What it takes to make outcome-based pricing work in consulting

The traditional billable hour the consulting industry has relied upon for so long, increasingly seems out of step with the services provided by firms leveraging AI tools. As the conversation across consulting turns to outcome-based pricing, Techspire Consulting founder Anshuman Vedi explains what it will take to make that model work in practice.

There is growing conversation across the media and the consulting industry about moving away from hourly or day-rate billing towards outcome-based pricing. AI has rapidly accelerated that conversation. A Harvard Business School study of 758 Boston Consulting Group consultants found that, on tasks well suited to GPT-4, participants worked about 25% faster and produced work rated roughly 32% higher in quality. When a consultancy can produce better work in less time, billing by time starts to look disconnected from value.

The conclusion seems obvious: if AI reduces the time required, consulting fees should be tied to what the work achieves. But is it really that simple?

Consider a large ERP implementation. The client controls the operating decisions and data, while the system integrator configures the technology. A critical data decision is delayed and configuration stops. The client team is busy running the business, the integrator cannot decide on its behalf and the outcome begins to slip between the contracts.

In my experience, programmes most often slow at these handoffs. Suppliers may be ready to move, yet remain dependent on a decision outside their scope. Day-to-day ownership becomes fragmented across people who have other jobs to do. Expecting a consultancy to own the outcome without giving it decision-making authority is like asking someone to open the door while keeping the key in your own pocket.

Billing by the hour rewards effort, so consulting firms need to accept responsibility for the work they control. Outcome-based pricing gives clients a stronger basis for holding advisers to account. Yet if the fee also depends on decisions outside the consultancy’s authority, suppliers will price that uncertainty into the contract or narrow what they are willing to guarantee. When delivery slips, both sides will argue about who caused it.

Both client and consultancy enter a programme with their own legitimate commercial interests. In my experience, having worked on both sides and now between them, the strongest arrangement is for them to jointly appoint an independent delivery lead who is accountable for the programme outcome. That person needs skin in the game, the technical experience to judge the work and enough authority to make day-to-day decisions. The client sponsor retains ultimate business accountability and steps in only when a decision exceeds agreed limits.

With that structure agreed, the parties can price the outcome sensibly. The contract defines the result and records what the consultancy controls. It also states which decisions sit with the delivery owner. Milestone payments can reflect observable progress, with a performance element reserved for results where responsibility is genuinely shared.

Consulting is already moving towards outcome-based pricing. To make it work, the client and delivery partner must jointly appoint one person who is accountable for delivery and authorised to make the day-to-day decisions that keep the programme moving. Without that person, outcome-based pricing is simply a new fee model attached to the same old delivery problem.

Anshuman Vedi is the founder of Techspire Consulting, a specialist consultancy helping organisations deliver complex enterprise transformation. Techspire works across ERP, cloud modernisation and connected back-office operations, keeping senior delivery expertise close to implementation.