Performance-based consulting is arguably the most fair, honest, and effective pricing model in the consulting industry. Yet, it’s so rarely used.
In fact, only about 12% of consulting projects are performance-based.
While there are numerous advantages, what makes it particularly appealing is its low risk and high reward qualities for both the business owner and the client.
Unlike traditional consulting, performance-based consulting inherently establishes a win-win relationship right from the beginning of any consulting project.
So, What Exactly Is Performance-Based Consulting?
Performance-based consulting is the act of basing a consultant’s compensation off of their performance.
This can be done in a variety of ways depending on a consultant’s scope of work.
For example, a marketing consultant can base their compensation off of the revenue that’s generated from the implementation of their marketing strategies. Or, a business turnaround consultant can base their compensation off of the additional net profit that it helps its clients achieve.
In addition, not all of a consultant’s compensation has to be based off of their performance in order for a consultant or project to be considered performance-based. It’s actually very common for a consultant to receive a fixed fee and base only part of their compensation off of their performance.
What’s the Purpose?
Performance-based consulting is meant to protect one party from gaining while the other loses. Its purpose is to create and foster a mutually-beneficial consulting relationship from start to finish.
Because the consultant’s compensation is, in part or whole, based off of their performance, there is far less risk for the business owner. The business owner doesn’t have to worry about wasting money on a consultant that can’t provide the intended results.
In the consulting industry, it has unfortunately become the norm for business owners to upfront a substantial consulting fee without any guarantee of results. Performance-based consulting prevents that from occurring.
How Is It Better?
There are many reasons why a business owner would choose performance-based consulting over traditional consulting – no (or small) upfront fee, protection from lack of results, mutually-beneficial relationship, etc.
But, how is it better for the consultant?
Well, it must first be noted that performance-based consulting is only advantageous for a consultant if he or she can provide positive results. If a consultant is poor at their job, or if they take on clients that don’t match their skillset, this pricing method is obviously not for them.
In fact, that’s one of the primary safeguards for the business owner. And unfortunately, this is actually why some consultants prefer to demand an upfront fee instead.
On the other hand, if a consultant is able to perform at a high level and carefully select their clients, performance-based consulting can be a game-changer. So much so that it often results in far greater compensation than if the consultant had charged by the hour or project like in traditional consulting.
Not only can performance-based consulting provide the consultant with a substantial return on their time investment, but it will do so while proportionally bettering their clients’ business. Plus, a consultant that is willing to base all or some of their compensation off of their performance is a good indicator that they are confident in their work as it applies to that specific business.
For performance-based business consulting, contact The Business Turnaround Group.