What are the different compensation models?
- 1. ASK YOUR QUESTION WHAT ARE THE DIFFERENT COMPENSATION MODELS IN CONSULTING?
- 2. Consultants are selling their time, or more precisely, the access to expert knowledge and execution workforce during a certain period. •
- 3. The potential of production of a Consulting is the amount of time available for billing. •
- 4. Every day not billed is lost just like an empty airplane seat.
- 5. What are the most common compensation models?
- 6. Deliverable-based fees or flat fee Most Consulting Firms use the flat fee structure for their projects. The Consultant will evaluate the work to be done and staff a little team. The total fee will reflect the total cost of the team to provide the work.
- 7. Time-based fees or daily rates This is a very common system, in particular with small projects and independent consultants. It can also apply to interim management assignments. The Consultant will define a daily rate, and invoice the client based on the number of days actually worked for the client.
- 8. Retainer-based fees. When a client needs a continuous part-time support, s/he can opt for retainer-based fees. The consultant and the client agree on a few days per week/month/quarter where the consultant will be on “stand-by.” The retainer can be paid in a lump sum or on a monthly basis, independently of the work done by the consultant.
- 9. Value-based Pricing . Value-based pricing is a pricing strategy where the prices are set not on time and materials, or cost + margin, but rather on the perceived value for the client of the service delivered. For Consulting Services, it could be a share of the savings realized in a cost-cutting project for instance.
- 10. There are pros and cons for each model…
- 11. Understanding the way consultants charge their clients… …is a prerequisite to optimize your consulting spend.
- 12. Hélène Laffitte Cofounder & CEO • Consulting Sourcing Expert • Author of Smart Consulting Sourcing • MBA Columbia Business School Want to learn more? Contact me & start creating more value. +1 (646) 477 5953 Follow us on the web CREDITS PHOTOS FROM UNSPLASH Slide 1 - Aron Visuals Slide 3 – Sandie Clarke Slide 5 – Jon Tyson Slide 6 – Noor Younis Slide 7 – Luke Stackpoole
Editor's Notes
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