I’m often asked this question by prospects and even now customers. How much does sales consultancy cost?
I wanted to go above and beyond the classic answer of “it depends”. And give you and others in the market an idea of what the pricing framework looks like. We already discussed in a previous blog entry “The 3 Most Common Consultancy Models Used At Technology Companies To Grow Sales”. I’d like to give an overview of what are the costs associated to enlisting sales support.
There are different ways in which sales consultancies charge technology companies, here are the different frameworks:
- Time – Hourly/Day Rate
- Recurring – Monthly Retainer
- Project – Fixed Fee
- Availability – Retainer Model
- Risk v Reward – Performance Fee
Some of these are similar in their nature and can be referred to differently by consultants but they normally boil down to these key five elements.
Time – Hourly/Daily Rate
Range = £60-180 p/h OR £500-£1,500 per day
This how many consultants charge their clients. They think how much would I like to earn, how many days would I like to work, what is fair in the market. Then they go and pick that number. Moreover, the rate has normally either been charged to them or someone in their network has charged this amount. It’s network-pricing in essence.
The variation in rate is dependent on experience, output and desired results. A lot of consultants will charge higher fees as they have run a similar business in the past as a Sales Director or Non Executive Director. It is important to really understand the personal motives of the consultant as this will dictate the pricing. Costs can certainly rack up using this pricing method as the consultant is incentivised to do less and higher rate, or to garner more days of work and charge more. The benefit of this approach is within 1 week you can call it quits and end the relationship without massive financial risk.
Recurring – Monthly Retainer
Range = £3,000-£6,000 per month
A monthly retainer is commonly based on amount of time that a consultant will spend working with and focusing on your business. Mostly this is a negotiation default of both consultant and client to keep costs low and at a fixed amount. This is contrasted with the daily and hourly rate where costs can fluctuate on a weekly and certainly monthly basis.
The range is dependent mainly on time and to a degree the experience of the individual. There are some nuances, which could mean that there might be additional resources provided like plans, templates, videos or training sessions. Additionally, some marketing and lead generation agencies have started blurring the lines between sales and marketing. Often this means that they say they’ll help you generate and close deals. These are two very different skills, beware of this approach.
The benefit of this approach is that you limit your exposure and know your monthly outgoings and committed time. A reduced monthly retainer is normally obtained when you agree to an initial 3 months with a 1-month notice period.
Project – Fixed Fee
Range = £25,000-£50,000 per project
This is where a sales consulting company is typically looking at a 8-9 month engagement. This could include the analysis, review and recommendations, the plan and the execution all within this period. An approach like this works well when there are specific and set outcomes to be achieved in a short period. Often the consultant will know the business already and be confident that they can drive growth quickly. They might have worked in a similar company, completed an identical project or they already know the route to extreme growth.
A fixed fee arrangement means that you do have an outcome-based arrangement rather than time-focused one. I would encourage you not to confuse these cost arrangements. Often clients think that because they have agreed a fixed fee, whatever time is needed will be given to them. This is backward thinking as you are paying someone to get results for your company.
The fixed fee model would require a payment up front, either 33% or 50% depending on the size of the financial commitment and resources needed from both sides. Additionally beware that a fixed fee model is not a results-based model. Therefore just because you pay in installments it doesn’t mean that you don’t pay them the extra 50% if they don’t hit the KPIs.
Availability – Retainer Model
Range = £1,500-£4,500 per month
An availability-based retainer model is one where the sales consultant will give you allocated time in their diary. This can be a set day(s) or it can be the equivalent total hours over a month or quarter. I’ve often seen this with sales training and Non Executive Directors. It can work well when there is a support-based arrangement after a sales transformation has taken place too. Hence the sales consultant is coaching and supporting the CEO long-term.
In contrast in the early parts of the relationship this is seen as too early by clients as they need you right now. They want results and they want them quickly.
Risk v Reward – Performance Fee
Range = 5% – 30%
A Risk v Reward model is a contingency based model. It’s cost is dependent on achieving set outcomes or goals in a specific period. There are two main types of performance fee:
a) Set Reward Fees
b) Set Percentile Fees
Set Reward Fees are those where you charge the client a set fee based on the results. Therefore you could charge them £25,000 for a 50% increase in sales, £50,000 for a 100% increase in sales and £125,000 for a 200% increase in sales.
Set Percentile Fees are those where you agree to take a percentage of the new increase in sales. It’s similar to a commission. Therefore if you increased the sales by £500,000 you would agree 5% cost. if it was £1,000,000 you’d take 10% and if it was £1,000,000+ you’d take 20% of all those monies over £1,000,000. This is only an example and there are many variations of this arrangement.
There are a lot different pricing models available out there for those looking to buy sales support. As you can see the ranges can be quite large and the costs are dependent on many factors. My advice to Tech CEOs would be to review what you want the individual to achieve, what your current situation is and what arrangement will bring the best behaviours. To create a win-win relationship you have to understand what’s important to both parties and look forward continuously.
What other types of pricing models have you seen?