As a professional services company, rates are important. After all, they’re what make the difference between onboarding new clients and scaring them away—not to mention the difference between solid profit margins and slipping into the red.
But working out rates can be complicated, especially when projects involve multiple services and employees. To make things significantly more streamlined, you’ll need to create rate cards.
Rate cards clearly lay out your company’s rates and terms so clients know exactly what they’re getting, and sales reps know exactly what to charge.
This avoids any confusion that comes with complex projects, helping customers (and you) build accurate budgets and set business strategy.
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What Is a Rate Card?
A rate card or rate sheet is a table that sets out billing rates for each service provided by your business. This document breaks your offerings down by project and pricing type. Are you charging hourly rates, or flat fees? It also clearly spells out terms and conditions, and highlights any discounts or package deals you offer.
The goal of creating a rate card is to establish a centralized location clients can quickly reference to see what your company offers, how much it costs, and whether or not enlisting your services makes sense for their business.
The transparency provided by rate cards boosts customer trust and ensures clear expectations from the get-go, helping prevent any disagreements or confusion over the course of the contract.
The types of companies that use rate cards run the gamut from graphic design and law firms to IT consultants and Instagram influencers—basically, any kind of professional service company that depends on delivering projects for fees relies on rate cards.
As simple as they are in theory, creating effective rate cards can take quite a bit of work.
Creating an Effective Rate Card
Creating an effective rate card requires you to go “back to the drawing board,” analyzing the most fundamental aspects of your business like pricing structure and how you’re connecting with your ICP.
Setting Fair Yet Competitive Rates
Rate cards are an onboarding tool.
When potential clients look at your rate card, you want them to be able to easily locate the exact service they need and say, “Ah, that fits my budget. Let’s give this a try.
But there’s a balance between covering your own costs, and making your service price attractive.
First, consider your own costs. Start with the fully-loaded labor costs of all employees involved in delivering the service. Then get a clear picture of any fixed and variable overhead costs like office space or travel expenses.
Add your labor costs and overhead costs together. This will be your project pricing starting point.
What markup is acceptable depends on your specific industry, so look at other contractors and see what their price offerings are.
As an added note, accounting for the cost of employees in the professional services industry tends to be a bit more complicated. Take digital marketing, where different employees with different salaries are often involved in a project. Say you have both a junior and a senior designer working on a client’s website. Here, you’d use a blended rate. Since the junior designer charges $125 an hour, and the senior designer costs $175 an hour, you split the difference to get a combined hourly rate of $150 an hour.
Financial Considerations
By now, you’re probably getting the idea that rate cards are much more than just a “price menu” for clients and salespeople to refer to.
That’s true — they’re actually the key to keeping your contracting agency’s operating margins out of the red.
That’s because rate cards give finance an easy reference point for assessing project profitability and building project rates.
One type of project may require higher rates because it involves different types of staff, for example, or different pricing models.
With consulting, it may make more sense to charge hourly rates. Or, if you’re offering 4 social media blog posts a month, you may use a monthly retainer.
Work this all out before designing new rate cards, because you should design different rate cards for different types of projects.
Track profitability metrics like gross margin and net margin to help you determine the rates you need to set. Of course, you can only set rates that are acceptable to clients.
Creating Your Rate Card
Rate cards are often the first thing potential clients see when seriously considering your service.
As such, you’ll want to make your rate card easy to navigate — scannable. Use bullet points and headers along with clearly outlined grids, so clients can quickly find the service they’re looking for.
Some details every rate card should include are:
- Company name
- Contact information
- Rate for each service line, including whether it’s hourly or lump sum
- Additional costs (for example, travel costs)
- Applicable discounts (for example, for non-profits)
Tips for Managing Your Rate Card As Your Company Grows
There are two things you can take for granted when it comes to agency pricing: first, as your company scales, costs will expand. Second, your rates will have to increase in order to keep up.
As we’ve seen, you build rates partially off of labor costs. A good strategy is to think about what roles you’ll want in the company 6 months or a year down the line, then price those into your current rates. This gives you room to actually make those hires when you need to make them.
Secondly, think about your ideal profit margin, and back into rates to hit your profit targets while ensuring your prices are competitive.
The best way to project long-term plans such as these is by building financial forecasts. Rate cards can essentially be built in to your financial models.
Professional Services P&L Model Template
By forecasting headcount costs (your largest expense), you understand at what pace you need to raise rates in order to remain solvent.
It all begins with rate cards, the foundation of planning out how your business will grow over time. Yes, they’re much more important than just a “price menu.” As simple as rate cards may seem, don’t neglect them when planning out your professional service business!
Frequently asked questions
How often should rate cards be updated?
At the very least, you should update your rate cards annually. That’s because your major costs (e.g., labor cost) change annually. If your costs shift more frequently, assess your rate cards more frequently, too.
Can rate cards vary between clients?
How do rate cards impact client negotiations?
Own the of your business.
