What a business consultant costs, and how to tell whether the fee will pay for itself

The short answer on what consulting costs

A business consultant's fee depends on the size of the problem and how much of the fix the consultant carries, so an honest one will not quote you a number before seeing the inside of your business. I scope every engagement after discovery and do not publish a rate card. The better question is what your problems cost you each year, because a fee only makes sense as a fraction of the net profit it brings back. I put that in writing: at least two dollars of additional net profit for every dollar you invest.

I am Armando Juarez, and I run Next Level Business Consulting in Richardson, working with owners across Dallas–Fort Worth and nationwide whose companies do roughly one to ten million dollars a year. Cost is usually the first thing they ask about, and it is the wrong place to stop. Below is how fees are built, which pricing models you will run into, how to put a dollar figure on your own problem before you talk to anyone, and what to look for in the fine print.

Why a serious consultant will not price the job on the first call

Think about what a quote on the first call would have to assume. A two-million-dollar service company with one crew leader who holds everything together and an eight-million-dollar distributor with three locations and a turnover problem are not the same amount of work, even when both owners describe the problem in the same words: profit is thin and I am tired. The owner's description is a symptom. What it costs, and what it takes to fix, only becomes clear once someone has walked the floor, read the numbers and talked to the people doing the work.

A consultant who names a package price before any of that is selling a program, not a fix. Programs have their place, but you should know which one you are buying. When someone offers a fixed monthly fee for an undefined period, ask what will be different in your financial statements at the end of it, and when. The questions to ask a consultant before you hire one go deeper on this.

My own sequence runs the other way: discovery first, then findings with each problem priced in dollars per year, then a scope and a fee sized to those findings. The fee follows the evidence.

What actually moves the fee up or down

Once the problems are known, the price of an engagement comes down to a handful of things. The industry is rarely one of them; the same leaks repeat across trades, logistics, manufacturing and service firms.

One item on the list below matters more than most owners expect: length. In my experience, cash moves can start within two weeks and pricing and labor changes usually show in monthly statements within the first quarter, while building a management layer that holds takes longer. A fair proposal tells you which parts of the work are which, so you can judge the fee against the timing of the return.

• How many problems there are and how tangled they are. Underpricing alone is a different job from underpricing plus cash pressure plus a team that keeps leaving.
• Size and complexity: headcount, locations, service lines and how many systems have to change.
• How much of the implementation the consultant carries and how much your managers carry.
• How long it takes until the results show up in your statements and your team runs the new systems without help.
• Format: on site every week, or on-site visits combined with remote sessions for a business outside the area.

Hourly, retainer, project or performance: the pricing models you will see

Consultants generally charge in one of four ways, and each one puts the risk in a different place. None is wrong in itself. What matters is whether the model matches the job and whether you can tell, at the end, that you got what you paid for.

For my part, I do not run open-ended retainers, whatever the model. My engagements end when the agreed goals show up in the financial statements and the team runs the new systems on its own. Whichever of the models below you are offered, ask the same question: what happens if nothing changes? A consultant with a clear, unembarrassed answer has thought about the risk you are taking. One who changes the subject is telling you who carries it.

• Hourly or daily rates. Easy to understand, but every hour costs you whether or not anything changes, so the incentive is to stay busy.
• Monthly retainers. Predictable for budgeting and fine for an ongoing advisory seat. The danger is a retainer with no end date and no measure, which can run for years.
• Fixed project fees. A defined scope for a defined price. Good when the scope really is clear, weak when discovery turns up something nobody priced.
• Fees tied to results. The consultant shares the risk, but the details decide whether that is real: results measured how, in which numbers, over what period.

Put a dollar figure on the problem before you look at any fee

Most owners compare a consulting fee to their monthly overhead, which makes every fee look large. Compare it to the leak instead. My rough formula for pricing a leak is units of waste, times cost per unit, times how often it happens, times 52 weeks.

Here is the example I use with owners. Four crews that each lose 45 minutes a day to slow starts and supply runs add up to three crew-hours a day. At $40 an hour, that is about $120 a day, or roughly $31,000 a year in payroll alone, before you count the billable work those hours could have produced. That is one leak. Most businesses have several, and I walk through the usual suspects in where profit leaks in a growing company. In my experience, owners underestimate the total almost every time.

Run this exercise on two or three leaks you already suspect. If the total is small, you may not need a paid consultant at all, and free business advice in Dallas may be enough. If it runs into six figures a year, a fee that recovers a multiple of itself is an investment with a measurable return. On my guarantee page I use the example of a $50,000 engagement, which must produce at least $100,000 in additional net profit.

How to read a performance guarantee

Guarantees vary widely, so read them closely. Mine is a written commitment, agreed before the engagement starts, to at least two dollars of additional net profit for every dollar invested. Three details give it weight: it is net profit, not revenue or projected savings; it is measured in your own financial statements; and the basis, meaning which numbers and over what period, is defined in the agreement.

A guarantee is also not a discount, and it does not replace doing the work. I only offer it after discovery, when the opportunity I have priced comfortably exceeds it, and your team takes on its own commitments at the same time. Whoever you talk to, these are the questions that tell you whether a guarantee is real:

• What exactly is measured: net profit, gross margin, revenue or estimated savings?
• Whose numbers: your financial statements, or the consultant's own report?
• Over what period, and starting when?
• What are you, the owner, committing to do in return?
• What happens if the target is missed?

The costs that never appear on the invoice

The fee is not the only cost. Implementation takes time from you and your managers: in my engagements, a weekly working session with the management team plus the follow-through between sessions. Discovery mostly uses my time rather than yours, but people will be interviewed and the floor will be walked, and that has to be planned around the work.

There is also the cost of the cheap option. A report that diagnoses the problem and leaves the fixing to an already overloaded owner often ends up in a drawer while the leak keeps running. And there is the cost of waiting, which is the easiest one to ignore. A leak worth a certain amount a year costs roughly a twelfth of that for every month it stays open. Then count your own hours. If you hold every decision, the leak includes the work only you could be doing, such as pricing, selling and steering the company, that never gets done because you are refereeing the day.

Before you spend anything, make sure your books are current and your statements are reliable. If the numbers are months behind, that is the first fix, and it is a job for a bookkeeper or CPA rather than a consultant. No one can price a leak in numbers nobody trusts.

How to get a real number for your own business

With me it starts with a short application about your size, industry, challenges and goals, and a call within one business day. If the fit is poor, I say so and point you somewhere better, which might be free mentoring, a specialist or a later start. If it looks like a fit, we hold a free working consultation on your numbers and operations, and you leave with at least one actionable insight whether or not we go further.

From there, discovery happens on site for businesses in the Dallas area, or as an immersion visit for owners elsewhere. You get the findings, what each problem costs, what fixing it is worth and a sequenced plan, and that is when you see a scope, a fee and the guarantee in writing. To prepare, bring rough revenue, headcount and your two or three biggest frustrations; financial statements help but are not required for the first call. If you want to see what the work itself looks like, read what happens inside a consulting engagement.

Questions people ask me