Hourly rates and service agreements are two issues that many network consultants worry about when they first start out.  They typically wonder how their retail hourly rate relates to the hourly rate in the service contract.

Most network consultants will use some kind of discounted hourly rate when they enter into a service contract with a client.  This discounted hourly rate is one of the main incentives for a client to want to make a long term commitment.  The question becomes then, "Have you set a retail hourly rate that you can afford to discount?"

When you set your retail hourly rate you need to consider the eventual use of offering things like lower or waived minimums and/or waived premiums.  In order to be able to discount your hourly rate you need to leave yourself enough room in your rate structure to do so.

This means that when you set your hourly rate you also need to consider:

  • Your first year expenses
  • How hourly rates equate to salaries
  • Ability to pay sales commissions
  • Ability to hire subcontractors and staff
  • Ability to afford revenue-sharing arrangements and referral fees
The key thing with your hourly rate structure is that even after you’ve discounted down your rates for service agreement clients, there’s still enough margin in it for you.

If you know that 85 - 90% of your business is coming from sales agreements and thus 85 - 90% of your clients are being charged a discount hourly rate, you necessarily have to make sure your discounted rate is high enough to accommodate all the items we just mentioned.  What happens in practice then is, you set your discounted hourly rate first and then bump that up to determine your retail rate.  

The main protest we hear from network consultants is that they are uncomfortable offering a two-tiered rate structure. This is the entire basis of retailing.  The department stores mark up their prices by four times just so they can afford to put it on sale for 35 to 50 percent off.  You need to do the same thing!

The Bottom Line on Hourly Rates
Your hourly rate has to be set in order to discount it for long term service contracts.  When you know that the vast majority of your business is coming from service agreements, the way to approach setting your hourly rate is to set the discounted rate first.  This way you know you’ll be pulling in enough to take care of the obligations you have now and in the future.  

In this article, you’ve been introduced to hourly rates. To learn more about how you can improve your knowledge of hourly rates, just click here now to get access to a free one-hour audio training program on 5 Easy Ways to Grow Your Computer Consulting Business.