What should you charge? More to the point: Why aren’t you charging more?
It’s a surprising blind spot – not just because otherwise smart practitioners get it wrong, but also in the sheer breadth of ways they blow it. Solos charge too little because they heard that’s what a competitor quoted, because that’s all they thought they could wring out of a key client, or similar excuses.
Reliable data is thin, but what’s out there is shocking: According to a 2008 PRSA survey of independent practitioners, the average responding solo had 21 years of experience, was working 35 hours a week, and pulled down an hourly rate of just $111 for for-profit work and $87 for non-profit work. This stereotypical solo practitioner billed $104,479 in annual gross fee income at the time of the survey.
Oh, and most of the numbers were trending down from prior years.
Think about that: More than two decades of experience, working what amounts to a full-time job and… you’re making less, after taxes, than a Sr. AE?
If that’s you, then you don’t own a business; you own a low-paying job. You can do better.
How? Smarter pricing and better clients. The two go hand in hand, but in this post we’ll keep the discussion squarely on pricing.
1. How much you do want to gross in a year? That’s right – start with your desired earnings as the first data point. Not what others are charging, and not what some client said he or she could afford. The thinking: Nearly everyone has a number in mind, most of those numbers are rational, commensurate with experience, and, for the majority of people, that rationally selected number is pretty central to their happiness. So let’s put it front and center.
2. How many hours do you want to work? Don’t overthink this – if you want to work full-time, the FTE standard is 2,000 hours a year, which is 40 hours a week with two weeks of vacation. Got other life commitments? Don’t feel like getting out of bed before noon most days? Fine – put in 1,000 hours or some other figure. But be honest with yourself and pick a sustainable number.
3. Do the math: Take the number of hours you want to work and divide it in half. Take that number and divide it into your desired annual salary.
Presto – you now have a target hourly rate. It’s not perfect and, depending on your inputs and current billing level, it may scare the hell out of you. But it’s a rational starting point.
Let’s get the most obvious questions out of the way:
Why do you assume only half my hours are billable? Because you should spend as close to 50 percent of your time on business development as possible. Yes, non- billable admin will eat up a little – but hopefully you’re minimizing that.
Spending half your time on business development means you always have a healthy book of prospects and leads to work with – if it doesn’t, your biz-dev regimen is broken and needs to change. A fat funnel means you can be choosy about which clients you take, ignoring that suck-it-up voice in your head when last year’s great client wants the same work this year at a 25% discount. A robust prospect pipeline is the surest way to maintain premium rates.
What about all my other expenses? Most solos manage to keep overhead low – it’s why this formula can be so simple for most of us. If you have office space or other recurring expenses you didn’t include in that gross number you established in point 1, go back and add that in.
What about the competition and what they’re charging? What if my raised rates are as much as a full-service agency’s? You don’t care – but we’ll get to that..
But that rate… it’s so high!
Getting a clear picture of that target rate is just a first step.
Let’s say you’ve done the math and your target rate comes out at $185 – more than 66 percent higher than our PRSA average. And that’s not what you’re currently billing. Now what?
- Just start charging more. The most general suggestion, true, but also the easiest to implement immediately. It’s tough to push significant rate increases onto existing clients. So get new ones, and start charging more.
- Specialize. Some clients need horizontal-market specialties — maybe they need crisis-comms counsel or a new-product launch. Others are deeply concerned with vertical-industry expertise – perhaps they’re looking for someone with upstream oil and gas experience, or a history of working with cruise lines. With either type of specialization, you can charge a premium. Got both? You can charge a significant premium.
- Price based on value, not hours. There are lots of times – particularly when you do significant, single-item deliverables, such as marketing plans – when you can charge based on the value delivered rather than the hours worked. Even if you bill hourly for everything else in your world, keep an eye out for these projects and negotiate fixed-fee agreements. You may find yourself happily netting out $300 an hour or more.
- Mark-up. In the 2008 PRSA survey, only 10 percent of practitioners marked up expenses. To the other 90 percent, I ask: If you’re acting as a bank for your clients, why aren’t you charging interest?
- Explore alternative rate structures. This is the kissing cousin to value pricing and often takes the form of variable compensation for work that delivers game-changing results for clients. A typical engagement might contain a traditional retainer for day-to-day work, as well as a “success fee” paid only if you help the client achieve some specific, measurable and mutually agreed-upon objective. It’s an exercise in risk pricing and, properly executed, aligns everyone’s interests.
- Team up to hunt bigger game: Solos who worked as part of a virtual team billed 60 percent more than their standalone counterparts, according to the PRSA data.
Having a high target rate doesn’t mean everyone gets charged that rate. Using the examples above, some value-priced work might pencil out at $255/hr., some of your specialized work could be billed at $185/hr. and some of the retainer work at $140/hr. What’s important is that you treat your overall book of business as a portfolio that, taken as a whole, meets or exceeds your target billable rate.
The competition, and other distractions
But what about the competition?
Some competitors – a lot of them – may charge less than you. Heck, they may charge less than you charge now, so won’t a rate increase mean you price yourself out of the market?
In a word: Yes.
Significantly raising your rates means you’ll price yourself out of purely cost-sensitive markets and opportunities – a group that also happens to have the most churn, the most competition and the most frustration. See also: Clients with the lowest margins.
It means you have to sell based on differentiation, expertise and results, not on price. It also means that significant swaths of the client landscape — very small businesses and cash-strapped start-ups are two examples – may not be fertile ground for your biz-dev efforts. But if your model is based on spending as close to 50 percent of your time as possible pursuing new business, you’ll find that there are plenty of customers willing to pay a premium rate — if you can solve their problems. You’ll also find that one of the most cherished bits of conventional solo wisdom – that you can’t charge as much as a full-service agency – simply isn’t true.
Do you always buy on price? No, you don’t. So why assume your client does?
Quit worrying about the competition and instead, look at the types of work you pursue. For many solos, the biggest competitor isn’t the practitioner down the street – it’s timidity or lack of focus, keeping them inside a comfort zone and outside of higher billings.
Quit freelancing and go build a business
In the 20-plus years I’ve worked in PR and marketing, the most significant change I’ve seen hasn’t been the rise of social media. No, the biggest tectonic shift has been a combination of enabling technology and changing workforce attitudes that combine to make the solo practice more acceptable – and lucrative – than ever before.
As an industry, we’re no longer oddballs but a permanent fixture of the consulting landscape. But too many of us still run our business like… well, like itinerant freelancers. We grub for whatever work we can get, make what we can and spend what we make.
That’s not a business. It’s a practice at best and an up-and-down rollercoaster of a life at worst. And the fix really is as simple as raising your rates – a simple act that will force you to refine your universe of prospects, think more clearly about your value proposition and spend more time marketing.
What are you waiting for?
Greg Brooks is principal of West Third Group, a Missouri-based consultancy. Established in 1999, WTG delivers public-sector communications, managed editorial services and b2b marketing strategies to clients across the nation. A former journalist, brooks speaks internationally on marketing and business-development issues.