Pick a consultant

You have identified a project that you expect will generate $1M per month of value to your company upon its successful completion. You have narrowed your choices to the following consultants to help deliver the project.

• Consultant A is a Consultant who bills $150/hour. You don’t know it up front, but they will end up billing you 4,000 hours of effort, for a total of $600,000 and 2 years of delay, without delivering useful results at the end of the effort. Your company receives $0.00 in value from this arrangement, and pays $600,000 in hourly fees at $150/hr for the time before you give up on the project as “impossible.”

• Consultant B is a consultant who has extensive experience, great references, who has delivered these types of results multiple times in the past, and will deliver results in 300 hours that meet your project goal. This individual submits a proposal for $500,000 to deliver the result, due upon successful completion, regardless of the number of hours it takes. Using their experience and insight, this individual also identifies a way to improve the project to add $500,000 in monthly value for your company. With your agreement regarding the added value, they charge $200,000 to implement that change, which will require 2 additional weeks. In total, this individual devotes 2.5 months to deliver results that provide your company $1.5M/month in value, and charges $700,000 for that result, and you start benefitting $1M after 2 months, and $1.5M after 2.5 months. Calculated hourly, you would have paid $1,842.10/hr. for this consultant.

Which do you choose:

• Consultant A, the consultant who doesn’t belive they can deliver in a reasonable amount of time, so they bill hourly for effort.

Or

• Consultant B, the consultant who has extensive experience, knows they will deliver the project successfully, so they bill for results, plus they add $500,000/month in value beyond the initial project proposal.

Consider that by the time you have given up on Consultant A, and the project, you would have already made over $20,000,000 from the results you would have from choosing Consultant B, who provided their results quickly, effectively, and with added value to the basic project proposal.

The following graph shows a comparison of the scenario described above, showing the net cost or benefit to the company of the results-based consultant (B Net), who quickly delivers a beneficial result, versus the hourly consultant (A Net) who lacks motivation for a quick result, and perhaps never delivers the desired result.

 

 

 

 

 

The following graph shows the same scenario, but the hourly consultant delivers after 24 months on the project, versus 2.5 months with the added value of the results-based consultant. Note that the hourly consultant’s results will never exceed those of the results-based consultant, even after the hourly consultant has delivered the project.

 

 

 

 

Even if we consider the following scenario, where the results based consultant delivers on the 24th month, the same as the hourly consultant, the client still comes out ahead since the results based consultant had an incentive to implement changes that benefit the client, and was not charging fees until results were delivered. Note how the hourly consultant’s client benefit drifts negative, while the results/value-based consultant’s value is never negative. Also note that the hourly consultant’s results never cross the results based consultant’s.

 

 

 

 

I hope this illustrates how results/value-based fees benefit both the client and the effective consultant. They align the consultant’s interests with those of the client. An efficient and more effective consultant will earn more for better results, as they should. The client benefits by always receiving positive value for any money paid, along with receiving better results than they would receive from an hourly fee arrangement.

 

This article was written by Doug Spencer, a technical and business consultant who helps companies utilize technology to improve business operations. Doug’s experience spans many industries, company sizes, and technologies. A public example of Doug’s results is in his suggesting and implementing infrastructure changes that enabled the United States Postal Service to approximately double their online sales annually, while sharply reducing recurring operating costs, and improving availability of online services. Revenue to USPS from their online offerings now exceeds $650M annually, with peak days exceeding $4.7M. Doug has provided similar successes for many private sector companies.

Doug helps companies to realize their potential by utilizing his experience to improve revenue and save costs. Doug can be found on LinkedIN at http://www.linkedin.com/in/dougspencer