Consulting fees and pricing can be structured in several ways. But like in most businesses offering services, the number one challenge is pricing their offers.
Pricing products is easier than pricing services because, with products, you can easily trace the production costs. However, with services, determining the value of what constitutes your services — time, staff, expertise — is highly subjective.
This is why different consultants employ different techniques to ensure they price their services appropriately. In the process, consultants consider every factor necessary to ensure they do not overcharge or undercharge. Otherwise, the risk of losing clients over pricing remains a constant possibility.
Different Consulting Fees and Pricing Structures
According to a study conducted by Consulting Success, the following statistics show how most consultants structure the pricing for their consulting services.
- 31.37% of consultants use a project-based rate to price their projects.
- 23.38% of them use hourly billing
- 17.30% use value-based fees
- 15.40% use monthly retainers
- 12.55% of consultants charge daily
Two factors come into play when consultants determine the value of their advice or service and set their fee structures and these are the following:
- What is the worth of the advice for the consultant?
- What are clients willing to pay for the advice?
Some of the highest charging consulting firms include the following:
Most of these consulting firms consider their fee structure as a vital competitive asset that they rarely reveal to non-clients which makes it difficult to benchmark rates of other consultants.
The largest group of consultants that comprise the market are the self-employed or independent ones and they usually charge depending on what they feel they are worth especially since there is usually no ceiling to their rates, particularly for those in the private sector.
1. Hourly or Daily Rate
Charging by the hour is a time-based arrangement. You only charge by the number of hours worked.
How do consultants determine their hourly rate?
Often, when consultants charge by the hour, they base their pay on how much they were getting from the company they used to work for or still work for on an hourly basis, with a little markup.
According to SBA, the hourly rate is taken from dividing the former salary by 52 work weeks and then dividing that number by 40 or the number of regular work hours in a week.
Next, consultants must check with their competitors to ensure that the markup does not go beyond 25-30 percent.
New consultants undercharge to build a portfolio so you would expect to get great deals from working with one. Although the fees could vary primarily depending on the location among other factors.
The daily rate is basically derived from a consultant’s hourly rate multiplied by the number of hours per day that a consultant is expected to be available for work.
Most consultants prefer to charge this way since clients are usually used to hiring services on a daily basis to avoid limitations on the scope of work which usually happens if you charge by the hour.
Clients are often more comfortable with an hourly or daily rate because they could assess every now and then the need for consulting services without the complications of most long-term agreements.
High-level consultants usually charge per project due to the demands of the job that includes strategic planning and management advisory.
The rate is determined by estimating how much time will be spent on a project. Most projects require several stages such as the following:
Clients may not have active participation in all of those stages but they are certainly part of the consultant’s job thus necessary in estimating project costs. A reliable consultant will assure you that there will be no hidden charges from start to finish.
3. Monthly Retainer
There are cases wherein a consultant’s services are needed on an ongoing basis. In such cases, a retainer agreement is more appropriate.
Some examples of consultants who render services on a recurring basis are the legal consultants, IT consultants, and even financial consultants. You pay a retainer fee in advance to ensure that your consultant will be available anytime you need advisory or assistance.
Hiring consultants on a monthly retainer gives you a guarantee that you have help whenever you need it, especially if you are working with high-value consulting firms.
Retainer fees are normally calculated the same way project rates are, but putting a consultant on a monthly retainer may get you a discounted rate. Monthly retainers guarantee a consultant a regular stream of income without having to spend on additional sales and marketing costs for securing a project with you.
You can take advantage of this kind of deal once you have tested a consultant after a month or two, or once you have already covered the entire scope of the project. That said, some consultants are only available for retainer arrangements – given the fact there is the initial investment in exploring the business and its needs, a long-term commitment may be necessary.
How Much Should I Pay a Business Consultant?
As a rule of thumb, some consultants simply take the hourly wage (plus benefits) that they would earn when working on salary for someone else and double or in most cases triple that amount. So for example, if you want to hire a business strategist that makes $100 per hour for longer-term projects, he would charge you around $200 – $300 per hour for his services.
Of course, there are different ways to price the arrangement. One-off calls are often more expensive since there’s back-and-forth and the total amount isn’t too exciting for most consultants. So hourly calls at $500 or so aren’t rare either, even for less skilled consultants.
The reason most of them charge within the $150 – $300 hourly rage is the prospect of expanding a call into a long-term contract, thus the discounted rate.
The best option you have is to pay based on the value that the consultant brings your business, not just the time he spares or the materials he gives you.
Would you pay a flat fee of $50,000 per month? Imagine that this consultant helps you bring a lot more new sales leads and nurtures a profit increase of $500,000. Then paying that price is absolutely a win-win scenario. But if at the same time you are paying $3,000 per month for 10 hours consultations and brainstorming sessions with no beneficial outcome, then this is not the value you are looking for.
Finding the right fit for your business might be extremely hard as navigating through the consulting landscape is very challenging when you don’t have a reliable reference or enough budget for a top industry guru. Check out my lengthy guide on how to find and evaluate a consultant that would help you scale your business.
Factors in Determining Consulting Fees and Pricing Structures
I have discussed pricing with 20+ other business consultants in my network and what I’ve gathered is an estimation based on the following factors:
- Market averages — how much do other consultants charge on average?
- Expected duration of a consulting session — one-off calls vs. monthly packages or longer sessions lasting for several days at a time.
- Projected business value — what is the consultant’s expected ROI based on the target audience of the consultant? SMB consultants often charge less because the impact is higher as a percentage but lower as a total amount.
- Business package perks — are there other opportunities you can leverage as part of your deal with a consultant?
- Own self-worth — what would the consultant’s efforts result in had he spent the same time on other business/other activities?
- Industry expertise — how well does a consultant understand a specific industry/niche where you are struggling with?
Let’s discuss further each of these factors in the following sections.
A. Market Rates
The market rate refers to the average price of the market or what the customers usually pay for certain products or services. While this does not serve as a mandatory ceiling on your prices, determining the market rate is crucial in structuring consulting fees.
Across my network, the average consulting fee is between $150 and $1,000 per hour.
The lower amounts usually suggest longer iterations, i.e. booking at least several days for a coaching plan, a training course, or a monthly consulting retainer.
Or working with small businesses in a consulting and implementation capacity, i.e. marketing campaigns, helping out with recruitment, general high-end strategy.
For example, I charge $350/hr for one-off consulting sessions and $300/hr for monthly plans or larger packages.
B. Consulting Engagement
As indicated above, the type of relationship would dictate the rate since the longer the plan, the larger the final amount, less time spent on discovery or presales, and better financial planning in the long run.
Some of my peers sell one-time consulting calls and then upsell their other services through their agencies or partners.
Others have a minimum cap of “one day” or some other arbitrary amount of work they feel as a minimum requirement to get a job done. This may include other factors like having to commute or conducting video training for in-house departments.
According to The B2B Marketer, there are usually two types of consulting engagement and these are the Project and Service.
The project type of consulting engagement is usually non-recurring, while the service type is recurring.
C. Projected ROI
The services the consultants render are tied to some expectations in terms of return on investment.
If a consultant charges X/hr for implementation work, it’s getting harder to keep a premium rate which is comparable to the work of a senior developer/marketer/recruiter.
Professional business consultants often focus on strategy and direction, navigating the work of larger departments, analyzing metrics and the existing roadmap, identifying monetization or automation opportunities, supporting the retention rates of the business.
Working “at scale” and impacting a larger number of people or directly supporting the revenue goals of a business tends to generate a lot more, which justifies a high consulting rate too.
D. Business Plan Benefits
Although this is not set in stone, high-priced consultants often provide external opportunities and benefits that low-cost consultants charge for extra (or simply don’t offer).
For instance, I had a couple of calls with a VC charging $600/hr or so. He introduced me to a large startup community with valuable peers I still network with occasionally.
Another consultant in Australia charging $500/hr gave me access to his coaching community and his blueprints. We’re still using some of them for our lead generation initiatives.
Sometimes, it could be an invite to a mastermind, a business event they host (or a conference), a private Slack community, a free promotion at events, and a lot of other factors included in a larger package.
Low-pricing consultants often lack these kinds of added benefits so clients will end up looking for their own community or investing more in networking through their own initiatives that have not been proven to work yet.
If you think a consultant has something to offer other than his expert counsel that is of great value, consider this in deciding on which consultant to work with.
E. Own Self-Worth
This is especially valid for consultants who don’t offer full-time consulting (at least charged by the hour) but run agencies, a course program, invest in other businesses, etc.
So unless they expect to convert consulting clients to leads, spending the time on coaching takes a while: scheduling calls, preparing for meetings, generating reports, managing emails, etc. This aggregated time can be invested in their businesses instead, which would generate additional ROI or direct revenue.
This revenue comparison also aligns with the hourly rate they decide on.
If an agency business generates $5M in revenue, this is about $420K/mo or $20K per business day. Spending too much time on side consulting activities can jeopardize long-term clients or decrease the loyalty in leadership from key team players. A consultant commands a reasonable rate to justify the time spent on consulting.
We at DevriX provide a lot of consulting and support, which means we need overlap among team members collaborating together, meetings within the team (Slack or Hangouts), deployments for clients, launching new versions, maintenance, and uptime monitoring and the like.
Since we serve clients across 17 different time zones in a team of 50+ people, that’s important.
We were a lot more flexible with a team of 10 people, but working with enterprise-grade projects and web platforms serving hundreds of millions of monthly views requires commitment and availability, and a lot of teamwork. We consider these factors since we don’t want to compromise our company in the long run.
F. Industry Expertise
Niche industry expertise can be truly invaluable when choosing a business consultant to partner up with.
For instance, while I work with businesses on marketing, tech, recruitment, management, and general business strategy, I get frequent inquiries from SaaS businesses or enterprises eager to enter the WordPress space.
I’ve been running a team of 50+ building high-scale WordPress projects for a decade and I’m closely familiar with the market, its leadership, top companies and vendors, plugin and theme developers, the evolution of the platform, how businesses can succeed, media outlets open to PR opportunities and a lot more.
My in-depth expertise in this field combined with my speaking background at WordCamps can be a lot more valuable for businesses who don’t understand the space. Several hours of my time would tap into over a decade of my work almost full-time in this environment, and this can literally save months in R&D for a business navigating the space.
Is Negotiating Fees Reasonable?
I do believe in value-based pricing. And revealing the value of a project (or a fix) upfront works significantly well for several reasons:
- It lets you gauge quickly whether it’s a hit or miss.
- It indicates how important that project is in general. Low-priority projects may cause delays and abandonment; top priorities may be too stressful (yet rewarding).
- You already have a rough ballpark in your head – if it’s the same (or lower), you’re in a good place.
- It prevents the tedious process of discussing requirements in-depth in a discovery phase. Or at least this is taken as a given (if the budget is right).
That said, consultants are valued professionals – and their terms are usually clear.
Underpricing a consulting fee for a one-off project (or a couple of calls) sends the wrong message and may affect the quality of service even if you receive a discounted fee.
With long-term projects, however, there may be some room for negotiation.
Some of my clients allocate annual budgets and plan their consulting sessions accordingly. Arranging an annual contract with a fixed number of hours per month is a good justification to introduce a discount for the work. Moreover, in case of larger contracts (such as training courses or the like), buying a bulk of hours at a lower rate may be an option as well.
The Bottom Line
The consulting industry is growing rapidly and there are loads of small business consultants and small niche firms that work fast and can work directly with growing businesses.
Some businesses hit a plateau at some point and need external advice to keep scaling.
With hundreds of millions of businesses out there, commonalities are discovered in different segments – service vs. product businesses, small vs. large corporations, on-site vs. distributed businesses, and various industries. What works for a 20-person tech shop won’t for Target or Walmart.
Smaller businesses still try to uncover the most profitable and repeatable channels that generate revenue – think of business development and lead generation.
Large corporations tend to hire niche consultants for areas of expertise outside their own comfort zone. Think of integrating a specific technology or implementing an innovative marketing channel. Digital transformation is a big aspect for many who have primarily positioned themselves locally, including print and billboards as marketing instruments.
Moreover, the best athletes in the world and many Fortune 500’s CEOs work with coaches and mentors.
Make sure you know the problems your business faces before hiring a consultant. Have a budget, and realize that a great advisor can scale your business and change your life but a bad one can simply lose your time and money.