By their nature, most performance-based consultants tend to get paid based only on the results of their services. Not every business, however, requires the same degree of a consultant’s attention or time. As a result, a performance-based consultant’s time spent with a business varies from one business to the next, and their compensation terms also differ. So, here are four ways performance-based consultants get paid.
4 Ways Performance-Based Consultants Get Paid
The first thing to note is that performance-based consultants get paid based off of one of two measurements of success – the implementation of their services or their results.
Each offers different pricing models, so it is important to determine this prior to any consulting relationship.
The project-based pricing model refers to a one-time payment agreed to in advance by both the performance-based consultant and the business owner. The performance-based consultant receives this one-time payment only after they help the business achieve all of the goals and objectives that were outlined in the consulting agreement.
This is the simplest payment structure because it mimics the world’s most popular style of a contractual agreement. Think of the lawn mowing or snow plowing company you hired. The service provider (performance-based consultant) must uphold their end of the agreement, in order to receive compensation. Otherwise, there is a breach of contract, and the customer (business owner) is not obligated to pay anything.
Another one of the four ways performance-based consultants get paid is via tiered payments. This is very similar to project-based pricing. However, instead of receiving a one-time payment, a performance-based consultant receives a series of agreed-upon payments that are associated with the completion of certain related tasks and milestones toward a common goal.
Here’s an example of what a tiered payment structure might look like for an operations management consultant:
- 1st Payment: Cut cost of raw materials by 5%
- 2nd Payment: Improve production capacity by 10%
- 3rd Payment: Increase overall gross margin by 3.5%
In this scenario, the consultant’s compensation is contingent upon their accomplishing these operational objectives.
Although the first two pricing models work for either measurement of success, this method only applies to performance-based consultants who receive compensation based on their results. Whether directly or indirectly, they simply receive a percentage of the results that they contribute to a business.
A business turnaround consultant, for instance, may receive commission on the additional net profit that it helps its clients achieve. It’s important to note that the emergence of a business’s results isn’t as singular and sudden as the completion of a consultant’s services. Therefore, a performance-based consultant that gets paid in this fashion often receives a share of a business’s results for several months or years.
4. Flat Rate Plus Any of the Above
This is the last of the four ways performance-based consultants get paid. Sometimes, a performance-based consultant may offer additional services that are very commonly needed and easy to put a number on. In these cases, their compensation structure may include receiving a flat rate for the common task plus a varying selection of the above three pricing models.
For example, a performance-based consultant may first require a flat rate for a standard financial review, and then the rest of their compensation may be based on the implementation or results of their services.
There’s no right or wrong way for a performance-based consultant to get paid. What’s important, however, is that they figure out the best pricing structure for both themselves and their clients.
For performance-based business consulting, contact The Business Turnaround Group.