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Lean Consultant Fees

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  • #54129

    Doug
    Guest

    How to most independent lean consultants charge? A flat project fee? or will they be open to charging per percentage of “improvement”?

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    #193807

    Darth
    Participant

    Many charge a per diem. A flat fee is always dangerous if the project runs longer due to things beyond your control. The daring ones will be open to a sharing arrangement. Key is to be very very specific on what the definition of improvement is and how it is to be measured. Clients will often get cold feet once they realize how much more it is costing them than a flat fee. The upside can be big as some of the consultants on here can tell you. But sometimes you really have to work hard to get paid and unless you have been very diligent in laying out the expectations and measures of success you may run into a lot of problems collecting your money.

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    #193814

    MBBinWI
    Participant

    I would be careful about configuring a “percentage of improvement” arrangement. There are so many ways to game that. They could just refuse/delay orders for a period of time until the consultants are gone. While in theory it is the optimal, it has problems.
    What seems to work best (as Darth identifies) is to charge a per time period (day/week are most common) rate. Most add travel on top (some even up-charging that cost).
    When you show the client the potential value compared to your cost, it should provide an appealing ROI.
    As brother Darth identifies, be very clear on what is being measured, how, and what the commitment is for success.

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    #193832

    Mike Carnell
    Participant

    Doug – There are consultants out there that have been offering the percent of benefits since 1996 and have found no takers. They have seen a tremendous amount of people who think they are testing the confidence of the consultant when they ask about a percent of benefits and generally aren’t prepared for a “yes” answer so they react by getting angry.

    A percent of benefits agreement will get you more improvement faster. Make an agreement up front on what we call a “Benefits Capture Protocol” so everybody understands how you are keeping score before you begin to keep score. Agree on who keeps the numbers, who does the calculations and who audits the numbers so nobody feels like they got played.

    If you are considering asking someone to bid the work this way have them bid it both ways.

    Another option is to figure out what you need in terms of benefits from the program and set up a bonus around hitting a target and a stretch target. This may be a little safer in terms of the speed of change. If you open your checkbook to a pure percent of benefits there is nothing that stops anyone from jaming the accelerator all the way to the floor and burying you in change that damages your organization. If you set a target the consultant has no incentive to drive beyond the target. Works well as long as you understand the amount of stress your organization can deal with when you set the target.

    Have you even done any work to identify what the possible value of the improvement would be between your current state and if your processes ran perfectly?

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    #194216

    Shabana Wollin
    Participant

    @Doug Every consultant/consulting firm is different, so it really depends. If you are a customer looking to hire an independent consultant, then you would need to look at the consultant’s capabilities, areas of expertise and if they are a fit for your project.A savvy customer, usually has done their research on this matter before engaging with anyone.

    If you are an independent consultant looking to work on a project for a customer, you would need to think about the customer’s ability to pay for your time & expertise, if the project is a fit for your skills, and if you can deliver on the project as agreed upon.

    % fees on improvements can be sometimes dangerous for both the customer and consultant if you are not aggressively writing your engagement contracts to protect the interests of both parties. There potentially could be factors beyond both your controls. However, I am by no means discouraging it.

    As an Independent Management Consultant that owns my own consulting firm, we almost always works on a fixed price retainers with maximum allowable hours for each project. So far its works well for us.

    I have not done a % fee for improvement to date(fee+incentive model) I will however consider it if I was presented with an opportunity in the future. :)

    Hope this helps answer your question. Good Luck!

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    #194282

    George Loughery
    Participant

    My organization always paid a flat fee and extended the period if things were going well. The % would not work well in my previous jobs.

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