesday from 1-2 p.m. Eastern – is a weekly ritual for some of the most savvy Solo PR Pros on Twitter. Anyone with a Twitter account is welcome to participate – see Join Us for the #solopr Chat on Twitter to find out how!

Thanks to Jennifer Spivak for compiling this post.