Re-evaluating consultancy pricing in the age of AI

09 April 2024 Consultancy.uk 3 min. read

For years, consulting pricing has been linked to a standard model relating to billable hours. But according to SCOPE Better CEO Tracey Shirtcliff, the increasing use of artificial intelligence in consulting work is making this position untenable – with clients seeking a shift to payment based on delivery rather than time.

Think of your consultancy’s pricing structure. What does it look like? I’m going to bet that it has something to do with hourly rates - the effort you put in for your clients. And why wouldn’t you do this? It’s what every other consultancy firm does—what they’ve always done. But artificial intelligence is changing everything—how you work and how you charge for it. And it’s time for us to talk about value.

Where does your consultancy use AI? How is it impacting the work that you do? We’ve not reached the stage where AI is doing everything. But with predictive modelling and forecasting, AI has to be changing how you work. Delivering insights and enhancing decision-making, AI makes things faster and cheaper and will keep doing that. So, are you going to charge your clients less or are you going to change the parameters of your pricing structure?

Re-evaluating consultancy pricing in the age of AI

Pricing and the meaning of value

Right now, 0% of firms have a plan for AI's impact on their revenue model, yet at least 20% of all professional services firms will have to fundamentally change their revenue model in the next five years to accommodate AI. The drive for transparency means you can’t keep using the same tired old Time/Effort-based pricing model when AI can complete many billable tasks in moments. And yet, cutting prices is untenable, especially when you’re delivering more value.

Time-based pricing has become so common that no one even considers it. But who cares how much time you spend on a project? The important thing is the value your work delivers. Your clients want results, and that’s why you need to charge for deliverables.

What is deliverable-based pricing?

Here’s the scene. You’re a digital transformation consultancy who specialises in tech adoption, pitching to a new client. Your role is teaching businesses how to get the most out of their new Microsoft 365 Ultra Deluxe package, but how do you package your services and sell them. Traditionally, you’d have opted for an hours-based format.

Say, 150 hours of senior consultant and 75 hours junior consultant… Which means absolutely nothing to your clients. They don’t know what you’re actually giving them for that money other than time.  But if you’re pitching a fee of £370,000 which gets you 15 workshops, a weekly drop in session, 20 1-1 training sessions and a customised training bible, then you’re selling your value and what you can bring to the table.

Time to learn and adapt

If consultancies are going to shift from time to value invoicing, a deep understanding of past performance is a must. You’re not just looking at recent wins but factoring in the potential for fails and the reasons for them. You’re taking a retrospective of what you’ve been able to deliver and looking what that cost you, and how that applies to your future work. And to do that, you need a framework – a system to categorise your projects and ascertain their value. Configure, price and quote (CPQ) software is one option to help you do this.

The ‘charge what you like’ approach of subjective billing disappeared years ago. Time-based pricing is heading the same way for consultancies and other industries. AI isn’t yet taking over, but it is already cutting time from a whole range of processes. So, unless you want to cut your fees, you need to find another structure for your pricing. Value is it. You’ve just got to work out how you’re going to manage it.

Tracey Shirtcliff, founder and CEO of SCOPE Better, a CPQ platform designed for professional services.