Negotiating Your Fee As An Entrepreneur INS EPS 08
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Be sure to tune in to the podcast where I expand upon these tips.
As an entrepreneur we all want to be paid for the products or services we’re providing. I mean, we did just quit our jobs to pursue a career with a little more financial freedom, right? Well, it’s not as simple as that, but getting paid for what you’re doing is essential to actually keep doing what you do.
A critical piece of information that I share with all entrepreneurs about negotiating fees is that they can’t come from a mindset about what they think they deserve. Thinking that you deserve something personalizes it too much. I realize that this may just come down to semantics, but I’ve seen this concept wreck quite a few business deals.
Fees should be based on our level of expertise, type of services that we’re providing, and what value we’re bringing to the client, which I’ll mention later in our breakdown of fees.
The Mindset:
So as I said before, to stay in the business that you just started, you need to have revenue coming in to sustain the business. This too is a very important mindset and there shouldn’t be anything personalized about this either. Without that revenue, you’re out of business. Simple.
Another concept to help you negotiate is that you need to think of yourself as the business, especially if you’re the soul entrepreneur in this equation. This concept straddles the idea of what you “deserve” as I mentioned before and reinforces the notion that your negotiation comes from a place of what’s good for the business, but also equitable for your client. Both you and your client are coming to the negotiation table each representing your businesses and to determine what’s going to be good for each business.
Rather than having your client view you as a liability sell them on the concept about what value you’re bringing them. If you can provide them with a service that not only keeps them in business, but may potentially grow their business based on your involvement, then this really becomes a value based proposition.
Your Fees:
The fees that you agree upon should include your business overhead and your actual compensation. If you haven’t actually evaluated your business overhead at this point keeping in mind that it will grow over time, then you shouldn’t be at the negotiation table just yet. You’re going to need to have some basis to work from.
It’s advisable to also come up with a figure that doesn’t just cover your overhead and compensation to the exact dollar amount. Remember, this is a negotiation, so you need to add a few percentage points that allows both you and your client some wiggle room.
I’ll use the term consultant in both scenarios as this is typically what I tend to use for a service provided at an expert level to a client or business.
Hourly or Project Fee:
I don’t often recommend trading dollars for time as the only source of all of your business income, but in some cases it’s just how it’s figured into a potential client’s mindset and budget. So, you’ll have to work from a few pieces of information, which involves an hourly rate of what an employee would receive performing these tasks, the client’s budget, and your overhead so as to arrive at an hourly dollar amount.
An experienced consultant may often double or triple what an employee’s salary may be, which is just a very gross figure that is based on their business overhead.
As a new consultant this rate is going to be pretty important from a billable time standpoint. When you’re seasoned and your business has a steady flow of clients, you may be billing out close to 100 percent of your time. But, as a new consultant you may find your billable time at around 50 percent, which you’ll have to create some type of buffer that is equitable for time spent on promotion and growing your business (although marketing efforts should never cease).
So if an hourly rate of a staff nurse providing similar service is in the range of $30 to $35 per hour with benefits and a few other incidentals, then It’s reasonable for a new consultant to offer an hourly consulting rate of $60 to $70. I truly feel however that this should be at your low end, and as you gain more experience this fee should reflect on that experience.
Working on a project fee basis is going to be a little more complicated for the new consultant as you’ll likely have very little historical basis to work from, but it’s not an impossible endeavor. This is going to be the major value based proposition conversation as to the value you’re bringing to a business.
I’m going to use a very similar scenario that I did in the post “Tips to Negotiating Your Fee,” and it’s going to seem a bit lofty, but this situation can be scaled down significantly for your purposes.
Let’s say that your skill set is in new employee onboarding and over the years you’ve worked on how to improve employee retention through an on boarding process that you’ve become somewhat of an expert in. So, after spending time as an employee performing this job you decide to branch out on your own, and a company wants to contract with you to set up a program to provide employee onboarding to new graduate nurses. This may be an area where organizations see the benefit, but may not have the in house resources to dedicate to this focus group.
I wrote a very similar situation in “Tips to Negotiating Your Fee, and the dialogue may consist of this:
“What are your current issues, and what’s your goal?”
“Due to the issue of new nurse graduates leaving our institution within their first two years as a member of our team, we’re finding that overall our staffing losses in some departments are as high 50-60 percent annually. Unfortunately due to financial reasons we’ve had to cut staffing in some of these areas and close down beds in other units as a short term solution. Our previous efforts at onboarding have apparently fallen short, therefore we’re interested in a more customized onboarding process for new graduates.”
“What do you calculate your losses to be just from these employee losses?”
“We’ve seen a loss on average at about $30,000/employee to rehire, orient, and precept a new nurse graduate.” This loss of course can vary greatly.
“Well, I understand the value of employee retention and how losing nurses can significantly impact the bottom line, and I feel certain we have a process that will help cut these losses significantly.”
Now, as the conversation goes on and you’re getting some idea of both your onsite and offsite consultation hours, you may start to look at the hourly rate for that set amount of time. Onboarding of new graduate nurses may involve full-time commitment for at least a month to six weeks for that initial set up of the program. Now do keep in mind that they may hire someone internally for any subsequent onboarding programs, however there still may need to be an ongoing hourly rate for any future onboarding support needs that may need to be adjusted based on any advancements in the industry.
So if you determine a rate of say $60/hr for the initial month of an estimated 160 hours for a total of $9,600, that may seem like an equitable trade for your time. Hold that thought for a second and I’ll tell you why it’s not.
If this company is losing an average of $30,000/employee who leaves the organization then the value of your services is going to mean much more if you can cut those losses. This isn’t just about paying for your time. This is about paying for both your expertise and your content that they’ll use over and over again. Both of these need to be considered into this equation.
Increased employee retention = increased revenue
If in a few month’s time that company goes from losing $30,000/employee and is now starting to receive some early feedback that new graduates are feeling better trained and supported, then the institution should be able to rely on those employees wanting to be a member of that team longer term. Even at a 50 percent retention rate you’re saving the company an average of $15,000/employee when spreading those losses out over that first year. With an increase in employee retention comes an obvious increase in revenue in being able to fully staff units while decreasing dependency on agency nurses and having to shut down certain units of that hospital.
So, taking into consideration on just the employee retention savings alone, negotiating a percentage of those savings seems fair since your business had a big part in that savings. Not to mention that you’ve now created an onboarding program that they’re going to use for some time to come.
The bottom line is that you need to capture the benefits within the conversation so that the client can better realize the potential return.
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