In almost any business transaction, we expect a satisfactory result. Whether it’s a consumer shop at the local supermarket or the Australian Defence Force ordering a fleet of new aircraft, it’s no different to the end buyer - they want what they pay for.
Therefore it’s hardly surprising in the lucrative world of management consulting, which IBISWorld report exceeded $8 billion in revenue in Australia in 2014-15, spread across more than 11,500 businesses, that end users want accountable results before they pay up.
Landmark survey reveals the trend towards outcome pricing
A comprehensive survey conducted by findaconsultant.com.au, in which almost 100 consultants responded, revealed that 24% of consultants now bill regularly on an outcome basis while another 21% bill this way occasionally. One of the key reasons for the change in billing is that consultants no longer just help with strategy; they are often hired to deliver on their recommendations as well. If a consultant is responsible for the ‘end-to-end’, then it’s fair to hold them accountable to some degree. One way of holding someone accountable is only paying if the agreed outcomes are achieved.
Another reason for the emergence of the trend towards outcome-based pricing is that so many companies have been burnt by poor consulting experiences. They are nervous about paying large fees for advice, with no guarantees it will be worth it.
The findaconsultant.com.au survey also revealed that while only eight per cent of consultants are asked to price on an outcome basis, the top three outcomes sought by companies are cost savings or efficiency gains (37%), increased revenues or profits (23%) and higher customer satisfaction (16%).
There is sound logic behind the thinking that this trend started in the GFC and has continued today.
When an outcome based consulting service works best
Other industries – such as business process outsourcing – have long had risk and reward regimes, so if services aren’t delivered in accordance with KPIs, penalties kick in, and the price drops. Companies everywhere like the idea of having control and reducing risk, and outcome-based pricing gives them these advantages.
By no means are all consulting projects suitable candidates for outcome-based pricing, but if your consulting project meets one or more of the following three criteria, then it’s worth exploring:
· Projects with black and white outcomes lend themselves to outcome-based pricing. Examples of this kind of service include: a bid management consultant assists you with a tender, and you get shortlisted, or win; an SEO consultant says with a certain budget, they can get you on page one of Google within three months; or a telco consultant says they can reduce your telco bill by at least 20%.
· Strong, existing relationship – if a consultant has worked with a client for many years, and knows the client’s business inside out, there is going to be more trust and less risk involved in pricing based on an outcome.
· Where the consultant has control over the implementation of his or her recommendations.
There are other areas where businesses and consultants can work together to achieve a desired outcome that is measurable. Just make sure that you have set clear goals at the beginning so there is no ambiguity at the end.