Consultant fees in the age of AI: From per hour to deliverable-led pricing

18 July 2024 Consultancy-me.com

Pricing of fees in the consulting industry has been based on a standard model relating to billable hours for decades. But according to Tracey Shirtcliff (CEO of SCOPE Better), the increasing use of artificial intelligence in consulting work is making this position untenable – with clients seeking a shift to payment based on delivery rather than time.

Regardless of the specialism, consultancies hold a lot of traction. Whether it’s management, financial, environmental, IT, or operational, consultants are in demand and can generate significant revenue. But where does that revenue come from? What’s it’s based upon? How do you quantify your pricing?

The likelihood is that consultancies focus on hourly rates. It’s the established norm – it’s what everyone in the industry does. But artificial intelligence (AI) is – or soon will be – changing the way firms work.

Consultant fees in the age of AI: From per hour to deliverable-led pricing

Tracey Shirtcliff (a native New Zealander) is CEO of SCOPE Better

AI is cutting the time of billable tasks and at the same time as adding depth, accuracy, and insights. Helping consultants to work both faster and better. But according to the established pricing structure of consulting firms, AI also means that firms should be charging less. So, are you as a leader in consulting ready to think about making a change?

Why AI means your pricing has to change

According to Simon-Kucher, hardly any firms have a plan for AI's impact on their revenue model, despite the fact that at least 20% of all professional services firms will have to fundamentally change their revenue model in the next five years because of the impact of AI.

The problem is that although AI holds the scope to become an incredibly useful tool across the board, bringing a whole range of benefits – predictive modelling, forecasting, data gathering and processing, insight provision – to help expedite decision-making and enhance results, it’s doing all of these things in a matter of moments, which is saving you time and money, even while you’re producing better results for your clients.

So, if you stick to the time/effort-based pricing model, you’ll eventually be charging less for more. And that’s where deliverables come into play.

Hourly billing has always been easy. You charge for the time something takes you. Easy. Lazy. Job done. But with AI, things get complicated, especially in a world obsessed with transparency. So, you face the decision between cutting your fees or finding a different pricing structure. And with deliverable-led pricing, no one cares how much time you spend on your project because the focus shifts to what you can actually do.

In other words, think about what you are offering to your clients and what will sell. Are you offering them meaningless chunks of time? Or are you delivering workshops, training manuals, 50 one-to-one training sessions, drop-ins, and measurably enhanced productivity?

When you switch to deliverable-led pricing, not only does AI’s role cease to matter, but it simply becomes another tool that you use to improve the work you deliver to your clients. However, you increase the appeal of your offering, focusing on deliverables that carry real value rather than the time that matters to no one other than you.

It’s time to change

Changing your consultancy’s pricing model is never going to be a quick process. Configure, price and quote (CPQ) software can help, guiding you towards the creation of a framework with which to categorise your services. But to do that, you’ll need to delve into your past performance. By looking at your wins and fails and what influenced each, you can better understand what it is you can do for future clients, how to improve your performance, and how to price it fairly.

Hourly pricing is reaching its end in consultancy. It is no longer relevant, and it means nothing at a time when clients demand to know where they are placing their money and trust. Even without AI, the opacity of hourly pricing makes it unappealing for many. AI is merely expediting a process that was already underway - and deliverable-driven pricing is the only solution that makes sense.

Tracey Shirtcliff, founder and CEO of SCOPE Better, the Pricing Platform designed for professional services.