Negotiating Fees and Contracts
Establishing Fee Agreements and Client Contracts
Negotiating Fees:
Negotiating contracts and fees is one of the most difficult chores of being self-employed. Many in this position would readily admit that they are terrible at negotiating contracts. They complain of lacking the self-confidence needed to negotiate appropriately, often seen as a sign of weakness.
Know your Worth:
A consultant must know their value and worth and must understand supply and demand in order to successfully negotiate contracts. In addition, the consultant must be prepared for negotiations between themselves and the client. The nature of the business dictates that some back and forth negotiations will be present. There are various methods that a consultant can use to set their fees which can be confusing. A flat rate, an hourly rate, a project rate, or a combination of all three are acceptable methods of setting fees. Determining a competitive rate which will cover expenses and allow the business to profit can be difficult.
Establishing your Rates:
Determining the going rate for services comparable to the services you plan to offer can be challenging. One simple tactic is to call agencies that offer similar services and request information regarding pricing for different activities and compile a price list for various services by various agencies. Many consultants utilize the web to advertise their services and a simple search may churn up many consulting services web pages where many list the price ranges for their services. Your local Small Business Administration may also be able to help. They have numerous volunteers on staff with varied degrees of experience that are more than willing to discuss pricing strategies with those just getting started in the business.
Contracts:
Once your pricing schedule is established, the consultant must prepare contracts for their clients. One mistake neophyte consultants often make is they make the contracts too complicated. The contracts need to be effective which does not mean complicated. The consultant should be able to spell out what they will do for the client and how much it will cost the client in two pages or less. In this litigious society, it is tempting to include every possible situation that could occur during the agreement period. This is not an effective business practice. Companies become leery and wonder what the consultant has to hide if they have peppered their contracts with lawyer speak. The consultant should include such basic information in their contracts as dates, payment, project scope, and signatures. This is usually all that is needed to begin the process.
Dealing with Cash Flow Problems:
Even when contracts are signed and an agreement of fees has been reached, cash flow problems can still plague a business. Most businesses experience cash flow problems at one time or another, but the self-employed are often the hardest hit. Requiring part of your consulting fees upfront from clients may help improve cash flow. Clients who are forced to pay some money to begin the process are more likely to be valid clients. Those clients that do not have to risk anything up front have nothing to lose so the consultant may spend a lot of time spinning their wheels. In addition, the cash flow cycle is very slow. Until the fees are being collected on a regular basis, months can go by without generating any income for the business. By doing your homework and finding out the going rate for your service in your area, establishing fees accordingly, and preparing contracts in advance, you can help alleviate some of the cash flow problems that often plague an independent consultant.
