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How Consultants Get Paid?

By Consulting Success

When you make the decision to hire a consultant, and while recruiting a consultant, you may encounter a variety of payment options, favored by the various consulting service providers. Here are a few of the common options, and the pros and cons:

1. Lump Sum
When hiring a consultant based on a lump sum, or flat fee, it’s critical to make sure that everyone knows exactly what is required for the project.

On the plus side, if your brief is comprehensive, there won’t be any hidden surprises. On the down side, any additional items that crop up along the way are likely to be the subject of heated negotiation!

2. Hourly or Daily Rates
Working with consultants who charge a daily or hourly rate can be easier, because everyone knows exactly how the billing will work. You, the client, can add up the days, or hours, and keep track of costs, and the consultant can easily add extra services to the contract, without worrying about payment.

The only real downside to this is that you will be charged for every hour or day. If the consultant works slower than expected, that can add up over time!

3. Per Unit Rates
This is an approach I used to favor when working in construction project management, and dealing with contractors and sub contractors.

By limiting payment to units completed, companies can ensure that the consultant they hire works as hard as possible on the project – after all, the higher the result, the higher their earnings.

Of course, you may need to consider a base rate, sort of like an auction reserve. For example, if the consultant is hired to present a workshop, and no one attends, they have still done a lot of preparation, and may not like not receiving any payment!

4. Results Based
More and more people searching for consultants are encountering the results based payment method.

In this method, the consultant typically waives a portion of their fee, for payment contingent on a specific result. For example, the portion will only be paid to a marketing consultant if a particular product reaches a 20% sales growth.

5. Share Based
Usually initiated by the client, who are normally start ups lacking sufficient cash flow when hiring a consultant to pay for services rendered, this type of arrangement involves the company offering the consultant a share in the business, in return for their work.

A word of caution: before giving away your consulting services on this type of deal, make sure the company in question is viable. There’s no point owning shares in a company that folds!

Other Options
A host of other options when working with consultants, or as a consultant, are available in terms of payment. These include a barter or trade agreement (skills, products or services), or even basing rates on the perceived or real value of goods or services.

When hiring consultants, or searching for consulting jobs, it’s worthwhile knowing what these options are, and what best suits your needs.

6 thoughts on “How Consultants Get Paid?

  1. Kim Nash says:

    Hiring a true proffesional to coach, engage and deliver a plan which exceeds expectations can be a hard pill to swallow. Many top executives are relecutant to ask for help and make the same mistakes over and over again. Often knee jerk reactions which can have huge significant impacts further down the chain.
    We at Pacific Consultancy have sometimes given free services and if the client likes what they see they end up paying a fraction of the cost of the big four players.
    Sometimes it helps having a fresh pair of eyes reviewing business processes or the overall strategy.
    Kim Nash

    • Michael Graham says:

      Kim- I have an extremely valuable human resource that I cannot afford to bring on as a full time employee. My company is a start up and I know we will be successful. Can you recommend and back loaded comp plans that may behoove both he and my company? We are a professional services company just FYI.

  2. Yves Rho says:

    Thanks for posting this article, I really find it informative.
    I recently started a restaurant consulting company .
    So far I am the only in tne company but I also have two great chefs who have agreed to join as chef consultants .
    I also have a day job so I won’t be able to run yne comal h by myself and I want to hire other consultants and pay them per assignment whenever I find a client I will delegate the project to them and follow up .
    My question is : what would be the best way to pay them ? Or what other would you recommend to do this ?
    Any advice will be really appreciated!

    Best regards

    • There’s many different ways you can approach this eve. A good starting point is to pay them for a small project either as a flat fee or for the hours they put in. Starting with a small project will allow you to test the waters with them and ensure that working together is a good fit. Then you can formalize a compensation arrangement that you are comfortable with and works for all parties.

  3. Rich Cook says:

    I think my question is a twist or maybe the following step … what is the typical way a consultant is paid? Assume a value based fee of $100,000. Is it normal for clients to pay all at once, or 50% up front, then the remainder on completion? Or by milestones?
    Great site! You’ve already answer several long pondered questions.

    • Hi Rick, great question. There are many ways to get paid. Some people get paid all at once up front. Often they provide the client with a small incentive/discount to do so. Otherwise you can get 50% upfront, and 50% part way through the project. It’s important to get paid as much as you can in advance so you stay focused on the work and not wondering when you’ll get paid.

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