Setting fees is always a difficult proposition for service businesses and pricing an intangible is much harder than pricing a product. Your fee will, however, represent what you and your expertise are worth.
Get paid what you’re worth.  Setting fees that will represent what you are worth and make money for your business, is based on good judgment, knowing your client, having a good sense of self worth and also knowing what your options are.

Service Fee Options
Hourly fee: This option pays you for your time. This is not advisable as it is severely limiting to the growth of your business, and affects your perceived value with your clients. When you bill this way, each professional in the firm and every support person eventually reaches their limit of billable hours and then you need to add a new resource to the firm. As a client, I always wonder if I’m being billed as I chat on the phone to my accountant and he asks me about my holiday…tick, tick, tick…I always get the feeling that the focus is on billing more than service.

Contingency/success fee: This often comes to play when your service is helping a client to win a major piece of business, tender or project. If you charge a fee contingent upon success, you will only get paid when the client wins the business, although you are certainly backing yourself! However, there are many things that can affect the outcome over which you have no control. It is far better to charge for the service, and if the stakes are high, charge a success fee on top of that. It’s like a bonus for exceptional performance.

Project fee:   The best way to charge a set fee for a project is in staggered tranches. For example, you will always be paid faster if you don’t start the project until you receive the commencement fee. If the project is to take five months, for example, and you leave the bulk of the amount to be invoiced at completion, you may not be paid for eight months. A better option is 50 percent up front, 30 percent at completion of a (pre-agreed) major milestone and the remainder on completion of the project. Alternatively, you may decide to invoice 50 percent up front and 50 percent on completion if it is a relatively short project. Never leave the bulk of the fees to be invoiced at the end of the project.

Retainer: A retainer is the ultimate goal of all people in the service profession.  There are many forms for different types of services: monthly fee retainer for the provision of ongoing consulting/advisory services, monthly support fee (for software), monthly licence fee, monthly fee to be available on request for support/training, and so on. You may decide to charge a retainer on a monthly or quarterly basis in advance.  Do not nter into a retainer arrangement where you are paid after the service has been delivered. You could end up delivering three months of service and wondering when you will be paid. If your clients really need your help, they will accept your terms – terms that are agreeable to you!

To be continued…   (Reprint from DynamicBusiness.com.au)