Pricing Strategies for Consultants in the Age of AI

image credit: charlesdeluvio, https://unsplash.com/photos/Lks7vei-eAg

It’s interesting hearing how Accenture plans to bolster their consulting practice with $3B of investment in AI to expand their headcount, build Large Language Models (LLMs), and even make acquisitions:

The large productivity gains from LLMs will disproportionately accrue to the kinds of knowledge work done in consulting (e.g. writing proposals, publishing reports, analyzing data, producing integration and glue code, creating documentation, etc).

However, the traditional method of hourly billing will leak that value like a sieve — back to the hyperscale clouds serving the models or to platforms with non-hourly, SaaS-style distribution.

Look at it this way: If you can get 2X the work done in a 40 hour week, but can still only bill for 40 hours, this AI revolution will be a complete passthrough to the consulting industry, producing nothing for the bottom line.

Now, I understand that simply the general interest in AI will drive some net new business and grow the traditional consulting pie (for those with the expertise to answer peoples’ many, many questions about this new technology), but it’s incumbent on consultancies to rethink sustainable pricing strategies.

Here are some better ways to think about pricing as a consultant in the age of AI:

1. Subscription Model: Any repeatable offering that you can tee up on a platform, automate, and earn recurring revenue from will be arguably the biggest win along these line.
2. Value-Based Billing: Determine your fees based on the value you provide to the client. You can set your pricing based on the impact you have on their business outcomes, such as increased revenue, cost savings, or improved efficiency. It can be hard to standardize and define this up front due to the uniqueness of client engagements, but it is certainly worth trying. See the next item for a hybrid approach to introduce Value-Based billing at least partially…
3. Deliverable-Based or Project-Based Billing: Setting a fixed price for a deliverable or project can increase pricing transparency and also allow a partial implementation of the aforementioned value-based billing. This means breaking out separate contractual line-items for those deliverables or projects you are able to standardize (at least with respect to pricing).
4. Retainer Fee: Retainer packages where clients pay a fixed monthly or quarterly fee to secure your services for a specific number of hours or for ongoing support. This does not need to be super expensive, and can actually be a loss-leader to establish long-term partnerships and allow opportunistic contract expansions on a project-by-project basis. Be sure this expectation is discussed upfront so both parties are clear on the demarcation between included vs excluded services with respect to the Retainer.
5. Performance-Based Billing: In some cases, you can tie your fees to the achievement of specific goals or milestones. You can lower the fixed, upfront cost to the economic buyer and share the success that you will bring to your client. For example, an agreement to split a percentage of revenue increases or shared cost savings. But remember you’re sharing the risk as well, so price accordingly.

If you are a consultant out there pondering the future, I think you’ll do well to give these ideas a think, and hold them up as a lens to view your ongoing and future engagements as applicable. Let me know what you think in the comments!

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Dave Costenaro is a data scientist, engineer, strategic consultant, and generally curious guy trying to make sense of the world and build good things.