“Price is Too High”: Responses That Work

Pushing the Limits

We recently relaunched our website to include our pricing for services. Our new hourly rate comes in at $250 per hour:

Having been around the block, this is on the high side for Fractional CMO and CFO consultants for early stage start-ups. It is not on the high side for consultants of our experience level. A former colleague with a similar profile charges in the $300+ hourly range. They landed clients through professional referrals in-network. The referrals I sent them, however, didn’t work out.

Brand name consultants can charge north of $1,000 an hour, but they tend to also come with high reputation. They would have had a few home runs (like an exit or IPO) or come referred by high-profile contacts. Middling chaps like us are good at what we do, but don't have the reputation yet to bill at those rates. At $250 per hour, we are neither too expensive nor too cheap, which means clients will negotiate.

25% don't charge hourly
12% charge less than $100 per hour
39% of consultants charge between $100-$250 per hour
19% charge between $250-$500 per hour
‍5% charge $500+ per hour (0.5% of the 5% charge $1000+ per hour)

Source: Data from the Consulting Success "What are consultants charging per hour"

‍

More importantly, this hourly rate puts us at the top quartile of independent consultants, giving prospective clients pause. Yet we’re excited to be here. This is our first attempt at really pushing our hourly rate higher to reflect the value and impact that we bring from our experience.

The Client

The Client is our former boss, so negotiations were frank. Neither side beat around the bush. There was no political dance of playing nice and “oh let us think” gimmicks. Both sides went to bat with no cards hidden. We knew each other well, and it was an transparent conversation.

How did they take it? Sticker Shock.

Our boss likes a good deal. As a former founder and now lean start-up leader, he's also not big on spending. Big tech salaries and expensive retreats are absurd to them. Our proposed pricing was double our current blended rate (we charge different rates for different services based on those market rates). Needless to say, the price point was a sticker shock.

Our Response?

We used the playbook we outlined in our blog post Discussing Rates When Clients Say They Are Too High. The particular points we focused on were:

• Scaling Costs: We explained we had higher costs since we’re no longer solo operations, but joint operations with contractors. There are more systems and coordination required for the two of us, which is true.
• Delays in Billing and Payment: We’re finding that time-tracking is time-consuming, as is billing. This client is also particularly bad at approving bills in a timely manner, so there can be a back log of bills. We’re currently behind in payment by 2-3 months.
• Deep Domain Expertise: The new requested scope of work, strategy advisory, is an area we have extensive experience with. The market rate for someone with similar experience would range from $100 to $300 per hour. Our differentiator is our domain expertise in the client’s niche field and deep knowledge of the company.

Being flexible and armed with negotiation responses in advance like the ones above are critical to success. Real-time conversations are fluid. Memorized speeches do not work, at least not for me. Our responses were reflexive recall based on information we had (client was behind on payment) and from previously learned skills (objection handling).

The Compromise

Like all good negotiation, we landed on a compromise -- a retainer model that would allow us to get paid on the first of the month for the upcoming month’s work. We are now being paid in advance versus paid in arrears.

Because it’s a retainer model, the work can fluctuate on an hourly basis. We’re estimating on a bad month the rate works out to be $200 per hour and on a good month the rate is $250 per hour. The annualized blended hourly rate works out to be $233 per hour.

The Result

• Our Ask: $250 per hour. paid in arrears.
• Our Win: $233 per hour. paid in advance.

This exercise shows how important it is to negotiate your rate and have a frank conversation with your client. Someone who wants to work with you and values your impact, will find a compromise that works for both sides.

If you liked this article, check out our calculator: Consulting Wage Calculator: How to Charge What You're Worth.

‍