9 Consulting Fee Structures to Boost Your Income

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Use the Right Consulting Fee Structure to Boost Your Income

Consultants who want to increase their income must know not only the appropriate consulting fee but also the best fee structure if they want to build their business. 

This article will show you nine fee structures used by consultants, starting with the straightforward but limiting consulting hourly fees and working up to the extremely rewarding multiple streams of income. It can take a few years to prepare for some fee structures, but a better fee structure means higher income, more independence, and a better work-life balance.

Consultants who work with upscale fee models not only make more money, but their cash flow is also more stable. Independent professionals can make significantly more income by moving to a better fee structure.

As you can see from the chart above from Elaine Pofeldt's book, "The Million-Dollar, One-Person Business," a few solo professionals and independent consultants make significantly more than the average

Elaine found five things high-earning solo-professionals did that average and low-earning solo professionals did not do. One of these was using fee models or rate structures that leveraged their work and created more income.

The following nine consulting fee structures and models are all used by solo independent consultants. I have arranged their order from least income to greatest income. In many instances a higher fee structure produces greater income for the same amount of work.

Take a look through these fee structures to see which ones you can use and how to move up to more income.

Create More Consulting Revenue with the Right Fee Structure

As a new or experienced consultant, if you want to grow your business, you must plan to improve your consulting fees. Your fee model is one of the most critical factors in your consulting income and work-life balance.

If you do not plan or fail to execute, your future will be no better than your past.

As you look at these different consulting fee models, think about how you can move from one to the other. For example, most consultants begin working at an hourly or daily rate. They should immediately start working on what they need to do to move to the next higher level, project, and ROI based fee models.

In my 30+ years of consulting, I have used all of these fee models except the Value-Based fee model. (The Value-Based model often seems to be based on image, boasting, and friendship with a C-level executive.) Through trial and error, I have learned how to move from hourly and daily rates to project and ROI-based fees and combine fee structures to produce multiple income streams.

Planning and preparing to grow your fee model is critical to your consulting success.

Nine Fee Models – Structures to Increase Consulting Rates

Independent consultants, boutique consulting firms, and independent professionals can use similar fee models. These professions deliver information, decisions, or skills that create high value for the client with a small cadre of consultants and contractors.

The lists below shows nine fee structures and models. What is best for your business and lifestyle is a hybrid model combining different fee structures.

Here are nine models, their pros and cons, and tips on moving up to the next higher model,

  • Pro Bono
  • Hourly, Daily, and Weekly Rates
  • Retainer
  • Project Based Fee
  • Agile Agency (Agency modified for independents)
  • ROI-Based Fee
  • Value-Based Fee
  • Packaged or Productized Fees
  • Multiple Streams of Income

Pro-Bono Consulting Fees

"Pro bono" is a Latin phrase shortened from "pro bono publico," which means "for the public good." (Wikipedia)

Pro-bono work needs to be included in the list of consulting fee models. It can polish your brand and expand your experience, although there is no income. As a new consultant, you can gain experience and testimonials while doing pro-bono work. The connections you make, the testimonials you receive, and the experience of working with well-run non-profits can be valuable to growing your business.

Pro-bono work is a great way to pick up experience in a new area of consulting. However, do not inflict a complete lack of skill on a non-profit just because you are working for free. First, develop your consulting framework and skill set through courses, workshops, and partnerships. Then, shadow or partner with another consultant on your first non-profit project in the new domain.

Look for pro-bono work by volunteering to work with other consultants on a non-profit engagement. You can find non-profits by searching Google or Yelp with "non-profits near me" or contact local governments for information on local non-profits.

Pros

  • Pro-bono work for well-run, high visibility non-profits can connect you with top-level sponsors. You will gain experience working with diverse groups and get testimonials from recognized civic and business leaders.
  • It just feels good to do good - you are working to build a better world.

Cons

  • You need to have a financial cushion while you are doing pro-bono work.
  • Do not expect non-profit organizations to be as organized as most corporations. They may have management, personnel, or systemic problems that are outside your ability to change.

How to Move Up

  • Working with non-profits builds experience using new consulting tools and frameworks.
  • A well-done engagement with a well-known non-profit can give you connections,  testimonials, and referrals that build your authority and brand. Do not feel shy asking for a testimonial at the right time.
  • Begin building a network of consulting partners and professionals you can call on later for Agile Agency projects.
  • Pro-bono work with teams of your peers can be rewarding and fun.

Hourly, Daily, and Weekly Rates

Most consultants begin by charging hourly consulting rates. While hourly rates are easy to calculate, it places you in the position of being a commodity and competing with lower-skilled freelancers that can be found on Upwork or Fiverr. As a commodity, you have little control over fees, value contribution, or brand image.

Most consultants calculate their daily or weekly rates by multiplying hours charged by their hourly rate.

If you are doing training, seminars, workshops, facilitation, etc., do not charge at a rate based on your hourly rate. Your "packaged offering" includes far more than your hours onsite or in classroom. This work includes your experience, workshop development time, pre-work, post-analysis, and more.

Finding hourly work through a job site is easy. But the client may never see you as a high-value consultant. To change this perception, add more value to your work with high-value contributions in meetings, make others aware of your high-value skills, and connect with other departments and managers in the business.

Pros

  • Working for hourly consulting rates can pay your necessary bills as you develop your skills and gather testimonials and experiences.
  • Finding clients through a job site may take much less time than the 30% average time most independent’s spend marketing. However, your total fee and ability to grow will be less.
  • Gather testimonials and write case studies for all the work, even hourly, where you have made a valuable contribution. These testimonials and case studies are critical to building your consulting brand.

Cons

  • Hourly consulting rates can be a trap. It is easy to fall back into the 9 to 5 schedule. Even when you work 9 to 5 reserve time for professional development.
Imagine looking back after years of hourly freelancing and realizing you could have built a thriving consulting business with a little extra work and training.
  • New consultants often calculate hourly rates without including all the overhead costs a full-time employee or consultant has. Overlooked costs can include, health care, vacation time, education, administrative time, marketing overhead, etc.
  • There are a limited number of hours in a week. Working longer hours does not significantly increase your income, but it can damage your personal life.
  • Working hourly can put you in an ethical dilemma.
  • Due to your high skill level, you may be able to complete a task quickly, but that means less pay for you.
  • Working at a slower rate earns more income, but you are not giving your best to the client.
  • Proposing additional tasks or projects might help the client, but it also means more income for you. Your client may be left wondering whether you made the proposal to improve their business or your income.

How to Move Up

  • Widen your network within the organization and connect with other department heads and managers. You may be able to work with them as a consultant.
  • Contribute your unique high-value skills on the job, when appropriate, so people can see you are more than a commodity freelancer.
  • Gather testimonials and write case studies for all your accomplishments.
  • Continue working your professional skills and consulting skills.
  • Maintain a professional image and attitude.

Retainers

Retainers assure a client that you will be available. They are a guarantee of your availability for decisions, information, or a skill. Learn more about retainers here.

Retainers are often the first way consultants create a steady income stream to smooth the "feast or famine" cycle typical among average consultants.

Most retainer fees are set as monthly fees. The consulting services promised under a retainer expire at the end of the retainer's time frame, which is often one month. If the client has not used your services at the end of the month the retainer starts anew.

Your retainer must include a well-defined description of the services you will provide, the times you are available, and so on. 

If you go months without delivering any value under a retainer, you may lose the retainer. The client begins to feel like they are not receiving value. To prevent losing retainers, stay engaged with your clients by delivering some value even when you have not been called. For example, you might create an industry trend and forecast report and present it to key managers via Zoom or deliver a quarterly upskill training for new managers. Stay in contact and deliver value if you want to retain the retainer!

Pros

  • Retainers smooth income flow.
  • Retainers are the first step in creating multiple streams of income.
  • Retainers help continue long-term client relationships.
  • Retainers work best for decision assistance, advice, or information. Retainers for hourly skill work can be a scheduling problem and annoyance.

Cons

  • Propose a retainer only after gaining the client's trust, and when they recognize that you contribute a unique value.
  • Retainers that require you to be onsite at specified times are not retainers. They turn you into a full-time employee.
  • Skill-based retainers may force you to be onsite. In cases where you are frequently onsite, the client may begin to think of you as an employee rather than as a highly valued consultant.

How to Move Up

  • Always consider adding an option for retainers to consulting jobs. For example, an ROI-based project could have a retainer to supply support, new project development, new user training, etc.
  • Working on retainer is a good indicator that you are in a trusting relationship with the client. That could mean you can take on more prominent roles and projects.

Project-Based

Project-based fees cover an entire project. Often consultants move to project-based fees by estimating the amount of time required for the project and then multiplying the time by their daily rate and adding costs for resources - this is risky.

Only do project-based consulting after you have completed numerous similar projects. You must understand the times, scope, hidden costs, etc. Stay in your niche where you know the terrain.

Keep a detailed worksheet/database tracking all your times, costs, etc. The worksheet becomes your memory for future project estimates. Add a column in the worksheet with your estimate of the time a task will take. Knowing how your estimates compare to actual is critical for pricing future projects.

Calculating a project fee by multiplying your day rate times estimated project/task times creates risk for you and decreases your potential income. Some of the risks in estimates are,

  • Incorrectly estimating time which forces you to meet your deadlines by either working faster, cutting corners, or working overtime for free
  • Uncontrolled scope creep that leads to unpaid overtime
  • Incorrectly calculating your day rate and then multiplying times estimated hours causes large income losses. Your daily rate must include amounts for profit margin, health care, time off, self-employment tax, administrative costs, professional education, and more.

Pros

  • Project based consulting creates income that is more stable than short, time-based consulting engagements.
  • Project based consulting is a good step toward building an Agile Agency or Boutique Firm. By hiring a few independent professionals/consultants, you can begin to develop teams for large projects.
  • Staying in your niche and tracking project metrics, such as hours, scope creep, costs, estimates v actuals, etc. helps you accurately bid on projects.

Cons

  • You can lose money with inaccurate estimates and they can ruin your credibility as a consultant. Work into project-based consulting gradually by doing smaller jobs, working with other consultants, and tracking metrics.
  • You must have a well-defined Statement of Work to prevent unpaid scope creep.
  • Develop checklists for any repeatable work. Checklists will improve efficiency on the next similar project and reduce errors by new subcontractors.
  • Work with stakeholders and participants at all levels to develop a detailed Work Breakdown Structure so you can accurately estimate times, roles, and costs.

How to Move Up

  • After you have completed a few projects in your niche and developed a reputation, you and your team of independents consultants/professionals can move to larger projects and fees using ROI-based Fee Model or an Agile Agency Model.

Agile Agency Model

An Agile Agency Fee Model uses a group of highly skilled consultants or independent professionals who come together under your leadership to complete a project. Once the project finishes, the team disbands, and everyone is again independent. A great example is the Rolling Stones.

From 1989 to 2002, the Rolling Stones earned $1.5 Billion – that is spelled with a LARGE B. And they did that using a model that I think works well for independent consultants, a model I have used a couple of times. Their business model combines Agile Agency, Packaged and Productized offerings, and Multiple Streams of Income.

Mick Jagger, the lead, went to the London School of Economics and to paraphrase Mick's words, "I didn't study business as much as economic history." Although he says he did not study business, he changed economic model for the music industry.

Sticking with the concept of an Agile Agency, the Rolling Stones have only a few permanent "employees." There are four business owners (the key musicians), a business manager, a tour director, and back office. On tour, almost everyone is hired temporarily for a discrete skill at a specific venue.

In their Agile Agency Model model, they use temporary personnel to set up the next venue, backup musicians at the current venue, and temporary personnel for take-down at the finished venue. At the end of a tour, the entire "tour business" disbands.

While revenue from records has decreased over the years, their concert and additional revenue streams have increased. Their multiple streams of income come from packaged and productized offerings. As they get older, they can work less and make more. (Sound like something you could work toward?)

For example, instead of just depending upon record sales, they earn income from,

  • Touring
  • Concert tickets (millions)
  • Merchandise
  • Song rights
  • Sponsorships
  • Licensing

The products and services create a self-reinforcing and interlocking business model that is self-promoting.

As the Fortune 2002 article says, if you used the Boston Consulting Group matrix of business types, the Rolling Stones are definitely Cash Cows.

Pros

  • Ability to handle large projects without employing and maintaining long-term full-time employees.
  • Ability to have multiple projects going at one time.
  • Leverage (additional margin) on independent contractors.
  • Ability to handle larger clients than you could as a solo consultant.

Cons

  • You become a people and project manager instead of a solo expert.
  • You must use proven dependable people as your contractors. (I have twice been put in a pinch by people I thought were capable but were not. Correcting their work makes for long hours.)

How to Move Up

  • Build your brand, authority, and trust in your niche.
  • Take on more project-based businesses and learn how to scope the projects and requirements.
  • Build a network of proven, high-quality professionals you can call on.
  • Develop your project management and people management skills.

ROI-Based Fee

ROI-based fees give a significant boost over hourly/daily consulting rates or project-based fees.

ROI-based pricing uses a base fee calculated like the previous project-based model. An additional fee is added on top based on the Return on Investment (ROI) to the client. (In some ROI-based fee models, the entire fee depends upon meeting an ROI goal. This puts a risk on the consultant as there may be many conflating variables that impact the results of the project.)

Completing the project on time and in scope earns you the basic project fee. However, an additional amount is made if your work improves a previously defined metric. For example, the metric might be sales for a new product, production rates, or increased market share.

One way to sell an ROI based fee is to allow the client to sell themselves using their return on investment calculations. For example, while consulting for a Danish software company, I wrote a robust Excel worksheet that calculated ROI for digital marketing software. The prospect entered their estimates of time saved, probable market share earned, ad cost saved, etc. The resulting charts showed the best, worst, and most probable ROI for using the Danish software. Since the client managers entered the data and reviewed the calculations, it made the software sale more trustworthy and easier.

Pros

  • There must be a high-value contribution to the client.
  • An ROI-based consulting fee is much easier to sell (and collect) when well-defined metrics measure success.
  • ROI-based fees are easier to justify when there are few competitors, and you have well defined metrics that are not conflated with other performance drivers. (In other words, it is obvious it was your work that drove the improvement.)

Cons

  • ROI-based results can be challenging to prove in complex systems. It is best to identify metrics your work impacts directly.
  • Have a contract and Statements of Work with well-defined metrics. I know of two cases where consultants did not receive the fee they contracted for because the client reneged.

How to Move Up

  • The ROI-fee model is excellent for moving to higher income when you have a unique position and few competitors.
  • Branding and creating a unique place in the client's mind are critical to moving out of being perceived as a commodity.

Value-Based

A Value-Based fee model is similar to the ROI-based fee model. However, the value contribution is subjective and may be difficult to prove. I have separated Value-Based fees and ROI-based fees because the Value-Based fee model is subjective, and I have never seen it work. The ROI based fee model uses objective criteria. I have used it and seen it work for others.

Value-based fees are proposed by consultants with high profiles and name recognition, such as Alan Weiss. He has developed high name recognition with C-level executives in F1000 companies. As such, he commands high fees for his name and his solutions. If you are working at a lower-level in the organization and are not sponsored by a C-level executive, I recommend proposing an ROI-based fee.

Pros

  • Income can be significant.
  • If your sponsor is at the CxO level in the organization and your brand is nationally recognized, you can make it work.

Cons

  • This only works at the highest levels. At lower hiring levels in the organization, your hiring executive/manager will have difficulty justifying the fee.
  • This never works for skills-based consulting, especially if there are any competitors.

Packaged and Productized

Productizing and packaging consulting is an excellent way to increase your geographic reach and create multiple streams of income. Examples of packaged and productized consulting offerings are books, online courses, keynote speaking, and webinars.

Packaged and productized consulting expands your target market globally and allows you to sell your services at multiple price points. For example, online courses and books sell at a lower price point than personal consulting. They can be sold over the internet to anywhere in the world at all times of day. And they have low marginal production costs; once the first unit is made, additional units are created at the press of a key.

Although packaged and productized consulting has many advantages, it has barriers as well. It is challenging to create a product until you have a lot of experience in the niche and can generalize the most common problem/solution sets. Also, developing online courses can take a long time if you are not familiar with methods for rapidly creating online courses.

Packaged consulting can also be used as a Top of Funnel (TOF) entry point to attract prospects to your website. After working through the packaged solution, some clients will want individualized consulting or coaching (onsite or remote).

Packaging and productizing put you ahead of the long-term trend for consulting. Consulting models that require on-site work are disappearing. Multiple drivers are creating new methods of consulting,

  • Internet access to information and processes
  • More hiring of independent professionals through online job sites
  • Remote consulting
  • COVID-19 accelerating change

Pros

  • Packaging and productizing are excellent sources for multiple streams of income
  • Some packaged offerings, such as courses, produce income while you take time off
  • Your geographic reach to a wide range of price points can be global
  • Productized consulting solutions can make excellent lead offers to attract prospects
  • The cost to produce additional copies is minimal
  • Delivery channels, such as online course delivery, is often outsourced

Cons

  • Do not develop a product until you know the niche and client needs. Watch for common problem/solution sets that you can create a packaged or productized solution for.
  • Developing the initial product can take time
  • Be unique in a high-value niche, or you will be commoditized

How to Move Up

  • Create system and process maps, checklists, and templates for consulting solutions you see frequently. These can be the foundation for a product.
  • Make packaged and productized offerings part of a hybrid model
  • Decrease overhead by outsourcing delivery and back-office operations

Multiple Streams of Income

With planning, you can turn your consulting offerings into multiple streams of income. When done correctly, it takes only a little additional work to turn niche knowledge into an additional source of client income.

Design your workflows so that work on a single consulting offering produces multiple products.

You can combine multiple ways of delivering your consulting to create a web of interlocking offerings that promote each other. For example,

  • High-fee custom coaching or consulting
  • Mastermind groups with executives
  • Remote consulting and facilitating of packaged consulting solutions
  • Kindle books for sale and as promotional offers
  • Online courses delivered through Teachable to your niche

This portfolio of multiple income streams can all be delivered remotely.

Multiple streams of income give you,

  • Increased brand visibility
  • Greater income
  • Reduced competitive risk in one niche
  • Income 7 X 24 X 365. You can be on vacation and be earning an income.

Pros

  • Unless you are in a high-value niche or the leader in a new niche, you may be in danger of being commoditized. As soon as others see your success, they can jump into the market. Creating an interlocking network of packaged consulting creates a defensible boundary as well as increased promotion. 
  • Use third-party platforms to deliver products. For example, Amazon can deliver your Kindle books, and Teachable or Kajabi will deliver your online courses. Marketing is up to you.
  • Once you reach a threshold income, you can hire a Virtual Assistant to manage campaigns, mailing lists, and distribution. This further reduces your workload.
  • To create multiple streams of income, you need to create workflows that leverage one consulting offering into multiple products. (I teach this in the Consulting Mastery Course: Starting and Building a Thriving Consulting Business.)

Cons

  • Managing and maintaining multiple products and packages can become overwhelming.
  • There is no such thing as free money or passive income. Unless you are the market leader or in a unique niche, you will need to market and update your products annually. However, multiple streams of income do give you a chance to take long vacations and while still earning income.

How to Move Up

  • A hybrid model that creates multiple streams of income is arguably the best fee model!
  • Multiple streams of income can create very-high income and greater independence. It is not passive income, but it does allow you a great deal of independence.

Which Consulting Fee Models are Best for You?

As an independent consultant, you can choose the fee model and structure that best fits your niche, income needs, lifestyle, and business maturity. Over my 30+ years of independent consulting, I have used hybrid fee models to match my consulting’s maturity and lifestyle needs.

A hybrid consulting model creates the highest income, reduces the risk of future change, and gives you more personal time. But it does take time for you to test which niches are most profitable, test and develop your marketing, and then create a portfolio of clients and productized packages.

I have tried all of these fee models, except for Value-Based fees. (The ROI-fee model is much easier to sell and define.) The models I used at different stages of consulting maturity were,

Startup-Stage Consulting

  • Hourly/daily rates and project-based consulting on smaller, well-defined tasks
  • Corporate training charged with rate by the day and by number of students
  • Writing niche books 
  • Speaking at local association meetings

Mid-Stage Consulting

  • Project and ROI-based consulting
  • Keynote speaking for brand building (travel costs paid)
  • Teaching adult business courses at college and university to build brand and authority. While low income, teaching is great fun, builds authority, and gives you a lot of experience with client problems.
  • Large Agile Agency Model projects once or twice per year
  • Writing books for major publishers, J Wiley and Macmillan

Late-Stage Consulting

  • Fortune 1000/Global 1000 corporate consulting
  • Online courses, community, and 1:1 coaching
  • Online remote consulting
  • Publishing model - productized books, online courses, communities (TBD)

Knowing the different fee models is critical to your success as a consultant. Building your business to use different fee models and hybrid combinations will give you multiple streams of income and a better lifestyle.