How to choose the best Consulting Fee Structure, so you can maximize your income.

There are many ways to charge your business consulting clients, in this article we look at these ranked from worst to best.

I’m David Thexton, the founder of ConsultX a Global Business Consulting business that trains people to become highly effective business consultants, in order to live the lifestyle that they want. One of my missions is to provide quality education and information about business consulting for those who want to become business consultants.

Business Consulting is a very important service to Business Owners because although they are good at their profession or service they are generally quite weak and lacking in how to run a successful business.

Below we examine the worst to best-consulting fee structures.

A fixed Consulting fee

A fixed fee is the worst type of fee strategy you can have with your Client/s. This is usually used by Consultants who deal in the big Corporate sector because it seems they have always done it that way. It can become problematic when the time required to do the consulting work exceeds the price quoted, this can happen when the Consultant does not have enough information on the scope of the assignment. The major problem for the Client is when the consulting job has been done there is no guarantee that the Client will be able to implement the changes required or the plan. Quite often this type of fee structure ends up being a lose/lose/lose.

Consulting based on an Hourly rate

An hourly rate has many problems the worst being that the Clients seem to be unwilling to pay the rate proposed by the Consultant, the fee structure is too exposed to the Client will be always watching what the Consultant does. The Client is used to having Employees therefore he thinks in terms of what he pays them, he does not understand that his Consultant has had many years of experience at fixing businesses and the power of just 1 idea could make him millions. Remember you are not an employee so your fee structure should more accurately reflect your contribution to the business. The outcome of this structure is a Lose/Win/Win.

Daily rate

In effect, this is similar to the hourly rate method, however instead of charging in hourly units, you charge in terms of days. The minor advantage here is the simplicity of charging an entire day and not having to clock-watch.

Percentage of profit

 The percentage of profit fee system has major issues in that the Consultants income is based on profits of the business and this could be erratic due to external influences like competition, economy, previous bad decisions made by the owner, etc. The outcome of this structure is a Lose/Lose/ Win

Percentage of growth

 Similar to the percentage of profit above, a fee system based purely on growth is not good for Consultants due to circumstances out of the Consultant’s control. The outcome of this structure is a Lose/Lose/Lose.

Percentage of expense savings

There are people around the world who specialize in saving money from a companies expenses, they work on a percentage of the savings that they have generated and get a 50% share of these savings for the next 12 months. In our consulting process, we do this task as a part of what we do. The outcome of this structure is a Lose/Lose/Win.

Percentage of monthly revenue

Over many years we have discovered that the best fee method is a simple fee calculated by X% of the monthly revenue. This method is insulated (as much as we can)

from external fluctuations affecting profit and expenses, the Consultant shares in the ups and downs of revenue but always gets a monthly fee. This method has been used on thousands of our Clients with very few issues arising. The outcome of this structure is a Win/Win/Win.

Everybody wins, the Consultant, the business, and the business owner.

Story

 In the early days of ConsultX, we charged Clients a fixed price based on 3 packages and this worked but we were prevented from sharing in the rewards of the success of the business and it was nearly impossible to renegotiate the fee arrangement. The idea of a percentage of monthly revenue was not mine, it was suggested by one of my Clients, after he made that suggestion I went back to my existing Clients and converted them over to the new system. Since the time we converted to this system we have never had complaints and continue to today. 

Summary

So remember that having the right fee structure is really important and can make or break your consulting business.

It’s important for both the Client and the Consultant to share in the rewards of a good job done, only a Win/Win/Win strategy will ensure this will occur.

Being paid on a monthly percentage of revenue will mean you do not have to renegotiate the fee structure for a very long time, if at all.

Challenge

Make sure you choose the best fee structure for your business consulting Clients, if they are existence already then have a 1-1 discussion with them and propose that you change the fee structure, I would suggest that initially whatever they are paying now continues by matching the percentage to the revenue today.

You should be thinking about 1-2 years later when the revenue has doubled and the profits you will earn for the business and the owner.