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?

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. A major PR firm recently lured food bloggers to an “exclusive supper club” and fed them frozen food http://bit.ly/nUkMvv Is it ever OK to do something like this? Did they just misread their audience? #solopr

2. If you feel like you’re working too hard & not getting paid, what can you do? #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.

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.

1. With gas prices going up, are you adding mileage expenses into your client contracts? #solopr

2. If you have a your own webstite, what tips can you offer on building one (tools, services, analytics, etc.)? #solopr

3. How many of you get leads directly from your website? #solopr

4. Are you planning a vacation this summer? #solopr

Be sure to check out the transcript in PDF for the full discussion. Note that our previous transcript service is down, so this week’s transcript is in reverse chronological order. We’re working to find an easier to read format.

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.

1. What do you think about a sm project client that hints extra (unbilled) work could yield bigger projects? #solopr

Q1 follow-up: how do you actually respond to a client who is asking for this? #solopr

2. What do you use to track clients/campaign progress and keep it all straight? Paper? Software? Project management tools? #solopr

3. What are the best ways to prospect, sell, close, and *speed* the whole process? #solopr

Be sure to check out the transcript in PDF for the full discussion. Note that our previous transcript service is down, so this week’s transcript is in reverse chronological order. We’re working to find an easier to read format.

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.

1. How do you handle clients that don’t believe their targets use Social Media? for ex, one targeting the luxury traveler?

2. If a client wants to pump out 4 press releases a month, whether it’s newsworthy or not, what do you do?

3. As a new #solopr, would you give a big discount to a client who offers to or does actively help you grow your business?

4. Should someone start using a branded account on Twitter before their website is launched, or wait until there is a splash page?

5. PR named the #2 most stressful job: http://bit.ly/eTKXgP (h/t @cubanalaf). Is the #solopr life more or less stressful?

Be sure to check out the transcript in PDF for the full discussion. Note that our previous transcript service is down, so this week’s transcript is in reverse chronological order. We’re working to find an easier to read format.

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 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. How is crowd sourcing going to hurt solo PR types? Are you threatened by the “do your own PR” mindset?

2. What do you do when you’ve made a down payment to a vendor, but become dissatisfied with their work?

3. If I’m considering going solo in a few years, what should I do now while I work at an agency to prepare?

4. Yesterday posted on the Solo PR blog about PR & mobile: http://ow.ly/3RKyj – have you tried any new tactics?

Be sure to check out the transcript in PDF for the full discussion. How would you answer these important questions?

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.