How To Structure A Consulting Engagement


Last updated on March 9, 2018 in Consulting Strategies, Sales

I’ve been asked many times about how to structure marketing consulting engagements. While there’s no right answer necessarily, each consulting type has its own advantages and disadvantages.

If you’re a freelancer or agency, you need to consider the pros and cons of the different models so that you can effectively plan for your lead generation and contract needs in advance.

If you are looking to hire a marketing provider (we can help), then you need to understand the different ways that projects can be structured so that you can find the right one for your business. Many businesses, in my experience, start off wanting to make a quick decision and wanting an audit when sometimes that is not the right direction. Sometimes it is, but you need to think through each one carefully.

Many of these lessons come from this post by Jason Fried of 37Signals.

model-madness

Hourly

Many freelancers, especially ones doing freelance work on the side, do hourly engagements. This is how I structured my engagements as a freelancer. As someone freelancing for the first time, hourly can make sense for the following reasons:

  • It’s easy to track
  • You don’t underprice yourself because you underestimate how long a job will take.

However, a client will often say “Let’s do a max of X hours and I’ll pay you $XX per hour.” Unfortunately that $XX per hour tends to be under what you should be paid, but you accept it because you want the work. A year and a half ago, I made this decision and that client ended up taking a LOT more of my time. The downsides of charging hourly include, but are not limited to:

  • If you work faster, you make less money;
  • Hourly rates tend to be lower than rates you can charge on a project basis;
  • You’re beholden to a certain number of hours each week or month, which will most likely mean you can take on fewer clients than with other pricing structures.

Even if the client does not try to undercut your price (they almost always will in my experience), charging hourly can inadvertently penalize you for working smarter, not longer. Jason Fried says it well in this classic post on Inc:

Before I launched 37signals, I worked as a freelance Web designer. I charged clients by the hour. I work quickly. But I soon realized that charging hourly penalizes efficiency. If I can finish something in an hour that might take someone else three or four hours, why should I be penalized? So when we launched 37signals in 1999, we charged clients by the project.

By The Project

The next structure for a consulting engagement is to organize it by the project. Feedback I’ve often heard is “[client] is scared to pull the trigger because it’s a lot of money”.

Think about the psychology behind a big purchase like a car or house. When you’re buying a car, you go as many places as possible to find reviews and what people are saying about the car. Then you go to the dealership and take the care for a test drive. You might then go to another dealership and take another one for a test drive. You might even get your mechanic friend to check it out.

Selling marketing is no different. Sales is all about psychology, and you need to make the potential client feel comfortable. At the very least have a testimonials page on your website (Distilled has an example), and even better have case studies.

Then, sell the first project. If the client desires an audit before they engage with you for ongoing link building or content, then sell that audit (at a price that gives you a good hourly rate). Be sure to build into the contract (contracts are another topic for another time) the possibility for continuing work assuming the first project is up to their standards. Also, make sure you and the client agree on how quality will be assessed, such as timeliness, accuracy, revisions needed, etc.

As Jason says:

Instead of doing long, expensive projects, we’d do short, affordable ones. Instead of billing $50,000 for a 15-page website redesign that would take three months, we’d charge $3,500 per page and offer to complete the page in a week. If you want another page, it’s another $3,500 and another week.

Project pricing isn’t without deficiencies though, which include:

  • Lack of security for ongoing work with the client, which necessitates needing more potential leads for future months;
  • Increased overhead in selling the next project to the client

As you can tell, though, project pricing has many upsides:

  • Gets past the “scared to pull the trigger” mentality from the client;
  • Ability to price at a higher hourly rate;
  • Potential for ongoing work with the same client.

Hourly and monthly are not the only pricing models though. A final idea is a monthly retainer.

Monthly Retainer

Monthly retainers are the holy grail of consulting, in my opinion. A monthly engagement, and especially an indefinitely continuing monthly engagement, enables you to:

  • Have security in your future months where income will come from;
  • Sell less and bill more;
  • Plan for the future instead of just for the next project.

A monthly retainer is the best way to see success with a client because you’re able to plan for the future and track success over time, which can lead to the best case studies (which we’ll cover in a future post). In my experience, three to six months is usually required before you have a solid relationship built with your client to have enough buy-in to try new initiatives on their site. The first months are, honestly, a discovery period, which is why you conduct keyword research, an audit, etc to get a full idea of what is needed on the site and what will move the needle.

An ongoing monthly retainer has its downsides though, mainly:

  • Need to plan a longterm strategy early on in the project;
  • Plan for resources further out to be sure you can fulfill your work.

You can’t do this with a project-based or hourly engagement:

project-plan

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