Consulting engagements come in many flavors. Your consulting firm’s work for a client could range from answering questions in real time based on your knowledge and experience, to developing research-based recommendations, to constructing and implementing complex solutions.
Where does advisory work fit in, and should you construct contracts for advisory work differently?
Let’s say Mabel Maybell, CEO of the famous Home o’ Phonics literacy company (a.k.a. HoP), asks you for help. Your consulting firm recently completed a project for HoP in which you researched a broad range of possible expansion opportunities. Ultimately, you recommended they enter the digital shirts arena.
Mabel’s senior staff think your recommendation is a good fit, and now Mabel wants to shoulder into the new jersey market.
Mabel’s concerned there are holes in the plan her personnel have patched together, though, which is why she wants your consulting firm’s support.
As her group rolls out their small, medium and large initiatives, Mabel wants her staff to be able to tap into your consulting team’s experience.
Mabel isn’t expecting your consulting firm to stir up any concrete deliverables in this new phase of your work together. She merely wants you to be available to offer expert advice, when asked.
Should the fee structure you propose for this new engagement be similar to the structure you used in your first engagement? Do you consider the same factors?
Your clients harbor different expectations from consulting projects than from advisory engagements.
While the lines can blur a bit between projects and advisory relationships, your consulting firm will fare better (and reduce the risk of unhappy clients) separating the two types of work and structuring your consulting contracts differently.
While working on a project, you can offer advice. And you should absolutely strive to play the role of trusted advisor.
However, if your client consistently asks for business insights that are outside of the scope of your project, you may feel the client is taking advantage of your consulting firm.
Conversely, during your advisory engagement with Mabel, your consulting firm can occasionally offer a bit of hands-on assistance; however, once you start promising large deliverables, you’re headed for trouble.
That’s because different fee structures are best suited for these two different types of consulting contracts:
- Propose project fees for tightly bounded groups of tasks (i.e., projects).
- Propose stipends/periodic fees for ongoing advice.
An hourly or daily rate can also be used for both types of consulting, but isn’t the best fee structure for either.
Mixing project work and advisory engagements creates trouble in the long run because your client’s expectations become muddied and confused.
They start asking questions like “How much work are we getting?” and “What time are we entitled to?” At that point, tensions arise and they start focusing on the cost of your activity rather than the value your consulting firm provides.
Your original proposal for Mabel could have suggested a fixed fee for a deliverables phase (identify the market) followed by an advisory phase (12 months of advice during implementation). That structure isn’t terrible. In practice, though, you’ll find those types of projects often lead to uncertainty and scope creep between the phases.
Final question: if you’re going to turn to a stipend fee structure when you have an advisory engagement opportunity like the one Mabel is offering, then what factors should you consider to determine the fee?
Good question. The next article covers nine factors to consider when determining advisory engagement fees.
In the meantime, I’m curious about whether your work is mostly project work, mostly advisory work or a mix. Please let me know below.
Text and images are © 2021 David A. Fields, all rights reserved.