Why undercharging is a poor strategy

When you’re setting up on your own as a consultant, whether in HR or something else, it’s tricky to know how much to charge. You initially probably have no clients, or perhaps only a couple of previous contacts who are giving you work, and you may be suffering from all kinds of self-doubt.

There is a temptation in those early days to undercharge. You fear missing out on a potential client by being too expensive. You might be comparing to what you were earning in your last employed job as well.



Before setting your rates too low, here are some key points to bear in mind:

  1. You have all sorts of other costs involved in running your own business and certainly won’t physically see all (or even much, especially to begin with) of the fees you charge to clients. These costs all need to be covered.
  2. Self-employment often involves peaks and troughs and it’s perfectly sensible and normal to charge sufficiently to cover these.
  3. Clients expect to pay far more for a consultant than an employee. They don’t have any of the significant on-costs associated with employment and have almost no obligations towards you.
  4. People value what they pay highly for, and the converse also applies. If you are ”expensive” people will understand that you have significant experience and expertise to offer, and will value you. If you are too cheap, people will think you are not of good quality and will avoid you.
  5. No one wins the race to the bottom. Do you really want to be one of those people who has to undercut everyone else in order to get and keep clients? Or do you want to use your expertise, experience, skills, good products and excellent customer service to do that?
  6. Value for money isn’t the same as cheap. Clients want good value, of course, but that doesn’t mean the cheapest. If you offer excellence in terms of quality and service, that represents value for money, whereas paying less and getting poor service or poor quality doesn’t represent value for money. When presented with several proposals for the same thing, most people don’t actually just go for the cheapest one, they go for the one that they feel best suits their needs and offers good value for money.
  7. If you charge too little at the beginning, you then have a problem. Some clients may stay with you a long time, and increasing their rates to the rates you later feel able to charge is problematic. Charge a fair rate to start with and you won’t have this issue.

It’s difficult at the beginning when you lack confidence, but value yourself fairly, and have confidence in charging what might initially seem like a high figure. Do some research as far as possible into what other consultants offering similar services in your area charge, and compare their services with those you are planning to offer.

Remember that the fact you may not be experienced as a consultant doesn’t mean you are inexperienced. You probably have bags of experience and expertise in your field (hopefully!) which is why you are setting up as a consultant in the first place.

If you are interested in setting up as an HR consultant with loads of support and guidance on all aspects of your business including what rates to charge and how to get paid, do get in touch.