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9 Pricing Rules for Your Consulting Firm’s Advisory Engagements

There are consulting projects, there are advisory engagements, and there are chocolate covered almonds. Your consulting firm’s clients may consume all three, however, the rules for pricing are different in each case.

Advisory engagements are 90-100% “on-camera,” where your clients can see you. Behind-the-scenes work—research, planning, creating deliverables, shelling nuts—is the world of consulting projects.

Your consulting firm can deliver advice and recommendations as one of the outcomes of your consulting project, of course; however, that does not make your project an advisory engagement.

As noted in this article, avoid mixing advisory engagements and consulting projects into one consulting contract. Blending the two types of work produces unhappy clients and stressful client relationships.

In that same article, I recommended you use a stipend fee structure (i.e., periodic, time-based payments) for advisory engagements.

That raised a question: How do you set your periodic fees for an advisory engagement?

9 Pricing Rules for Advisory Engagements

1. What

The broader the range of topics on which your client can solicit advice, the higher the fee. If only they can only inquire about melting point temperatures, the fee may be low. If they can go nuts and ask you about anything, you’ll demand a higher fee.

2. Who Contacts Whom

If your contract specifies that one person at your client can reach out only to a low-level member of your consulting firm, you can charge a pittance. Opening your senior partners’ doors to dozens of your clients is, of course, a different kettle of bananas.

3. How

Narrow, limited communication channels merit a lower fee. Multiple channels, including personal phone numbers, warrant larger stipends.

4. When

What days and times of day will your consulting firm be reachable? Clients may not pay your consulting firm much for access only at 11:00 p.m. on the second Tuesday of each week.

5. How Often

Is there any limit to the number of times your client can turn to your consulting firm for advice? Some clients prefer unlimited access whereas others may be very happy to dip into your wisdom once or twice.

6. Response Time

Your consulting firm’s clients value instant gratification. Generally speaking, you’ll be rewarded for appearing uber-responsive.

7. Total Time

You can control your risk and manage your consulting firm’s capacity by limiting the time available to your clients in your advisory contract with them. However, you’ll earn far more by decoupling fees from time.

Few clients abuse your time if you offer unlimited time to them, and remember you want your clients to avail themselves of your consulting firm’s smartitude.

8. Duration

An engagement that ends a few minutes after it’s executed may not earn your consulting firm high fees. In contrast, an agreement to provide advice until humans establish a settlement on Mars offers you and your client more space to create value.

9. Risk Sharing

Your consulting firm can offer advice in exchange for cash, shoes, or cashews. Your reward could be fixed in advance or depend on your client’s performance.

Generally, I’m not a huge fan of taking equity in return for advisory services. You can join a client’s Board of Directors, of course, but then you’re acting as a Board member, not a consulting firm.

I’m sure I’ve forgotten at least one rule or consideration for pricing advisory engagements. Definitely add your thoughts and fill in missing pieces in the comments section.

How have you determined your fees for advisory engagements?

  1. Y Van
    January 13, 2021 at 10:23 am Reply

    Thanks David! We’re scaling out our small IT consulting team and it has been interesting to see what value clients place on these metrics and understanding if/how we can fit in with a client. Interesting to think about how this carries over to monthly retainers for project work (based on hourly rates). Obviously, a lot of these metrics play a role, such as response time, when we’re available, and how/who can be reached.

    Retainers for project work is probably an article itself though I’ve read your posts that advocate for pricing based on the value of a project’s outcome, instead of hours. Do you advise typically avoid retainers for hourly project work and instead trying to price discrete projects?

    • David A. Fields
      January 13, 2021 at 11:15 am Reply

      Great questions, Yosef! IT consulting tends to play in the world of time & materials fee structures, partly for good reasons and partly just out of inertia. Depending on what type of IT consulting your firm is focusing on, you may find it difficult to escape those structures. Ideally, though, you do migrate toward a value-based fee structure.

      The type of work you’re doing sounds like project work, so price it on a project basis if you can rather than being paid by the hour. Otherwise, you’re really just outside staff (i.e., staff augmentation).

      All of that said, in a time & materials world, retainers are very much akin to what attorneys set up–basically a deposit to “retain” you for a certain number of hours. If you’re going to be in the hourly business, then a monthly fee for a set number of hours can create a solid, ongoing relationship with your clients.

      Thanks again for raising these important questions, Yosef.

  2. Russell
    January 13, 2021 at 11:37 am Reply

    David. Love the graphics and clear explanations. This should help a lot of people trying to understand how to price and deliver on a project and post importantly setting expectations.

    • David A. Fields
      January 13, 2021 at 11:52 am Reply

      Helpful is good, Russell! Yes, setting expectations is especially important in advisory relationships. I appreciate you highlighting that point.

  3. Belden
    January 13, 2021 at 12:52 pm Reply

    David, Great stuff! Opened up my thinking on options for how to structure (even before pricing) advisory services. Belden

    • David A. Fields
      January 13, 2021 at 1:06 pm Reply

      Excellent, Belden. More options means better contracts and happier clients. Thanks for chiming in!

  4. Bruce Imel
    January 13, 2021 at 1:19 pm Reply

    We have struggled with this for years and typically turn it into a not to exceed monthly rate structure. There has been concern among our team of opening the flood gates and a customer taking a lot more of our time than we assumed when we came up with the stipend/retainer amount.

    How would you suggest reigning in a customer that exceeds demand expectations?

    • David A. Fields
      January 13, 2021 at 9:39 pm Reply

      That’s an important issue to deal with, Bruce. If you’re charging monthly, you’ll do better by bundling multiple months together (at least 3; 6 or 9 is better). Once you’re in the later months, the risk of out-of-control customer demands drops dramatically.

      Occasionally you will run into a client that is demanding and high-touch; however: 1) they are rare, and the high value perception among the majority of clients who don’t take advantage of you far outweighs the few who do; 2) very few clients are too demanding over the long run. They want a LOT of attention at first, then it tapers off with bursts of high activity. And, as noted above, the more opportunities you have to provide value, the more likely you are to win a long-term client.

      Net: Your team’s concern is valid, but probably not accurate; and, view requests from clients as an opportunity, not a cost. Terrific issue, Bruce, that many consultants face. I’m glad you raised it.

  5. Liz Weber
    January 28, 2021 at 11:53 am Reply

    We’ve had great success with retainers for our ‘Advisory Engagements’. We typically extend the offer to those clients who we already have consulting projects (i.e. strategic planning, succession planning, and/or leadership training) in play. The Retainers then are extended to the management team included in the project. The client is given a set # of hours of my time/a consultant’s time per month. They can slot anyone into those dedicated one-on-one times. However, if no one takes the slot – or if someone doesn’t show up – that ‘unused’ time for the client is lost. All retainers are prepaid.

    • David A. Fields
      January 28, 2021 at 12:31 pm Reply

      Thanks for sharing your model, Liz. It sounds like you’ve done a nice job clarifying with your clients the difference between project work and advisory services, and setting up fee structures to reflect that.

      While I, personally, am not a huge fan of the set number of hours in exchange for a certain fee (because it drives to hourly pricing and can undermine your value-based pricing on project work), I love how you’ve gracefully added an advisory component to your project work. Also, you’ve offered a terrific example of applying some of the pricing rules above.

      Thank you for sharing your success, Liz!

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