How Is a Consultant Paid?

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Consultants usually look at their project types before deciding what billing method is best.
Consultants usually look at their project types before deciding what billing method is best. (Image: Jupiterimages/BananaStock/Getty Images)

Consultants do not have a standard method of payment. Instead, they adopt one or more payment options that best fit their type of consulting. Each option has benefits and disadvantages for both the consultant and the client. Most consultants charge by the hour or the day, but others request a lump sum or are paid by the project, results or shares. Some consultants also are salaried.

Hourly or Daily

Consultants often charge clients by the hour. This is best for projects in which the client needs only minimal guidance or when there are enough variables involved in the project that estimating the exact time necessary for completion is difficult. The downside of charging this way is that, although the consultant can quote an hourly fee, the client never really knows for sure what the cost of the project will be until the project is done.

Daily charging is similar to hourly charging. It is sometimes better for the client because he knows the consultant has been reserved for half of the day or the entire day to work exclusively on the project presented. However, if a consultant takes fewer hours to complete work than the daily fee has reserved, the client can end up paying for hours the consultant didn't really work.

Lump or By Project

When a consultant charges a lump fee, it means she charges the same flat rate for everyone, regardless of how long the project takes. The advantage of doing this is that it locks in a specific rate for the client, who knows before work begins what the bill will be. Project rates are similar to lump fees in that the entire bill is paid at once. However, with a project rate, the consultant charges based on the specific terms of the project. Clients also may opt to pay a project fee after the consultant reaches a milestone in the project.

Results

Some consultants agree to bill clients only if they reach a certain level of expectation in the project -- that is, on contingency, similar to how many attorneys charge. For example, a financial consultant may get paid only if he eliminates at least two out of three debts a client has through his advice. Usually the consultant uses a flat fee in conjunction with this method, collecting those monies when the desired results are achieved. The major benefit of this method of payment is that the client knows the consultant is motivated to work hard, as the consultant won't get paid if he doesn't meet expectations. However, this method requires that the client and consultant establish expectations clearly, preferably via contract, before the project begins.

Shares

The clients who hire consultants often are new businesses that need some direction in initial company operations. These businesses sometimes don't have the funds to pay the consultant's fees, as the Business Consulting Buzz website points out. In this case, the company offers the consultant shares in the company for which he works. The problem with this method of paying a consultant is that the consultant has to depend on market fluctuations for payment; if the company folds, the consultant may end up getting nothing for his work as the value of the stock declines. However, if the company does well with a viable product or service, the value of the stock may increase to more than the consultant would have otherwise earned.

Salary

Some consultants do enough work for one client that they essentially are like regular employees. In this case, the client may offer the consultant a regular salary. In some cases, if the consultant works enough hours and is valuable enough to the business, the company also may offer a benefits package.

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