What are you worth? Episode 1: The art and science of setting rates
Negotiating rates is a scary thing. It raises questions like: How do I know how much I'm worth? How do I make sure I don't undersell my work? The answer to these questions is in science and art. This article will show you a "magic formula" that can help you set your professional rates (the science). Next to that, we will share some techniques (the art) that you can apply getting the upper hand in negotiations.
THE SCIENCE: The magic formula
Analyzing a recent survey results conducted among Sweav members, we discovered that the best indicator for setting hourly rates is the number of years of total professional experience. This formula applies to people who have at least three years of experience.
The magic formula to fix the hourly rate is €90 + €10 x Total number of years of experience +/- €25 (for Total Years of Experience>3).
According to this formula, an experienced strategy consultant or M&A professional with five years of experience has an average income of €130 per hour or €1.050 per day for an 8-hour workday. However, some charge €155 per hour, representing €1.240 euros per day, while others only charge €105per hour, which corresponds to €840 per day. What is the reason for this difference?
Do you have to aim higher or lower?
There are three essential factors to consider to establish the +/- 25 €/hour, which are: client's purchasing power, the duration of the project, and the type of project:
It is essential to determine if it is a short-term strategy or due diligence project (duration of 3 to 4weeks) for a client with high purchasing power. As is the case for companies or investment funds, you should aim at setting a higher fee amount.
On the other hand, in the case of a long-term project or an interim role combining strategy and operations for a start-up or NGO, you could aim for slightly below average.
THE ART: Conquer discomfort, don't sell yourself short
We surveyed our members and found that 30% of people felt that their rates were set wrong at the end of the project and should have charged a higher price. In addition, respondents stated that they were uncomfortable with negotiation and felt insecure about charging a fair price for their work, even though the usual service price is high.
The solution? Try changing your perception on how valuable you are. It would help if you considered that people with your skills are scarce and that the labor market is very tight. For that reason, companies should feel fortunate to have you on their team. So charging a fair rate for your work is nothing to be ashamed of.
Like other skills, it is possible to learn to master the art of rate negotiation. We assure you that you will get better and better at it as you progress and gain confidence.
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