Comparing 4 Different Pricing Models When Hiring an IT Business Consultant – Which One is Best?

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So you have aspirations to achieve hyper growth in your IT Managed Services business and you’d like to consider working with a consultant to ensure you’re on the right path, focusing on the proper priorities, and establishing a clear strategy for the future.

You have a few experts in mind and now the question comes up – what’s the right pricing model for me?  How do these consultants charge for their fees and which model is the right fit for my company?

From my first-hand experience, I’d like to share with you 4 different pricing models for business consultants and the pros and cons for each.

What’s the best pricing model when it comes to hiring a consultant?

The answer is it depends on your business, the outcome you desire, the level of risk associated with the project, and your financial budget.  The 4 pricing models I’ll cover in this article are:

• Classic Hourly Rate
• Fixed Project-Based Fee
• Flat Monthly Fee
• Performance-Based Fees

Let’s compare 4 pricing models and their pros and cons

The 4 pricing models for IT Business Consultants we’ll discuss in this article are:

1. Classic Hourly Rate

You already know how this one works.  The consultant provides a Statement of Work and proposes an hourly rate, and hopefully provides some type of high-level estimate on number of hours he/she believes the project might take.

1. Pros of Classic Hourly Rate:
   • Easy to track the work for both sides – what work did the consultant do and how long did it take?
   • Easy to compare pricing with other consultants who follow the same pricing model.
   • Allows for flexibility and fluid workflow.
2. Cons of Classic Hourly Rate:
   • Difficult to truly predict the total cost of the project – may eventually exceed the client’s budget – can be a stressful experience for the client.
   • Can lead to too much focus on tasks and time, not enough on results achieved.
   • Invites scrutiny and debate if disagreements arise with the quality of work and the amount of time it takes to perform the tasks – if the time to complete greatly exceeds the client’s expectations, conflict may arise and eventually terminate the project prematurely.

2. Fixed Project-Based Fee

This model refers to the consultant providing a Statement of Work and a fixed fee quote where no matter how long it takes or how much work is involved, the client knows in advance the total cost of the engagement.

1. Pros of Fixed Project-Based Fee:
   • Both parties know in advance exactly what the cost of the project is and approximately how long it will take.
   • Forces consultant to get very specific in advance to ensure they truly understand the scope of work and the estimated time to complete.
   • Works well if tasks are easy to define and low risk of obstacles to delay completion.
2. Cons of Fixed Project-Based Fee:
   • If unexpected obstacles arise or unforeseen delays occur, puts consultant in a very awkward position and client frustration may arise.
   • Difficult model when project is complex and all tasks may not be apparent before the work begins – can lead to big discrepancies in workload and time as the project progresses.

3. Flat Monthly Fee

This model involves the consultant defining a scope of work, a flat monthly fee which includes all the tasks detailed in the scope of work, and an estimated time of completion.

1. Pros of Flat Monthly Fee:
   • Easy to budget for client.
   • Less scrutiny on tasks and time for completion of tasks, more focus on results.
   • Encourages collaboration and teamwork to ensure client is maximizing availability and expertise of consultant.
   • Allows for flexibility if unforeseen obstacles arise.
   • Reduces risk by providing the client with the ability to terminate easily if unsatisfied with results.
2. Cons of Flat Monthly Fee:
   • May be difficult to predict total cost of project if delays occur.

 4. Performance-Based Fees

A Performance-Based Fee structure means the consultant does not get a guaranteed fee and instead gets paid specifically on the results they achieved directly from the consulting engagement.

1. Pros of Performance-Based Fee
   • Ensures consultant is laser-focused on actual results achieved from consulting work.
   • Low risk for client if promised results don’t materialize.
   • Good model if goals and targets are clear, tasks are easy to define, variables are minimal, workload is easily predictable, project is not complex.
2. Cons of Performance-Based Fee:
   • Difficult model with complex projects with multiple variables, exact results may be difficult to predict.
   • Difficult for consultant to commit to because of risk of uncooperative clients or clients with low urgency.
   • Fewer consultants will commit to this model because of unpredictable variables and risk of client compliance to consulting advice.

Conclusion

These are 4 different pricing options you may find when speaking to a consultant.  There may be others.  Things can get really interesting when people try to combine some of those models together!  But we’ll leave that for another article.

The best advice before making a decision is to consider the type of project, your available budget, the level of risk if a project fails, and your degree of trust with the consultant.

If you’d like to know MY preferred pricing model, please schedule a Free 1:1 Executive Coaching Session with me HERE.