Why Value-Based Consulting is Seldom a Good Idea

Every consulting firm talks about value-based fees and they usually want to price themselves in this way since the value-based fees model offers a very high margin. Sometimes they succeed. Yet, they usually fail. This post and related podcast address why value-based fees are widely misunderstood and rarely work in consulting. The key insight is about the forces of supply and demand. You often find people trying to implement a value-based consulting approach as a cost savings measure, without realizing that they would get more value out of a different approach. So, what’s the goal behind value-based pricing? Why does value pricing not work as a pricing strategy in many instances? Let’s look at the economic value, how value-based pricing consulting fits in the consulting business, and what you should know if you’re considering it with a prospective client.  Value-based fees can only work if certain supply and demand conditions in the market are met, or if your client is naïve. If a firm understands this concept, they have a higher probability of securing higher-margin value-based fees. What are value-based fees So let us take a look at what value-based fees are. Let’s assume you go to a client and…