When we started our consulting business, one area we struggled with was pricing. Deciding how to set fees for our services was challenging.
But we tried several routes: First, we charged a projet rate – a set price for a pre-determined work product. However, we found that too often, the client would ask us for additional work or change the scope of the project in midstream. That led to our suffering what might be called scope creep. Several times, the price we had originally set was no longer appropriate for the hours needed to complete the work desired by the client.
Perhaps because we new to freelancing, we took on the extra work without pushing back on the client or explaining that the changes would necessitate an extra charge.
Our second strategy, which we switched to within months, was an hourly billing rate, and we have continued this way of charging to this day. We can give clients an estimate of the number of hours it will take to complete a work product so that they know what fees to expect. Charging by the hour also makes it easy to explain that changing or adding work will increase the number of hours needed.
The downside of this billing method, however, is that we need to keep track of all of our time. However, we find that that discipline is worth the simplicity of our fee structure.
Still, determining what hourly rate to charge remains a challenge. You don’t want to overcharge your client or set your fees so high that you can’t get work. On the other hand, you want to be fairly compensated for your time. Below are five factors we used when considering how to set our hourly billing rate.
Size of the opportunity
Bain Consulting, McKinsey & Company and the Boston Consulting Group are all able to charge millions of dollars for an engagement because the projects on which they work hold the realistic possibility of yielding benefits to their clients worth hundreds of millions, if not billions, of dollars. This, of course, means that they can typically serve only the largest companies in the world.
Unless you have an unusually strong pedigree, you yourself won’t be able to work on opportunities of this magnitude or charge these fees. Nevertheless, think about the size of the opportunities on which you will work. Our rough rule of thumb is that the expected upside for the client should be on the order of ten times our fees or more.
When I first started my consulting agency , I took on every client who showed interest in our services. We were new, and I truly believed we could add value anywhere. It was a huge mistake.
Early on, we were a catch-all branding agency, trying to be everything to everyone. We offered public relations and design services, and we specialized in growth — building an audience, creating social marketing, helping sites convert audience members into customers. We had too many clients to juggle and lacked focus. We ended up with some hits, sure, but we had way too many misses.
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Today, we reject more than 90 percent of the folks who knock on our door, and that’s been the best move for our clients and our business. Deeper integration means better results, and better results means better case studies that demonstrate our work and impact. The job of a consultant isn’t to have lots of clients — it’s to add significant value to every single client.
Your task, Bobby, is navigating through smoke and mirrors to avoid another bad partnership. Before you start contacting consultants, develop a way to measure success and predetermine what would be worth your time and money. Some agreements are clear: You pay money and hope to make it back, and then some. Others have wrinkles, where the payoff isn’t immediate, such as building an audience or acquiring leads. Those all have worth, but it’s up to you to decide how much.
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After you’ve built your assessment, separate those who look good on paper from those who can actually take your business to the next level. Most people are happy to talk about their strengths, so ask a potential consultant to discuss their weaknesses. Who’s a client he can’t help? What services can’t he provide?
For example, my team stays away from companies without any infrastructure. Our short-term goal is to build and execute strategy — and then hand it over to a team. If a business can’t sustain what we build, it’s not a good fit. We also avoid companies that don’t think tech and digital media can help them. We work with many brick-and-mortar businesses, and it’s important that they’re eager to learn how advancements in tech can keep them relevant. (If you want to piss into the wind, that’s fine. But, we’re not going to stand next to you.)
Once you’ve weeded out the wrong candidates, ask the remaining consultants to name two clients they’ve worked with that are similar to your business, why those clients were a good fit for the agency, and the results of the partnership. I’ll be the first to admit that this can be a tricky situation. Most clients we work with — especially big names like Microsoft, DirecTV and Equinox — require us to sign a nondisclosure agreement, so the information we can share is limited. But, if a consultant has done the work, he should be able to communicate wins even if he can’t offer specific numbers.
When anyone looks at a consulting firm, they look at the experience, of consultants having actually solved a similar challenge in a different situation, people you are interacting with say consultants across the world.
Subhendu Roy, Partner at global management consulting firm ATKearney says clients are very clinical about the value that they seek from consultants
“You don’t want to go to a doctor who tells you hey, I am so happy to have you as my first heart patient. You would like to better be treated by a doctor who has done a couple of surgeries before,” Roy says.
Here are the top consultancy trends that will dominate in the coming year.
Value For Money
Gone are the days when consultants can say I am bringing a lot of knowledge, use it to your discretion. No, clients are saying we will only engage with a consultant when we see the value, whether we talk about the return of interest of the consulting investment or actual improvement on the ground over the 6, 12 or 24 months or whether it is articulating a strategy the senior management has brought in says Roy.
Getting The Right Consultant
The second trend I see is that because the industry has matured over the years in India, clients are actually talking about the people we put on the engagement. Now it is fifty percent the consulting firm and fifty percent the people a consulting firm engages with the client says Roy.
Roy believes some of the mature clients in India are very similar to clients overseas. The more Asian trait is that clients feel their situation is very different from anyone else. In terms of the asks, the maturity of engaging with the consultant, most clients are similar.
Dr Som Singh of Unspun Consulting says gone are the days when you would leverage one consultant or firm for all your work. Today technology is becoming an enabler through which talents with varied expertise and knowledge are collaborating to provide customised solutions to clients.
This will be also called as open-source collaboration consulting.
She says she coined this term to imply that when multiple heads work on cracking a problem together the chances are the solution is long term applicable and full proof.
Consultancy will become a more commoditised / transactions form of engagement than long term. This is due to the constant evolution in customer buying and engagement patterns and advent of new technology and buying medium.
Now, one can pick and choose a consultant requirements like as per need and time. Dr Som called this the A-la carte model.
Human – Robotics Interwar
Artificial Intelligence and Machine Learning for better solutions will rule. With the involvements of these two technologies, time on primary research and data analytics can be substantially reduced. Not decision making can be quicker and more fine-tuned based on the clients customers behaviour. Behaviour patterns can be well drawn out and quick actions can be implemented.
However, as you know consultants are a balance of EQ and IQ so AI and robotics can’t replace the EQ and sensibility part says Dr Som.
The fun will be to strike the balance based on industry vertical, customer buying behaviour and spending patterns.