Beyond Billable Hours: The Rise of Outcome-Based Consulting Models
The billable hour has been the bedrock of the professional services sector for decades. It’s a simple, straightforward model: clients pay for time, and consultants provide expertise. But in many ways, that model is starting to show its age. Clients are, quite rightly, asking for more than just our time; they want results.
It seems clear that the conversation is shifting from "how many hours did you work?" to "what value did you deliver?". This is a healthy evolution for the advisory field. It forces consultants to be more aligned with their clients' success and to think more critically about the impact of their work.
The Problem with Billable Hours
The traditional model isn't without its flaws, as it can create a perverse incentive to be inefficient. The longer a project takes, the more the firm gets paid. That’s not exactly a recipe for alignment. A client of a known firm in Oslo mentioned last year that they felt like they were paying for the consultants to learn on the job.
At the same time, it also puts a lot of pressure on consultants to log hours, regardless of whether or not they are actually creating value. It took a while to see why this works, but the reality is that it often leads to burnout and a focus on inputs rather than outputs.
The Shift to Outcome-Based Models
Still, the industry is seeing a significant shift towards outcome-based models. These can take a few different forms:
- Fixed-Price Projects: A firm agrees to deliver a specific outcome for a fixed fee, which puts the onus on them to be efficient and effective.
- Value-Based Pricing: The fee is tied directly to the value created for the client. This could be a percentage of cost savings, revenue growth, or other key metrics.
- Subscription Models: Clients pay a recurring fee for ongoing access to expert advice and support.
A similar approach was tested during a pilot last quarter, and the results were actually quite promising. The key is to have a very clear and measurable definition of success. Without that, these models can be just as problematic as the billable hour.
What This Means for Clients and Consultants
For clients, the move to outcome-based models means a greater focus on results and a clearer line of sight to the ROI of their advisory budget, and it also means they need to be more involved in defining the desired outcomes and measuring success.
For consultants, it means a shift in mindset. Consultants need to think less like hourly workers and more like strategic partners. It requires a deeper understanding of our clients' businesses and a greater focus on delivering tangible value. It is still interesting that some of the old guard are resistant to this change.
Real change rarely happens overnight. It starts with one consistent decision, made again and again. The move away from the billable hour is a journey, but it's one that is believed to ultimately lead to a more effective and valuable advisory industry.