The number one way to make and keep more money as a consultant is to price your services, products, projects, and programs for maximum profit!
In this episode, I will teach you how to price for profit and identify the signs that will let you know when you’re not priced for profit.
Question: How did you determine the prices for consulting services or projects?
Most consultants determine their prices the wrong way! They look at their competitors and price their services based on the competition without factoring in their firm’s financial matters.
Therefore let’s demystify pricing and deep dive into a unique pricing formula that will help you never have money worries again.
Who will assist you in providing the service to your client? What will you pay them? If it’s an hourly amount, how many hours maximum will it take to complete the project?
Also, will you have tasks to complete as the firm’s owner? What is your hourly billable rate, and how many hours will it take you?
Take the total number of hours multiplied by the hourly rate and do the same for your hours. Add the total of both of those together to determine the total labor cost.
You will include the total cost for the hours you and your team will work to provide the service to your clients.
What must you purchase out of pocket to provide your consulting services or project?
These purchases are your direct cost, and your clients should cover them.
For example, did you add a new subscription for the new client? Or perhaps, you had to purchase materials to complete the project.
In most cases, the amount you pay for out-of-pocket expenses should be included in the pricing formula.
Depending on the service or project, you may want to add a percentage markup to the price.
Let’s imagine that the project is completed, the team and paid, and the bill for the direct cost is paid as well – how much from the project would you like to see remaining in cash?
Let me ask it another way, after earning the desired amount in revenue for the project, how much would you like to see left over in profit?
Now that you have this number, what is the percentage of the number?
Or let me ask it another way, how much of each project or consulting service would you like to remain after completion?
Whatever the desired percentage is, you want to add that amount in your price.
For example, if the labor and direct costs equal $20,000 and you desire a 40% profit margin – you will charge the client $28,000.
After the client pays the bill and you’ve covered all of your costs, you should have $8,000 at a minimum remaining in your bank account.
There are four ways to know if your consulting services or projects are NOT priced for profit: