Pricing 101: for Independent Consultants and gig Workers

Quite a few people in recent times have asked me how they should price their consulting services. Considering that some of these people are professionals with several years of work experience, I felt that this seems to be a challenge afflicting many. There is no right answer for the query, “What should be the price I ask?” I am making an attempt to explore the possible aspects that one needs to analyse when quoting a number!

The Merriam-Webster dictionary (online definition as searched on 22-Mar-2021), defines ‘Price’ as:

1. the amount of money given or set as consideration for the sale of a specified thing
2. the quantity of one thing that is exchanged or demanded in barter or sale for another

As one can see, this clearly defines ‘price’ as the amount that is either given or demanded. And, this is precisely the reason for the confusion around what price one should set for their products/services. The problem arises because while the price definition from buyer side is quite straightforward being the price at which he/she purchases, setting the price from the seller side requires one to evaluate various inputs such as:

1. Value offered
2. Cost incurred
3. Ability of the customer to pay
4. Economic conditions
5. Competition
6. Availability of substitutes
7. Demand-supply characteristics

Particularly challenging is the pricing of services because of their inherent intangibility. While some may argue about the possibility to showcase through a free sample, one has to keep in mind that the nature of free services can never reflect the paid ones because of the human behavioural aspects. When someone is offering a service for free, there is an inherent cost involved and the value offered is limited to the ‘cost of sale’ one is prepared to incur per successful acquisition.

Not to leave you with only questions, I present here a method that I think is suitable in the initial part of the journey when you are starting out as a consultant/gig worker. One can always optimize the number going forward based on market feedback and the market’s potential to pay.

Step 1: Estimate the cost (usually time and effort) you would incur

Step 2: Establish a rate (unit cost) at which you believe you deserve. Multiply it with the effort estimated to set a price. Usually, this would be the upper limit of what you may charge.

Step 3: Market analysis of what is paid by customers for similar services. This would be the average price you may get

Step 4: Establish a lower bound for the rate that you are willing to accept. Essentially an amount below which, if offered, you will walk off the deal.

Step 5: Estimate the quantum of work involved and consider if you would wish to do any discounting for volume keeping in mind your lower bound.

Step 6: Decide whether you would like to use some of the pricing techniques such as psychological pricing, premium pricing, price-quality perception, etc. (you can search about each of them online for details)

There will always be a negotiation on the quoted price so you need to prepare by adding adequate buffer before quoting the price.