Guerrilla Intelligence The Downside of Fee Caps

The biggest drawback to fee caps is that they take the client's focus off the primary objective: achieving the project results. Clients who continually monitor consultants' hours would be better served by focusing on how well the consultants are progressing toward achieving project goals.

► Plan how to respond if the client pressures you to discount hourly rates. Be prepared to offer a different consulting team or reduced scope that would fit a lower rate.

► Understand how much profit you need for each level of consultants assigned to the project. Know in your own mind the lowest possible rate that you could accept before you would walk away from the project.

► Ask for an additional incentive payment if the project results are met or exceeded.

Though not ideal, with proper planning, hourly or daily pricing can lead to acceptable profit margins, especially for larger consulting assignments. Consultants who work alone on projects, however, should be wary of this kind of pricing.

A single practitioner doesn't have the financial leverage of a larger consulting team. With a team, overhead and profit can be spread out among the consultants. To make a reasonable profit, a consultant working alone on an hourly basis might have to charge the client a noncompetitive rate or bill for many more hours.

Even though many consultants would prefer not to use fee-forservice pricing, don't count on it going away anytime soon. We trained clients to think this way, and it will take some time to change their perspective.

You've probably heard it said that you can tell how housepainters are being paid by watching them work. If they're going slowly and deliberately, they're being getting paid by the hour. If they're painting fast and furiously, they're getting a fixed fee for the job.

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