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.
Listed below are some of the reasons why 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.