Consulting pricing models: which one should you choose, and why?
Choosing the right pricing model for your consulting business is one of the most important decisions you’ll make as a consultant.
Your pricing model determines how you charge clients for your services.
The right model will maximize your earnings and enable you to more easily deliver value to your clients.
The wrong model can make your work a slog and hinder your growth.
While hourly and project-based fees are common, they are not the most optimal.
In our Clarity Coaching Program, we recommend value-based fees and consulting retainers. They are more profitable for you, the consultant. And when they are done right, they also provide more value to your clients.
Next, I’ll describe the 7 most common pricing models — and go deeper into why we prefer value pricing, consulting retainers, and other more profitable models.
The right model will maximize your earnings and enable you to more easily deliver value to your clients.
1. Hourly Fees
Hourly fees are a straightforward pricing model where a consultant charges a set rate for each hour of work. This method is commonly used across various consulting fields because it’s simple to understand, and hourly fees are easy to track and bill.
Both the consultant and the client can clearly see how many hours have been worked and calculate the cost accordingly. Clients know exactly what they are paying for and can verify the work done against the hours billed.
However, we do NOT recommend using hourly fees for a few reasons.
First, your earning potential is inherently limited by the number of hours you can work, which will cap your income. Additionally, charging by the hour emphasizes the time spent rather than the value delivered or the results achieved. It also fails to take into account work done “off the clock” on things like marketing and business development.
2. Project-Based Fees
With project-based fees, you charge a fixed amount for completing a specific project. For example, a web development consultant might charge $10,000 to redesign a client’s website.
This pricing model provides clarity and simplicity, both for the consultant and the client.
It also offers predictability. As a consultant, you can anticipate your income more accurately because you know you will receive a set amount upon project completion.
For clients, this approach gives them a clear understanding of the total costs upfront, which can help them with budgeting. It also provides a sense of security because clients are aware of what they are committing to financially from the beginning.
However, project-based fees do have a few drawbacks.
Chiefly, there is the risk of “scope creep,” where a project’s requirements expand beyond the initial agreement. This erodes the profitability of a project.
Additionally, it can be difficult to adjust for unexpected challenges that arise during the project’s execution.
3. Value-Based Fees
With value-based fees, your consulting fees are set according to the perceived value of the work you’re going to do for the client, rather than the time spent or effort involved.
For example, a business consultant who helps a company increase their revenue by $1 million might charge 10% of that increase, resulting in a $100,000 fee. This approach directly ties the consultant’s compensation to the success and benefits they create for the client.
This makes it easier to align a consultant’s incentives with their client’s success, and that alignment creates a more collaborative relationship where both parties are motivated to achieve the best possible outcomes.
Value-based fees offer the potential for higher earnings compared to hourly or project-based fees, especially if your consulting work generates significant value for the client.
There are, however, a few challenges with value-based fees.
Quantifying the value of your services upfront can be difficult since it requires projections and estimates that may not be precise.
You also have to develop strong trust and communication with your clients because they need to agree with you on how value will be measured and what a successful outcome will look like.
Value-based fees and consulting retainers are more strongly aligned with client success and provide consultants with more stable and higher earnings.
4. Consulting Retainers
A consulting retainer is a contractual agreement where a client pays a recurring fee for ongoing consulting services over a specified period of time.
For example, a human resources consultant might charge $5,000 per month to provide ongoing HR strategy and support to their client. This arrangement offers both parties a sense of stability and ensures the availability of services for the duration of the retainer agreement.
One of the biggest advantages of consulting retainers is that they provide a steady, predictable income for a consultant, which makes it easier to manage your finances and plan for future growth.
Additionally, retainers help create long-term client relationships by establishing regular interactions and ongoing support, which can boost client satisfaction and loyalty over time.
As a consultant, you must consistently deliver value to justify the retainer fee, because clients are going to expect a steady stream of tangible results in exchange for their investment.
5. Pay-for-Performance
The pay-for-performance pricing model connects your consulting fees directly to the achievement of specific results or milestones.
For example, a sales consultant might agree to a fee of $2,000 for every 10% increase in sales revenue generated as a result of their help. This approach ensures that consultants are rewarded based on the actual value they deliver to the client, rather than simply for their time.
Paying for performance creates a strong alignment with your client’s goals by linking your compensation directly to the achievement of their desired outcomes. This gives both parties a powerful incentive to work together toward the same objectives.
Using this model, consultants are motivated to deliver high-quality solutions — which leads to increased client satisfaction.
One drawback of this pricing model is that your consulting income may be unpredictable, with fluctuations in earnings depending on the success of your efforts.
Additionally, if performance targets are not met, you may not receive the full compensation you hoped to get.
This risk creates more pressure to deliver results, which can lead to more stress and strain unless client expectations are managed effectively.
6. Consulting for Equity
Consulting for equity is a pricing model in which a consultant receives ownership stakes in a client’s company instead of (or in addition to) traditional fees for their services.
For example, a startup consultant might receive a 1% equity stake in a client’s company in exchange for their strategic advice. This arrangement gives you the opportunity to share in the potential outcome of your client’s success, beyond financial compensation.
One of the biggest advantages of this pricing model is that it has the potential to give you much bigger long-term gains.
If your client’s company experiences growth and success, your stake can increase substantially. Again, this aligns your consulting success with the client’s success, which creates a powerful incentive for delivering high-quality work and positive outcomes.
The obvious risk of this pricing model is that you can lose your investment if your client’s company fails or falters.
Also, the financial benefits from equity ownership can take a long time to realize, since you have to wait for the company to grow. This longer timeframe may pose a challenge for a consultant seeking more immediate financial rewards or steady income.
7. Productized Consulting
Finally, a productized consulting model is when a consultant offers standardized services or products at a fixed price, often delivered in a repeatable manner.
For example, a consultant might offer a website template kit for $1,000, which includes setup and customization guides. This approach streamlines the consulting process by packaging services into easily understandable and repeatable offerings.
By standardizing your consulting services into products with fixed prices, you can more readily deliver your expertise to multiple clients without the need for extensive customization.
This makes it easier to scale your business and serve a larger client base, generating more revenue while minimizing the time and effort required to deliver value.
The trade-off with a productized pricing model is that it may result in less personalized service for clients.
Since the offerings are standardized, they may not fully address the unique needs of each individual client, which could result in a less tailored experience.
Also, a consultant using a productized model may face competition from similar products in the market, making it more important to differentiate your offerings in order to sell your value proposition.
Which Consulting Pricing Model Do We Recommend?
While hourly and project-based fees are very common in consulting, we don’t believe they are the most beneficial options for most consultants or their clients.
Value-based fees and consulting retainers are more strongly aligned with client success and provide consultants with more stable and higher earnings.
Consulting for equity could lead to greater long-term success, and productized offerings generally provide the most effective way to scale your consulting business.
Which one should you choose?
Experiment with a couple of different approaches and adapt as needed so your pricing model aligns with your business objectives and contributes to your long-term growth and success.
Get Help Choosing Your Optimal Consulting Pricing Model
Do you feel stuck with your current consulting pricing model?
Like you want to experiment with a more advanced, higher-leverage pricing strategy…
…but you don’t know how to put your ideas into action?
If you’d like personalized coaching and the support of an entire consulting community to help you raise your fees, we can help.
In our Clarity Coaching program, we’ve helped over 1000 consultants to build a more strategic, profitable, and scalable, consulting business.
Learn More About Clarity Coaching
Whether you’re struggling to price your services based on value, want to build in more recurring revenue, or want to know how to structure an equity deal properly, our program will help you increase your pricing with confidence.
You’ll learn how to earn more revenue with every project you take on — and how to land more clients than ever before. Learn more about Clarity Coaching and get in touch to talk about your situation and goals.
