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What are the two biggest challenges facing your consulting business today? If “finding more clients” or “increasing profitability” were your top two answers, you’re not alone.
And if finding (and keeping) clients is key #1 to success, then figuring out how to price your services in a way that’s attractive to them and profitable to you is key #2.
This guide gives you eight of the most effective consulting pricing strategies, along with examples and pros and cons for each. We’ll also help you work through how to determine the method or methods that are best for the unique circumstances surrounding your consulting business.
Hourly pricing
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Ah, hourly pricing: The simplest, most traditional approach of all, one that feels familiar to just about everyone. You set an hourly rate, then charge the client that rate for every hour your agency logs on their consulting work.
It’s straightforward and transparent, leaving little room for confusion — other than one big sticking point, which is communication and expectations surrounding the number of hours worked.
Several types of projects are good candidates for hourly pricing:
Shorter, simpler projects
Undifferentiated or more commoditized projects
Projects with flexible budgets and unclear or poorly defined scope
In the first two, hourly pricing makes sense because it’s a “what you see is what you get” approach. In the third, hourly pricing protects the consultant when it’s impossible to estimate the amount of work required.
Pros and cons
Pros
Straightforward and transparent
Relatively easy to calculate and demonstrate
Easily adapts to changes in project scope (so long as the client is willing and able to pay!)
Cons
Caps earning potential (you’ll never earn more than your hourly rate)
“Eat what you kill” model means you get paid only when there are hours to log
Clients may question speed or micromanage time
David John Marcotta elaborates on the challenges of the various “eat what you kill” approaches:
“Employees will maximize whatever is measured rather than what is desired.”
In any hourly system, there’s a natural temptation to maximize hours rather than focus on client outcomes — so measuring hours can quickly become an improper yardstick.
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When to use this type of pricing
Newer and undifferentiated consulting agencies often rely on hourly pricing due to its transparency. This model is also smart for projects with unclear scope or firms that take on projects with widely varying scopes.
Project-based (fixed) pricing
Project-based pricing is a total sum charged for an entire project, a single rate for a fixed set of deliverables.
This pricing isn’t universal. A new website might cost $3,000 or $90,000, and a digital marketing campaign could cost anywhere from four to six figures depending on the scope, client size, consulting firm size, and a dozen other factors. But the key here is that you aren't getting paid by the hour — you’re getting paid to achieve the defined deliverables.
Pros and cons
Pros
Upfront fixed pricing is attractive to clients
Fits well within firms using professional services project management
Incentivizes efficiency and customer satisfaction
Cons
Tons of upfront work to build a project proposal, even before you land the job
Requires careful project cost tracking and management
Can lead to lower profits or uncomfortable negotiations when scope changes
When to use this type of pricing
This model makes sense when you have an accurate understanding of the project scope or when you regularly churn out very similar projects. If you have a specific consulting product that tends to require the same amount of work no matter the client, then this model could be a great fit.
Retainer fee
In the retainer fee model, clients pay a recurring fixed fee in exchange for either a defined amount of work, access to your expertise, or a combination of the two. Common in consulting work (and uncommon in project-based work), retainer fees provide steady income for the consultant and a mix of access and peace of mind for the client.
Here’s an example: A consulting practice focuses on PR and crisis communications. A large tech firm doesn’t want to deal with the risk that, when a crisis occurs, their preferred consultants will be unavailable. So, the tech firm enters into a retainer agreement with the consulting group, paying a monthly retainer for access to the consultants’ expertise when the need arises.
Pros and cons
Pros
Provides consistent recurring revenue
Encourages long-term relationships, not transactional exchanges
Cons
Setting pricing can be complicated
If you don’t have a clear retainer agreement, scope creep can diminish profitability
If the value isn’t clear, clients may feel like they’re overpaying (or “paying for nothing”)
When to use this type of pricing
Retainer fees make sense when you’re in a position where you can charge for access and availability, not just for work performed. They also make sense in ongoing working relationships with recurring, though perhaps inconsistent, work, where the client values maintaining that priority access more than scoring a “cheap consulting rate.”
Value-based pricing
Value-based pricing is tremendously valuable — but it’s also risky and can be hard to pull off. With value-based pricing, a consultancy sets its prices based on the monetary value their services provide.
Here’s an example. A veteran consultant on his way to meet a client takes a call during the (chauffeured) drive from the airport to the client's place of business. The call is from another former client who has an urgent problem. The call lasts less than five minutes, and the business on the other end of the call saves or makes $100,000 from acting on the advice the consultant provided.
What was that phone call worth?
At an hourly rate of $1,000/hour (sounds pretty steep, right?), the phone call is worth $50.
But as a percentage of value (let’s say a very conservative 5%), that phone call could be worth $5,000 or more.
$5,000 for a five-minute phone call? Yeah, that works out to an “hourly rate” of $100,000/hour!
And that’s the value of value-based pricing.
Pros and cons
Pros
Virtually unlimited earning potential
When successful, tends to pay far higher than other pricing strategies
Attracts a clientele that believes in the value you offer
Cons
Quantifying value is impossible without the right client information
Requires skill in sales and negotiation
Tends to work well only for experienced, proven consultants
When to use this type of pricing
Whenever you can!
But seriously, strategy consulting, marketing consulting, and general business consulting can use this strategy effectively. The more experience you have, the more likely this model will succeed.
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Performance-based pricing
Performance-based pricing is all about results. Think of it like value-based pricing, but back-loaded: you only get paid for the value you create once you actually create it.
A modified version reduces risk somewhat, operating from a discounted base pay with various performance bonuses if your consulting work generates the results you outline at the start.
Let’s say you’re just getting started in consulting, or you’re looking to shift your business model toward value-based, but it’s not quite working. You could offer a performance-based model that works just the same, but with a “you don’t pay until you see the results” caveat.
There’s risk there, for sure, but if you do deliver, you’ll quickly build that experience and reputation so you can transition to value-based.
Pros and cons
Pros
Can be a stepping stone to value-based pricing
Can result in big profits, even for less established consultants
Cons
Risk of low or no payment (if performance is poor)
Other factors (implementation, market conditions) could degrade performance even when your consulting guidance is correct
Can create bad incentives for clients (e.g., obscuring or manipulating reports to avoid a big payout)
When to use this type of pricing
If you’re looking to break out of hourly or fixed pricing but aren’t confident you can convince clients to pay for value or pay on a retainer, then performance-based pricing could be a good way to prove your worth.
Tiered pricing
Tiered pricing involves creating multiple tiers of services, often defined as packages, which you offer to clients. Clients can evaluate the services you offer in each tier (along with what you charge for each tier) and then decide for themselves how they want to work with you.
Say you’re a smaller consulting firm known for offering a la carte services. Transitioning to a tiered model could be a way to simplify your service offerings and nudge some clients (who may have selected a single service before) to choose a more comprehensive (and higher-priced) tier.
Pros and cons
Pros
Can be a natural way to upsell clients
Helps inexperienced clients understand what you offer
Can help focus your firm’s service offerings
Cons
In a complex discipline like this, what’s in which tier can get confusing to clients
Tricky to balance tiers for optimal profitability
Too few tiers may seem inflexible, but too many gets unwieldy
When to use this type of pricing
Tiered pricing is common among smaller operators (including solopreneurs) who may tend to work with more budget-conscious clients or those with a wider range of unique needs.
Hybrid pricing
Hybrid pricing is a catch-all for any mix-and-match of the above approaches, or of other pricing methods not included in this guide (including dynamic pricing, cost-based pricing, and premium pricing).
Hybrid pricing is all about optimization and creating the right pricing model for your specific context, including the consulting services you do and don’t offer.
Let’s say your consulting firm works mostly with startups. These fit into two camps: bootstrapped startups with cash flow concerns, and funded startups with money to burn (literally).
These two types of startups will think about consulting differently. The first camp might be ultra budget-conscious, looking for an hourly, project-based, or tiered option. But the second camp might be looking for stability and predictability, preferring a retainer model.
In this case, you might want a hybrid pricing structure that uses elements of both so you can reach a wider range of potential clients.
Pros and cons
Hybrid pricing takes on the pros and cons of whichever pricing methods it borrows from, so we’ll give just one additional pro and con:
Pro: This approach enables you to reach a wider market share than with a single pricing model.
Con: Marrying elements from multiple models adds complexity to sales and operations.
When to use this type of pricing
Hybrid is the best pricing structure when no single pricing structure fits your market.
Key considerations for choosing your pricing strategy
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As you refine your approach to pricing consulting services, use these key considerations to help you craft a competitive advantage that delivers significant value to clients and strong profits to your agency.
Nature of the project
The kinds of projects your consulting firm works on will affect the pricing strategies available to you.
For example, while management consulting can take a wide range of forms, strategy consulting projects tend to be defined and time-limited. So, for pricing strategy consulting, a retainer model probably doesn’t make sense, while a project-based model probably does.
If you’re called on to offer ongoing or recurring advice, then a per-project model would be frustrating and an hourly or retainer model (or, even better, a value-based approach) would be preferable.
Client’s budget and preferences
Clients have differing financial capabilities, and they have their own opinions on how the consulting relationship should work. If a client seems averse to a method but is otherwise a good fit, then consider adjusting your method.
Experience and expertise
As we’ve already noted, if you’ve just launched your solo consultancy (and don’t have some wildly impressive industry experience), you’ll need to prove your worth before demanding premium or value-based compensation. Keep in mind not just what you know you can deliver, but whether you can convince prospective clients that you can do what you claim.
Industry standards
Last, know the industry that you work with. Some industries have preferred, set, or even mandated ways of working with consultants. It may not be feasible to work outside those lines, regardless of your skills or qualifications.
Drive client success to new heights with Teamwork.com
Sustained success in consulting requires defining a clear value proposition that’s attractive to new clients, as well as delivering consistent results that justify your perceived value (and your consulting fees).
But most importantly, building a thriving consulting business requires finding the best pricing strategies for your work and the clients you work with.
Doing all of this requires a level of organization and project understanding that’s hard to create or maintain manually.
Teamwork.com is the ideal solution for tracking project data, managing client work, and more. It’s the top choice of numerous professional services firms and consultancies, and it’s perfect for anyone doing client work and tracking billable hours.
More resources for consultants:
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