Different consultants price their services differently. Here is how most of them base their pricing on the following common structures:
- 31.37% of consultants charge per project
- 23.38% of them bill hourly
- 17.30% go for value-based fees
- 15.40% prefer to be on monthly retainers
- 12.55% of consultants charge on a day-to-day basis
Most consulting companies do not use value-based pricing when pricing their services.
This is due to the same reasons why most marketing agencies don’t offer performance-based marketing services.
While value-based pricing can be challenging to implement, it can be a powerful approach when done correctly. Consulting companies that can effectively demonstrate the value they provide and establish trust with their clients are more likely to succeed with this pricing strategy.
However, the decision to use value-based pricing or stick to traditional models ultimately depends on the specific consulting firm’s capabilities, client base, and the nature of the services offered.
Listed below are some reasons consulting companies would prefer other pricing structures for their services.
- The initial risk falls with the vendor, and this is hard to scale (i.e. riskier while starting out)
- It may take a few months before work ramps up enough to compensate the labor
- Managing staff is harder with value-based pricing. There’s the incentive to work more and reach revenue goals sooner, however, managing a portfolio of clients makes this harder than assigning fixed resources or billing hours
- It’s hard to set pricing right. The right % fees worth charging and what accounts for the consultant’s work. This is a slippery slope since a business manages multiple people, departments, and initiatives and not everything is easily attributed to a consultant
- The business should follow the consultant’s recommendations. This may not happen (thus compensation isn’t paid) or it may take a few months due to other priorities – or results take months to show up
- Established clients feel more comfortable allocating budgets for consulting (and even including them in the annual planning) as compared to distributing percentages at scale
- Larger companies deal with shareholders and investors, and the value-based pricing may cause some disruptions in valuation
I’ve written a comprehensive guide on the different consulting fees and structures: How Much Does a Business Consultant Cost: Consulting Fees and Pricing Structure.