Many consultants that bill by the hour engage with clients via a time and materials contract with loosely defined deliverables. They are treated as 1099 employees for a defined period of time to either complete a project to its natural conclusion or until a defined pool of money allocated for an endeavor is exhausted. The latter is very common with many government consulting contracts or when grants are involved.
These 1099 consultants are considered experts who come in, work alongside regular employees until the outcome of the contract reaches its end, and then leave for the next project. Because the client views the consultant as simply a temporary employee with specialized skills, they often insist that the consultant remain on-site. The consultant assumes that if they are there, they are helping, so they should be paid for their time.
When the client cannot define the full scope of the effort, they feel that they have no other option but to engage a consultant based on an hourly contract. The consultant also does not know how much time will be required and wants to make sure they remain available to the client during periods of peak production; they recognize that if they engage with multiple clients simultaneously, there may be scheduling conflicts. Even though short-term visits by the consultant would be more valuable for both parties, they agree to become a dedicated resource to the client.
Being a dedicated full-time consultant to a client is a horrible model for both parties for many reasons, yet it remains the norm in many industries.
From the consultant’s perspective, they can’t bill multiple clients at the highest rates possible based on the highest value of their knowledge. So, instead, they settle for an hourly rate based merely on their simple presence on-site, knowing there will be a mix of high-value and low-value work.
Another problem with this type of full-time on-site consultant agreement is that the consultant’s income runs between feast and famine. While working for one client full-time, they feast until the contract is completed. Then, their income dries up as they endure the famine period until the next client is found. Not only is this hard on the consultant since it results in a highly volatile income stream, but it greatly limits the consultant’s earning potential as well.
Moreover, these full-time on-site gigs don’t take into account the value of the advice the consultant can provide. In a meeting with Ron Muns, one of my informal mentors when I started my first employee-based business, he shared a small piece of advice that I value at about one million dollars.
Because of this single nugget of advice that he shared during our first meeting over coffee, I was able to retain a significantly greater level of ownership in my businesses. When it came time to sell the businesses years later, that single piece of advice translated into about $1 million more of the sale price, coming to me rather than shared with the other investors.
Too many consultants and clients fail to really quantify the value of good advice. In fact, one of my driving forces behind creating this site is to pay forward that million-dollar nugget of advice with my clients.
Full-time on-site engagements also ignore the fact that, as a consultant, you can work for multiple clients simultaneously. For example, you can conduct research, interviews, deliver presentations, etc., for multiple clients simultaneously. Let’s say I’m a market research consultant for the restaurant industry, and I have two different clients in Colorado Springs. I could very easily do my market research for both clients by citing the same reports and statistics, conducting polls and interviews with potential customers about their preferences, and then selling that advice with only minor modifications to both restaurants based on the value of the report, not the time spent producing it.
Let’s take that example to the next level. What if one restaurant hired me to produce the report, and after delivering it to the first customer, the second restaurant hires me to do a similar report for them? Should the second restaurant become the beneficiary of all the data collected and paid for by the first restaurant that hired me? Or should I charge the second restaurant a much higher fee because of the knowledge acquired and paid for by my contract with the first restaurant? It’s easy to see some of the ethical dilemmas with such a contract.
Your job as a consultant should not be to limit supply so you can charge more, but to meet the demand with minimal labor, thereby increasing demand while reducing your work time.
Hourly billing reduces you to a commodity. With a stated hourly or day rate, you can be compared to other consultants without any real emphasis on your market differentiation. When you bill by time spent, you become a vendor like a plumber or a carpenter. When it comes to working for medium or large businesses, you are frequently placed in a vendor category with specific pay ranges dictated by the purchasing department that has no idea of the real value you can bring, nor do they really care.
Many consultants that bill by the hour or day are lumped into vendor categories that may not even apply to them. For example, let’s say you are a highly regarded cybersecurity consultant. A typical one-day security audit you agree to perform often exposes security breaches that can cost a business millions of dollars. When negotiating the contract, you might hear from the purchasing agent, “We never pay an IT professional more than $1,000 per day.” Consultants that bill by time are considered vendors. It is not the purchasing agent’s job to do an ROI on the value you bring. Their job is to manage the relationship with vendors and get the best price and terms for the company.
The project manager should be responsible for determining the ROI of your engagement and then selling it to the manager controlling the purse strings. You want the project manager to make a single ROI decision based on the value of the initial proposal.
However, when you engage as a full-time on-site resource, the project manager must make ROI decisions for every hour during the contract term. As we stated earlier, when you are a full-time on-site resource, the client often adds low-value peripheral assignments or non-essential tasks just to keep you busy.
Making matters worse is that the project managers that oversee the consultants often do not have the budgetary discretion to approve each ROI decision and are, therefore, reluctant to admit that additional help is needed.
I once heard a statement about budgets and projects that has stuck with me: “Budgets are pre-allocated while money is always available.” As a project manager working for a larger company, one of your jobs is to fight for the biggest budget allocation you can get. However, budgets are always at risk. It is not uncommon to have a budget allocation reduced for various reasons. One of the first areas where these companies look to save money when they want to reallocate money is consultants. It may be to drop a project altogether or to ask you to reduce your bill rate.
However, your goal as a consultant is to provide so much value to the client that they see you as such a high priority that they reallocate money to you and not to something else.
While many consultants are hired on a full-time on-site basis and paid by the hour or day, charging for inputs and not outputs is unfair to both you as the consultant and the client. While billing by time is easy, it is inefficient and reduces you to the level of a vendor where your labor is managed, and your real value is overlooked and not compensated.
When a client says they want to hire you on a full-time basis, requires you to be on-site, and requests a billing rate, seize the opportunity, and tell them that you do not work that way. Let them know that you value your time and want to provide them with the best value possible, and that means contracting with you based on the value you can deliver and not on the amount of time you put in.
Tell them that billing by your inputs (time) and not your outputs is inefficient and unfair for both of you. Working on-site will mean you’ll be paid simply for showing up, even when it does not support the intended outcomes contracted for. Micromanagement and oversight will cause you to bill for more hours than necessary, leading to feelings of distrust. Being on-site also limits your ability to leverage the value of research and efforts that you can spread across multiple clients to reduce the amount you charge them. Being paid on a time basis places the onus on the client to achieve the outcome, including all the sub-tasks required to produce them and often unknown to the client, whereas you, as the consultant, should be carrying that burden. And conclude by saying that your goal is to build a stronger relationship with them based on trust, transparency, and results, not time spent.
However, as a consultant with specific knowledge and skills, defining your value proposition to clients can be challenging when the outcomes are hard to predict or measure at the front end with traditional metrics.
Below are four approaches that you can use to help your clients understand the value of your services:
Focus on long-term outcomes: Preemptively emphasize how your expertise and skills can lead to long-term outcomes that may not be immediately measurable. For example, your guidance may lead to improve relationships, enhanced team morale, or increase organizational resilience.
Highlight risk mitigation: Demonstrate how your knowledge and skills can help to mitigate risks and avoid potential negative consequences. Even if the outcomes are hard to measure, clients appreciate the value of avoiding a costly mistake or a detrimental outcome.
Provide case studies and examples: Use case studies and examples to illustrate how your services have helped other clients achieve positive outcomes, even if those outcomes were hard to predict or measure. These examples help clients understand the value of your services and gain confidence in your ability to help them achieve their goals.
Emphasize the importance of informed decision-making: Underscore the importance of making informed decisions, even if the outcomes are hard to predict or measure. Clients appreciate the value of having access to knowledge and expertise to help them make decisions that are grounded in evidence and best practices.
Overall, by focusing on long-term outcomes, highlighting risk mitigation, providing case studies and examples, and emphasizing the importance of informed decision-making, you can help clients understand the value of your services even when the outcomes are hard to predict or measure at the front end.
Isn’t it high time you stopped offering your services as a full-time on-site temporary employee and charged based on the value you provide?
