Payment methods for a consultant
From Wikipractice
Contents |
Introduction
In the consulting industry, there are several methods to determine the fees and large valuable variety exists among consultants' firms.
Several reasons explain this variation in the costs. The most important firms and the consultants endowed with a vaster experience or with a unique capacity, can require a higher compensation for their services.
On the other hand, it is practically impossible to codify advice centers so as to establish scales of standard fees.
Let us examine the payment methods.
Fixed fees
The consultant enters a commitment of fixed fees when he has an actual control of the project and can estimate the number of days / consultants with a high degree of certainty. This applies to the studies which present no unusual complexity. Even if the work can require an extensive investigation, the facts tend to follow a logical approach, what allows the consultant of credit note enough time to analyze the problem and make recommendations.
The customer is protected by the fixed amount and any additional work is absorbed by the consultant. This method allows the customer to compare the submissions of several firms and it can budget its spendings.
Maximum amount
This classification differs from the precedent in the sense that the cost cannot exceed the fixed amount but can be lesser. This method is used when the consultant is not certain about the exact scope of the work but agrees to fix a limit of cost.
This situation arises when a customer asks for a submission without giving enough delay for estimating the scope of the work to be done.
Per diem
The per diem is generally used when the project is of short duration or when a customer wishes to use a consultant very specialized for a restricted mandate.
The danger of this method, for the customer, is to grant a contract without limit of time. To counter this disadvantage, it is preferable that the consultant supplies a periodic invoice of the gained fees.
Periodic fees
Sometimes, a customer prefers to engage a consultant on a continuous base. With this kind of agreement, the customer makes sure a continuance of services and the consultant benefits from a regular income.
Generally, the periodic fees are lower than a per diem. Certain consultants seek only customers on a base of periodic fees and distribute their services to three or five companies, on a continuous base.
Contract
A contract is prepared when the customer wishes a compulsory commitment between the consultant and himself. This practice meets especially in the governmental bodies. Several important companies also prefer the formality of a contract.
The contract can be used to clarify that all the information is confidential, that any innovation is the property of the customer, etc.
Project value
In certain circumstances, a work can have an intrinsic value beyond the number of days / realized consultants. For example, a strategic plan for a company can cost more than the time required to prepare it.
If a consultant supplies a service out of which is commonly measurable, the customer can grant him an additional compensation. However, amounts must be specified before beginning the study and quantified in precise terms.
Percentage on benefits
Some consultants prefer to benefit from a compensation based on profits. This method is used in programs of improvement of the profits and the studies of industrial engineering.
The difficulty of application of this method is in the fact that the objectives of the consultant and those of the customer can differ. The consultant can be interested in short-term profits while the customer can be him in the long-term profits. Frictions and disputes can result from it.
Contingent payment
The method of contingent payment is used when is is obvious the payment will be made when results will have been obtained. Most of the consultants will not accept contingent classifications because they cannot control completely the results of a program.
This practice is more often used in the field of the sales where sales targets can be measured in quantitative terms.
Deferred payment
The method of the deferred payment is used to soread the cost of the consultation over a period of time so that the obtained profits will pay the due fees.
This method is used occasionally with the companies which are incapable to pay the total amount of the fees at the end of the commitment of the consultant. It can also be used when the company is in a difficult financial situation.
As kind of agreement is more speculative, the consultant can charge a larger amount to compensate.
Fees and bonus
Sometimes a customer wishes to add a factor of motivation to the basic agreement by offering acceptable fees more a bonus.
This method is used in programs of improvement of the profits, when tangible results are obtained.
Conclusion
As a matter of fact, there are several methods of payment and it is a question of choosing the method of compensation which corresponds most to needs and to profits of both parties, customer and consultant.
As for the costs, these vary according to consultants' firms, according to scope and complexity of a project and according to the mode of realization of the project.
