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Can you suggest alternative billing arrangements, e.g. project or value-based billing, to hourly rate billing for service-based professionals?

I've been consulting for most of my career and billing under the standard industry expectation of hourly based billing. Over the years, I've come to believe that there must be a better way to to exchange value between a client and service provider, that more closely aligns the value provided by the service provider to the value received by the client. Do any of you have use approaches or have examples of billing models like this, that have worked well for both you and your clients? P.S. - See "Breaking the Time Barrier", by Mike McDerment, for a few examples of what I'm after…

Filed under: Consulting

3 answers • 10 years ago

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Kenneth Wolstrup, Value adding advice built on analysis. answered:

Working in consulting I can certainly see your dilemma. We have often thought about billing like that, but ehrn we have compared our fee to the size of the clients business, the clients do not receive it very well. (Close to "Mind your own business!" to put it mildly).

By billing by the hour you stay on your own side of the fence and can motivate your costs, but you do not get a part of the value you create.

I have seen it presented by one consultant, and he ties his fee to the performance of the business (increase in revenue, bottom line) after he has been involved. But he is a big shot strategic consultant working strictly with coaching top management directly. On that level it could make sense, as your impact can be more directly measured.

I would consider one of the following options:

- If your impact can be very directly measured - f.ex. If you are involved in the launch of a new product, business area or similar - it could make sense for both you and the client as you can measure f.ex. revenue generated

- Try to package your deliveries into products or components, as they are more scalable and easier to charge by user, revenue or cash flow through your delivery. It can be hard in a lot of traditional consulting deliverables, but try to be creative about it. Software licenses have been priced like that for years. That way you do not have to justify the time you spend, so it is easier to charge the margin you are looking for.

- If you have no doubt about your value creation, go all in! No cure, no pay - if the value is not created, you do not get any money. Significant downside, but also upside. Again, you need to be able to measure your success correctly.

The good thing is, that you can experiment with this approach without harming your other business, as I assume you work with your clients individually.

Good luck!

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Luciano Fidalgo answered:

One of the most common is to set a monthly fee (recurring payment), or a retainer agreement. The purpose of a retainer fee is to ensure payment for future services or work to be rendered. Absent an agreement to the contrary, a retainer fee is refundable if the work is not performed.
Hope this will help.

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Michael Von Irvin MBA BSN RN, Business & Marketing Success Consultant & Coach answered:

Do not continue to exchange hours for dollars. It is a losing game. You can never win doing this. Bill only by the project. And get paid according to percentage of completion. In addition, charge a royalty whenever possible. You have to establish yourself as the go-to expert in your field to do this.

Spend as much time as it takes to come up with answering this question..Why would I buy your product or service? This will give you your USP. From there you will develop your drive, your, passion, and your marketing voice. From this you will develop unstoppable perseverance for success.

Best of Luck,
Mike
From the Trenches to the Towers Marketing
I will be glad to help as my time permits.

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