Setting rates: should you charge the same rates to all IT clients?
In setting rates, all consultants have to balance a host of factors like the flow of work, the complexity of the job, and the size and type of client. Different clients can afford different amounts. Really aggravating clients, or unusually complex systems, may warrant higher rates for what looks like the same job. Other issues may also apply, such as wanting to support that particular client’s business or cause.
Freelance consultant Richard Collings states the obvious “Setting rates is really difficult. To some extent you need to test the water with a new customer, see what they’re used to paying – and depending on how much you want the work, how desperate you are, the extent to which it fits with the work you want to do.”
One tactic Collings uses frequently if a project offers him a chance to learn something or a longstanding customer is going through a rough patch is to offer free days alongside paid ones. “Once they’re used to paying a day rate, that’s what sticks in their mind,” he explains. “So if you give a discount, then getting the rate back up afterwards is much more of a challenge. Whereas if you’re offering a number of days free of charge in an initial piece of work and quoting the rate you want in future, if they come back for more you can say ‘x days and this rate’ and it’s the rate on the original agreement.”
That original rate may vary a great deal depending on the size of the organisation you’re dealing with. Multinationals may be charged as much as £1,000 a day by the Big Four; for a small business customer, £400 a day is more common and charities are often the province of agency staff who may charge as little as £150 a day.
The disparity has as much to do with the competition as it does with what those organisations can afford to pay. Chris Tierney of Grosvenor Consultancy Services works in all these sectors and notes that his competitors are different in each one. It’s typical that work in a new area that few people understand commands premium rates. Then, he finds, “over time, more people see it’s attractive and start doing work, and the rate tends to come down because there’s more competition.”
For him, “the key factor is the extent to which you can keep yourself busy.” If you have a skill that’s only needed occasionally, you have to set your rates at a level that can support you during that idle time – and you also need to cover the cost of winning the business, running your own business and staying up to date on technology. “Non-billable time needs to be factored in,” he points out. It is not always easy for client companies to understand this.
Even more difficult, though, is raising rates beyond a modest cost-of-living increase later on; one consultancy working exclusively with very small businesses didn’t put up its rates for more than ten years. However, a lot depends on the client and the context. If the work you’re doing saves the company many millions, a few extra thousands won’t seem like much; if you’re supplying regulatory compliance that the company just sees as a cost, every penny may be scrutinised.
John Mitchell, managing director of the 20-year-old boutique consultancy LHS Business Control and membership director of the Information Systems Audit and Control Association’s London chapter, says his company determines its rates in part by looking at the competition.
“Primarily, we ask ourselves ‘what will they be able to pay?’. We know charities and housing associations are always going to be strapped for cash, but unfortunately they have huge regulatory requirements that they have to fulfil, so the guys who can least afford it have to pay more for regulatory assurance.”
Unlike many others, Mitchell prefers to quote a fixed fee for the entire job up front. “Sometimes it gives us the edge because the client knows what the commitment actually is and the risk is all on us. Other organisations go in on an hourly rate and they look more economic to start with, but then extra chargeable bits come along that were
not in the original spec, and the thing starts mounting up.”
Mitchell characterises LHS’s rates as being “at the top end”, but he seems unworried. People may say others are cheaper, he says, but “that’s the decision of the client.”
In the end, even an identical job will be different depending on the systems and circumstances of the customer, your own circumstances and the value you provide to them. If you’re going to run a successful business, your rates will need to reflect all of that – and if you remember all the factors, you won’t be made uncomfortable if two customers ever end up comparing what you charge them.
What you should charge and why you should stick to your price:
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