COSTS AND FEES

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A consulting firm needs to generate adequate remuneration for the services provided and to have healthy financial relations with clients. The client should feel that the fee is commensurate with the real value contributed to the client’s business by the consultant’s intervention. Clients do not expect to get an excellent professional service for a low price, but they do not want to be overcharged. Consultants seek remuneration that fairly reflects the time spent and the impact achieved in working for a particular client, as well as other costs and expenses of the consultancy – the acquisition and development of the consultant’s intellectual capital, service marketing, practice management and administration, etc.

However, “fair remuneration” and “value to client” in professional services are complex and intricate concepts, which are easier to discuss than to apply to a wide range of different clients and assignments. Traditionally, consultants and other professionals dealt with these issues by applying time-based fees, and using higher fee rates and various other arrangements to reflect the higher knowledge content and special contributions made in some assignments. This practice has been repeatedly challenged for various reasons. For example, Karl-Erik Sveiby asks: “What is the value of an idea that comes in the flash of a second but is based on a life of experience? It is hardly the time spent on it. Basing the value of knowledge on time spent can never be correct, still it is the most common. What other ways are there to charge for knowledge?”1

In this chapter, we will first review the basic considerations involved in costing the consultant’s time and establishing time-based fees. We will then discuss other fee formulas and policies that aim to relate the fees charged to the particular knowledge and value imparted to the client.