Consulting Fee Structures: 5 Models Ranked From Worst to Best

Are you pricing your consulting projects in a way that provides the most value for both you and your client?
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TRANSCRIPT:
Let’s break down the different consulting fee structures that are available to you as a consultant, and then contrast and compare the positives and negatives of each.
Hourly Billing for Consultants
A very common one is hourly billing. A lot of consultants use hourly fees, and that’s really where a lot of people get started. That’s the status quo for people now.
What’s good about hourly fees?
They’re easy. It’s pretty easy to figure out how much you want to make and then what you should be charging on an hourly basis. Based on how many days you’re going to be working - so on and so forth. This helps you come with an hourly fee that makes sense for you.
However, there are many problems with hourly billing. Number one, there’s not a good way to work truly well with a client on an hourly fee. Because your interests aren’t aligned with the client’s situation, they’re not going to want to bring you in and share new ideas with you as much or ask you to do something that might be beneficial for the project because they know that every time they ask you, you’re going to be charging them more.
The clock is always ticking for you as a consultant. You always have to be thinking about tracking your time. You might find yourself actually wanting to slow the project down a little bit or take your time a bit more because the longer that it takes, the more that you make. There’s not a good alignment between you and the client.
The other big problem is that there’s a ceiling. You can only make so. You can’t create more time of the day and the only way to make more is to work more, create more hours, more money - and that’s creating another job for yourself. With hourly billing, I’m not creating much freedom and flexibility - which is what most consultants want.
Consulting Daily Rates
The next is a daily rate. A lot of consultants and a lot of consulting firms use a daily rate. The positives, again are that it’s easy because a daily rate is just your hourly rate times the number of hours per day. Some consultants might use a daily rate of a thousand dollars, $1,500, $2,000, $3,000, or whatever the number is. As you gain more experience and expertise, you can deliver in more volume and more results.
The problem though with a daily rate is the same as the problem with hourly. You could only earn more by working more days, so you’re working more hours, you’re working more days, but again, more means more hours. There’s a real ceiling for growth.
The only way around this is if you start working and bringing in other consultants, and then you’re charging at a certain daily rate and capturing the margin between what you’re paying them and what the client is paying you. Doing that requires obviously more resources. You have to start managing other people, and if you don’t want to do that, then the daily rate is definitely not a good one.
A lot of consultants will use a daily rate because that’s what buyers of consulting services know. Many are used to paying based on a daily rate or an hourly rate, but just because many are used to it doesn’t mean that it’s the right approach for you to take. In fact, I would certainly suggest against it.
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[@PatrickLavergne]

I'm running a multi six-figure consulting business and I have to say this is great advice for anyone starting out in Consulting. Well done!

[@ConsultingSuccessTV]

Thanks Patrick. Appreciate the kind words and congratulations on your success!

[@IdiaOgala]

Lol is this a bot?

[@Luigi-mh1zh]

This is a bot, I saw the same exact comment on another consulting video

[@sweetcheese4331]

I just want to show appreciation. I was sent here to listen to this video this morning, Aug. 8th 2020. I am going through a transition period and i'm extremely grateful to have received your gifts, thank you.

[@ConsultingSuccessTV]

You're very welcome Nishia. We have many more resources available at www.consultingsuccess.com

[@SeanTheDon17]

The ROI Based approach is very insightful and I look forward to implementing this into my structure.

[@ConsultingSuccessTV]

Glad it helps and let us know how it goes for you. Here to help.

[@Shifisu]

Great content! Thanks so much for uploading!

[@ConsultingSuccessTV]

Appreciate the comment Barry and glad you are enjoying the videos.

[@ak.7274]

Great presentation, I completely concur with your breakdown..ROI is definitely the way to go, especially if you ARE good at what you do..thanks Michael

[@ConsultingSuccessTV]

Appreciate the comment Deezy! Glad that you enjoyed the video.

[@mjjaney]

This was awesome! Thanks for the info!

[@ConsultingSuccessTV]

Glad you enjoyed it!

[@ruthkuri7196]

Am starting my own Operational Risk Management Consulting Business. This is helpful m thank you ☺️

[@raychelleinjete4024]

Very useful information. Will apply it.

[@ConsultingSuccessTV]

Thanks Raychelle!

[@hbergman1237]

LOVE THIS 👍👍👍

[@malekmoubasher9902]

its very hard to sell ROI based pricing to clients, except if you can promise with certain outputs live savings or profits. Also, clients who are experienced in procuring consulting services will ask you to cap your hourly or daily rates based on a time estimate, and they will probably tie up project based pricing to milestones or deliverables.

[@Urbanetectonics]

Still applicable. Love that.

[@ConsultingSuccessTV]

Glad you enjoyed the video : )

[@reellife8707]

Thanks for sharing. This was a great informative video. For me it depends on the client and their needs. * HOURLY is good for a person that has a few questions they need answered right away. I would do a hour long phone call only If they want more I would suggest hiring me as a consultant per project with a set fee * ROI is more for products/events etc you know is going to do well if they follow abc steps * RETAINERS are good for more established clients. Based on my expertise, I probably would not use this but if I was a fashion stylist for example then this would make more sense to me

[@ConsultingSuccessTV]

Our pleasure and thanks for your thoughtful comment.

[@profkg6613]

Project based is a high risk approach, where a lot depends on the client, the hidden costs and change management. It works when you are able to real come up with a tight project requirements documents,

[@ConsultingSuccessTV]

That's right Krishna. It's important to know the details of a project and everything is involved and then define a very clear scope in order to make project based fees profitable.

[@Patrizsche]

What do you mean? Could you give more details or an example? I would consider project-based fees myself so I'd love to hear more

[@themaverick9240]

Simple, concise, insightful & inspiring.

[@jacobkelben]

that's insightful

[@Practiceofthepractice]

You explained this really well!

[@ConsultingSuccessTV]

Glad you found the video and explanation helpful.

[@kumarmrigendra9501]

Good content

[@edendigitalmarketing]

Mike! Great stuff! Your video should be in more places, so it can reach more people. Let me know if I can help!

[@ConsultingSuccessTV]

Thank you, we appreciate it!

[@vidya1611]

Hi there, thanks for the info! How do we determine the value add & pricing for the ROI model?

[@mateuszuliani7168]

About ROI: I've heard it might become a major problem if client doesn't agree the result came from the project. I think BCG was sued by Gamestop in a discussion about ROI... Unless the return is very measurable and trackable, I wouldn't feel comfortable going with that model...

[@malekmoubasher9902]

exactly

[@Maliilse75]

Thanks for giving us an overview of these fee structures. I have a Q. I have a new client for a project that I will have to deliver in a few weeks only. I have relevant experience to achieve this. They approached me first. Now if I charge one fixed fee for the project (it's a publication that will be presented at an international event), I 'm afraid that they will push me harder to make sure that they have their money's worth. Wouldn't it make more sense to avoid this by charging hourly? Thanks!

[@virajpatil5601]

Great I am just starting online consulting in India where major legal consultants cater to classes. Now that internet penetration is increasing at a rapid pace and people especially the masses are exploited by the legal system. Right advice at reasonable cost is in real demand. If you can give useful insights on my requirement I would be highly obliged. This channel I guess might be really helpful for me.

[@ConsultingSuccessTV]

Happy to read this message and do check out our other videos. Appreciate you being part of the Consulting Success community.

[@virajpatil5601]

@@ConsultingSuccessTV Sure I will and also ask my partners to get hold of this valuable stuff too. Thanks.

[@ConsultingSuccessTV]

@@virajpatil5601 that's great!

[@eugeneb3682]

Hi thank you I'm a start up here. What would building services design engineering fit under? I suggest ROI what are your thoughts?

[@twoonthewall]

Business consulting in one KZbin video. 1 minute of simple information stretched out to over 10 minutes😉

[@Usertrappedindatabase]

How could one get an accurate measure of monetary value provided to gauge a correct ROI % fee? For instance if 10 hours helps company “ACME”save $100,000 a year in expenses, what can the consultant charge? How does one approach the issue of a company undervaluing the effect of said consulting? Wouldn’t a company want to undermine how much a consultant actually helped or netted for them because they have a monetary interest to do so?!

[@antoineford1185]

Hey how's it going , I have a quick question I'll say. So similar to a lawyer's retainers fee. You pay it and they do what they do until the job is done. With a consulting fee, how many times does the client pay that. If I get paid X, how long does that X last the client. do they pay a monthly fee, bi-monthly, what. Thanks in advance

[@ConsultingSuccessTV]

Hi Antoine, great question. There isn't only one way to set a fee. When using a consulting retainer the most common billing cycle is monthly. There are two types of retainers that consultants can use, watch this video for more details on this: kzbin.info/www/bejne/m5zYZYapj8uBnpY

[@StephanRichard]

How can you use the ROI model if your clients are non-profits? Of course they would extract value similar to a private business, but just wondering if this model applies the same.

[@ConsultingSuccessTV]

Find the value that the buyer inside of the non-profit cares about. We've worked with many consultants in the non-profit space you can see examples here: www.consultingsuccess.com/consulting-case-studies

[@scottatbuzzmaven]

For ROI fee structure, a question: It feels like our income is now at the mercy of the client's sales team performance? For example, if we deliver leads to the client all day but the ROI is based on closed deals, how are we to work around incompetent sales teams (the sales team is off limits to us.)

[@ConsultingSuccessTV]

Great question Scott. Structure the ROI component around the leads, not deals closed. Figure out what the value of each lead is, what is considered a qualified lead and then connect your payment on that performance. Never structure a performance or value based approach on something you don't/can't control.

[@reellife8707]

@@ConsultingSuccessTV Good point.

[@justin_bauman]

@@ConsultingSuccessTV how do you value a lead if they haven't bought anything yet?

[@danielsoutherland]

@@justin_bauman find out what the companies average ticket is. If the AT is 3k, multiple that by leads in X timeframe.

[@jimmyapodaca7828]

This video is super helpful. Thank you @michael_zipursky

[@ConsultingSuccessTV]

Glad to hear that Jimmy!

[@PalombiniCoaching]

As an HR consultant for leadership training I find it very hard to find objective results to base the ROI in. Does it have to be connected to financial return or should I target on how much valeu the client sees in having their leaders ready to deal with the challenges?

[@ConsultingSuccessTV]

There is tangible and intangible value. Even with intangibles you can identify tangible value when you go deep enough and ask meaningful questions. We have a lot of resources on this topic: www.consultingsuccess.com/pricing-strategies-for-consultants and www.consultingsuccess.com/how-to-establish-value-in-your-consulting-fees

[@kumarmrigendra9501]

Of course it has to be linked with business results after the training.

[@derekswaggxer5307]

It should be considered as big Leadership institute then automatically u will come to know how many HR institutes or MBA HR colleges provide in terms of value and how much they charge. And how much value u provide as comparatively to others and then u can easily find the price

[@Nachdenker99]

Hey, what if ask a Client what this 'Improvement' would be Worth to him and he replies, "It would be priceless OR It would reduce my stress". How shall I put a Price-tag on Intangables? Should keep asking, to get some numbers or should just say; "ok, it's this." ?

[@ConsultingSuccessTV]

Great question Christian. Take a look at this article where Michael talks about how to deal with the intangible side of value and work it into your pricing. www.consultingsuccess.com/how-to-increase-your-consulting-fees-by-communicating-greater-value

[@Nachdenker99]

Thanks for getting back. I'll read through.

[@ConsultingSuccessTV]

@@Nachdenker99 you're welcome, happy to help.

[@jaredthomas2943]

How do you use the ROI method with a consulting service that does not translate directly to profit, like doing competitor analyses for example?

[@ConsultingSuccessTV]

Great question Jared.There is almost always a way to identify value and ROI. It's simply about asking more questions and going deeper. For example, with Competitor Analysis. What is the reason for them to do the analysis? What will they learn from it? How will that help them to grow? What are their goals for growth? Do they want to grow sales, capture more market share, by how much? The Analysis may be the starting point for them to develop a strategy that leads to growth and that growth has a value. Find out what that is and you're well on your way to understanding the ROI. Does that help?

[@romleibner8450]

Emes

[@zes3813]

wr, no such thing as knowx or howx or not, say, can sayx any nmw and any s perfect

[@FairuzRafique]

what's the music you use for the intro/outro?

[@MuhammadAli-ux1qy]

Bro how can i become a conceltant

[@arinhirst5190]

"Your interests aren't really aligned with an hourly fee" lol wait till you hear about literally every job

[@inspirable3485]

Dear sir, am Lead auditor certified on 27001 & 22301. I have overall 20 plus years experience in this Information security audit. kindly suggest me, Is there any online platform to get clients for my consultancy business.