Typically, consultancies charge by the hour. Hourly fees vary depending on the consultant’s experience, operating years, location, and field of expertise. And, because most consultancies guard their billing structure from public knowledge, knowing what cost to expect can be difficult.
For most consultancies, an hourly fee is easiest. Hourly billing is also the most common fee structure amongst new, startup, and tech consultancies. But, how does a consultancy use an hourly rate to generate an overall project cost and payment plan?
The Cost Worksheet
When generating a project’s cost, consultancies frequently employ a cost worksheet that allocates resources by project phase. For example, they may need a solution architect early on to design the software solution but once the product is in testing, the SA becomes less involved and the number of billable hours drops. Billable hours may also vary depending on the individual consultant. The solution architect may be billed at $300 per hour, based on her years on the job and area of expertise (Strategists are typically among the most expensive consultants). A content consultant may come at the discounted price of $200, appearing to be a bargain but could eat up billable hours. (Forbes, 2006)
With all the variances involved, billable hours can dominate a project. They become the sole source of expense for the customer and the source of income for the consultancy. If the resource is not billable by the hour, that resource becomes undefined and, therefore, in the mind of the client, too expensive. This creates adversarial relationships between the consultants and the clients.
Clients want to know why they’re spending money on a consultant. They want every hour accounted for as they account for their regularly employed staff. The argument begins with and hinges on the cost worksheet and the consultancy’s estimate of how long the work will take and at what rate.
Cost worksheets also build in variables such as travel and accommodations. If the consultancy plans to send consultants onsite up to 50% of the time (a standard request) then there are four plane tickets (~$500) and 8 nights of hotel (~$200/night) per month minimum. When clients request that travel is billed separately, the client may believe they are gaining control of a certain cost. But, what if clients underestimate how much travel costs? The dissatisfaction with travel expenses can create significant tension that derails the project.
Then, the client and consultant return to the cost worksheet, debating over which resources’ hours are billable. Travel expenses are combed through, each trip analyzed for its importance to the project. Time and energy, valuable resources in any business, are wasted. What happens if the client runs out of money before the project is completed? Is the work ever finished?
So, according to the cost worksheet, the cost of consulting is the consultant’s hourly rate multiplied by the hours he engages with the client, and exacerbated by the consultant’s travel expenses. So one week with a consultant, let’s use our solution architect at $300/hour with two days of travel and 24 billable hours, onsite could cost the client $9,200. If the hourly engagement is prorated for the two days of travel, that cost could drop to $7,200. Even still. Yeesh.
Clemson Road Creative doesn’t think consultants should charge by the hour. So we don’t. We charge a monthly fee for one of three types of engagement.
CRC resources work together to create all of the deliverables on the project. We have researchers, writers, and trainers working in various capacities without a per-resource or per-hour charge.
Full spectrum solution coverage
Predictable monthly rate regardless of hours and resource allocation
Single CRC resource to fulfill the project’s requirements. Typically for singular projects such as on-site training.
Expert service perfectly matched to specific needs
High consultant availability
CRC resources sent on site to your customer on your behalf to deliver research, writing, or training services.
Supplement your customer offerings
Professional services on an as-needed basis
We usually suggest a client consider how much they would pay a single resource if they hired someone to come in and do this job. What qualifications would that person need? What would that person’s salary be? How much would it cost you to on-board them, train them, provide benefits and insurance for them?
After calculating how much the project would be worth to the client, whether in money saved or earned, Clemson Road Creative then bids a fraction of that cost. No hourly billing. We only consider the total value of the project. This way, Clemson Road Creative guarantees the project will be completed, no matter how many hours our consultants work.
As for travel, we work up a travel budget and lay it over the cost of the resource for the entire project. If we stick to the budget, we come out even. If our consultants go over, we lose money, not the client. We never charge for travel as an itemized, variable cost. There’s too much risk.
We sell expertise. We sell results. We don’t sell hours.
At CRC we don’t value our expertise according to hours worked. We value our expertise according to the results we produce, and that is what we bill our clients for. One project. One price.