Business consulting has been around for as long as anyone can remember. And with that, several different pricing models have been developed. Some methods are more modern than others, and a business consultant’s pricing style can actually tell you quite a bit about them as a consultant. Although there are certainly more, here are five ways business consultants charge.
Hourly pricing is one of the most common pricing models across the entire professional services industry. A business consultant simply charges their client for their time on an hourly basis.
Even though hourly pricing is common, it doesn’t come without flaws. For one, it leaves a lot of uncertainty about how a business consultant’s time is best spent.
Does the business consultant actually use their time as efficiently and effectively as possible? Or, are they including the time that’s spent on other useless and unnecessary tasks just to rack up hours?
Another one of the five ways business consultants charge is via project-based pricing. In this model, a business consultant offers to complete a certain project for a predetermined fee.
The benefit with project-based pricing is that it provides more certainty about the way in which a business consultant gets paid. The business owner does not have to worry about the business consultant accumulating hours, like in hourly pricing, because a consulting fee has already been agreed to in advance.
However, most project-based pricing models are only contingent upon the business consultant’s implementations, not the results of their implementations. A business consultant using this method could essentially walk away with a hefty paycheck, regardless of any positive impact on their clients’ business.
A retainer is a larger sum of money paid to a business consultant upfront, which gets deducted each time the business owner uses the consultant’s services. Think of it as prepaying for business consulting services, usually on a monthly basis. The business consultant still charges for their services by the hour, but instead of the business owners’ money coming out of their bank account each time, it comes out of their prepaid balance.
Why would a business owner want to submit a retainer to a business consultant? To be honest, in the consulting industry, there aren’t many advantages. But, doing so guarantees that the consultant has allocated time to them. The real value is for the business consultant. Receiving a retainer allows them to count on getting paid because they already have their clients’ funds.
Obviously, there are some things to watch out for. For instance, many retainers are nonrefundable and nontransferable from one period to the next, potentially wasting or locking up a business owner’s precious cash investment. And when it’s all said and done, a retainer model still carries the weight of hourly pricing, which, in itself, might grant too much uncertainty to feel a complete sense of comfortability.
4. Flat Rate
A flat rate model allows a business consultant to put a fixed price on commonly needed services that require consistent time and effort, such as a business plan or financial review.
Similar to project-based, flat rate pricing eliminates some of the unknown. A business owner knows what they are getting in exchange for their payment, and the business consultant knows what’s expected of them in order to receive that payment.
Although this is one of the better and more-modern ways business consultants charge, it has its limits. For instance, it can be very difficult to put a price on tasks or projects that are more complex or fluid in nature. As a result, flat rate pricing is often used only for small, and therefore relatively inexpensive, jobs in business consulting.
With all of the ambiguity in the consulting industry, performance-based pricing is the only model based on a business consultant’s performance. A performance-based consultant performs their services at no upfront cost to the business owner, and their compensation is contingent upon the positive results that they help their clients achieve.
It goes without saying that performance-based is the most honest, fair, and mutually-beneficial pricing model in the consulting industry. Not only does it prevent a business owner from having to upfront any money, but most significantly, it also protects them from having to pay anything whatsoever, in the event that the business consultant fails to provide any positive results.
Unfortunately, this model is extremely rare because most business consultants need their clients’ money to stay afloat regardless of whether they make a positive impact. Others falsely believe that a performance-based model can’t fit into their scope of practice. Be on the lookout, though, because performance-based consulting is on the rise.
For performance-based business consulting, contact The Business Turnaround Group.