For organizations looking to hire management consulting/strategic planning/process improvement consultants, what is your preference as far as payment?
Do you prefer by the hour, set packages, project based fees, time and materials, other?
I think it depends on the project. If it's a one off project, I prefer a project fee. Sometimes hourly if it's a small project. If there is a larger, ongoing relationship, packages can be very attractive, particularly if they build in discounts for great use.
the important part is having a clear understanding of why you want a consultant over an employee and what exactly do you want them to do. Many organizations take on consultants because they don't know what they want or need and therefore don't know what resources ares needed to make a change.
A good consultant will clarify all of this prior to engaging with a client and build a fee cost structure accordingly. The payment structure will also vary based on whether you are hiring an individual or a firm.
When I take on an individual consulting contract, the time commitment becomes the determining factor. If this is something that is going to consume all of my time for a an extended period of time, I will bill hourly, include expenses and usually a performance bonus for achieving a specified target.
For example when I was taken on by a Korean tech firm to create their international marketing division and launch their flagship product, I took on a set monthly wage, full expenses and 5% of all sales generated during the period
for projects that involve bringing in other expertise or does not require a full time commitment, I break the project into milestones and charge set fees with a time-task-price triangle scale built into it
I do it either on an hourly basis or on a project basis, with a fixed fee. My hourly rate goes down for longer-term projects and I sometimes split the fee between cash and stock, especially for startups.
Dear Benjamin, you sure have a debatable and tough concern.
In case of a Consultant, Performance Appraisal is difficult, if not impossible, to analyze the monetary value of his/her performance due to –
1. Time needed to study, analyze and test the alternatives
2. The involvement of mostly intangible elements in the process
3. The long-term effects of the systems designed and implemented
4. The improvement being made in bits and pieces resulting in consolidated outcome
5. The assumptions, constraints and unforeseen emergencies hindering the process of change
Considering the above points it is always recommended to start with defining, designing and agreeing on the Primary, Secondary and Complimentary Objectives and propose an Objective Achievement based Remuneration Plan. At least that is what I do and is working well for me.
It would depend on the engagement. There should be a retainer upfront regardless of the engagement. When the engagement can be defined a fee range should be decided upon so the budget and expectations can be managed.
If you can really define the project well in terms of scope and deliverable, you may be best with project based fee structures. However, many consultants prefer to work on a contract that stipulates the number of hours anticipated and a rate per day or hour worked. The reason is simply that scope of projects tends to creep and the time based pay allows the consultant to accept creep assuming more hours are available for the additional work to be completed.
Don't forget....you get what you pay for in many, many cases!
I accept no payment until I have conducted a free interview to establish the requirements of the potential client and also their ability to compensate for the work that is required. This interview will deliver all of the information required to form a strategic approach to fulfilling the clients initial needs. Upon completion of the meeting a formal proposal is done and we meet again to address the proposal with the purpose of refining it to fit the client's preferences. Depending upon those preferences there will normally be a retainer followed by payments based upon established milestones and timelines. In a contract services project the rates will be based upon the amount of time and intelligence required and then it will be billed as agreed upon and as is deemed fair and acceptable to both parties. Rates will normally be higher based upon specificity and intelligence required as well as duration and consistency of the workload. The goal for all projects is to create a working model that is acceptable to both parties and has an established track of performance and success measurement.
As a consultant, I have been burned a number of times with a flat fee. Over the years I have learned to have a very clear statement of what is included. Then when things are asked outside of those original parameters, the quote is reviewed.
Progress payments must be regularly made and win/win outcomes are the aim. this will result in repeat contracts and everyone playing fair
I prefer a risc reward approach. I like to work for a minimum amount but wants to have a fair share of the value/benefits of the project I work on. The reference can either be my hourly rate or my fixed price (for in stance 30% at the start plus a share of the outcome/results)
I BELIEVE THAT THE REPLIES BELOW COVER MOST METHODS FOR BILLING
Preference is to form the agreement as a project with a fixed fee with defined deliverables and time expectations.
Thanks everyone for the responses! Truly appreciate all of the ideas, suggestions, and experience shared. I will test what works with clients and report back.