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Solving the Hourly Rates vs. Project Fee Problem

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Every web design and digital marketing consultant is going to have to solve the pricing problem at some time or another. This is not an easy problem to solve but if you have a defined scope of what the project will entail and the solutions you will be providing then you can price as a project fee. What’s more important that a defined scope is the knowledge that before you can price you must differentiate yourself.

In any negotiation the key is to be able to offer a solution that is different enough from other firms that they are more likely to go with you. Following that is the ability to demonstrate that you have both the right capabilities and the systematic process to be able to deliver on time and budget. Once this is out of the way you can then discuss price.

In some cases, even after presenting a project fee, client’s will asked about your “hourly rate” behind a proposal. We have found that by explaining that our rates are based on comparative pricing with other similar projects it is easier for them to digest. This focuses the conversation on outcomes and deliverables and not on time and materials.

If the client insists on some form of time-and materials pricing, and doesn’t see the value of your proposal, you may need to decide to walk away and reserve your capacity for the right kind of client who will appreciate and benefit from the value you bring. Knowing when to walk away is a hard skill to learn but I can tell you that in 15 years of doing consulting I have never ever regretted walking away from a project. Trust your gut. If the deal feels bad during the negotiation it’s probably going to blow up at some point. The good news is that simple supply and demand will naturally drive your rate up.

However if you are really pressed put out a proposal above your proven rate and if the client says “no,” then ask them why. Give them an opportunity to negotiate and even if you have to discount you are still a winner. When the client chooses to work with someone else and then runs into trouble, the rate proposed 6 months ago suddenly looks a lot more attractive.

Finally, a note on why time and materials doesn’t work over the long-term. If you are growing and your rates are increasing over time then you will have to explain to your clients why the rates are different across different clients.

Author Richard Banfield

As CEO, Richard leads Fresh Tilled Soil’s strategic vision. He’s a mentor at TechStars and BluePrintHealth, an advisor and lecturer at the Boston Startup School, and serves on the executive committees of TEDxBoston, the AdClub’s Edge Conference, and Boston Regional Entrepreneurship Week.

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