Value Based Fees

How does a consultant decide on a fee structure?

One way is to base it on an hourly fee. Like legal fees charged by some lawyers, a record is kept of the amount of time spent, and the client is billed accordingly.

Another somewhat similar option is to first project an approximation of the number of hours required to complete the consulting service and set that as a flat fee.

I like to consider the service being provided to the client. Let's suppose as a result of a consulting service, a mission agency has been able to resolve the conflict between its board and its leader. That organization needs to decide what that result is worth. What has the conflict and the associated distractions cost the organization? What ministry has been interrupted or worse yet what ministry opportunities have been lost as a result of the conflict? And they have not started to quantify the emotional energy spent, relationships which have been fractured and sleep that has been lost.

What is it worth to a board to have someone provide it with a model of governance that minimizes those recurring issues that never seem to get resolved? How much time does a board spend on trivial issues which result in it not spending time on the real issues?

Once a board has been able to quantify those costs, it has an idea of what the consulting service is worth.

I like to establish an hourly face time rate. Face time is the time I physically spend with the client or time I spend in conference calls or significant telephone conversations. The hourly face time rate is sufficient to provide time for the development of reports, casual conversations and a certain amount of scope creep. Scope creep can include a client wanting advice or information about something which may be related to the current project but not germane nor a part of the original consulting service. This is preferable to posting a charge for every quarter hour I spend on the phone or charging an hourly rate for developing a report.  Furthermore if a client knows they are going to be charged for every phone call or email exchange, they are less likely to call for information or clarification which may expedite the resolution of the issue or completion of the project. As such I like to develop a flat fee which allows certain parties such as the chair and the leader to have unfettered access to my time. That way neither of us feels awkward with casual conversations or coffee time connections.

My ideal fee structure is one in which client sees the result as being worth twice the cost while I am appropriately compensated.