Consulting fees – pricing by the project

Pricing your consulting fees by the project can help you connect with potential customers. Many customers like to know that there’s a cap on what they’ll be spending. Do you like taking your car to a mechanic and not having a clue whether it’s going to be $100 or $1000 until you go to pick up the car? Of course not!

By pricing your fees by the project, you can help reassure potential customers. And this can help them get ready to buy, because you’ve reversed some of the risk. Of course, figuring out how to price by the project takes some strategy. (I go into this in my Consulting Fees Guide.)

It’s a much better strategy than pricing by the hour, which makes no sense at all for knowledge work.

Unlike employment, where the employer assumes the risk, consulting is a supply contract; expertise, experience, know how, methodologies etc are “sold’ for a fixed amount.

Like anything we buy, the key is not what the supplier does to produce or deliver it, but exactly what the product is – and what benefits we derive from having it.

In over twenty years management consulting, I have found time based agreements are the death knell of successful engagements. Rather specific, well defined deliverables that define what the client will have drive long term, profitable engagements.

As an initial project, a short term fixed deliverable is easier to sell, has almost no risk to the client or the consultant, and enables both parties to gain trust in the working relationship. Subsequent projects can also be gained by “mini assignments”.

Later, even when the client offers a retainer, each month I create a detailed “scope” for the month, agreed milestones, deliverables and outputs, and key contingencies and dependencies.

If the clients changes the outputs, or delays the agreed deliverbale, our agrement gives me the right to renegotiate fees.

In over 40 consulting assignments, many lasting from 4 years and one for 9 years, the above methodology has generated significant revenues – one client paid close to a $1 million in one year for multiple mini projects running concurrently – just me alone!

Andrea says:

You’re right, Graeme. And that’s why pricing by the project can help. Certainly, a move toward solution-based fees is a better fit for long term success. And project pricing can be one interpretation of solution-based pricing.