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- Clients are pushing consulting firms to adopt outcome-based pricing rather than fixed fees.
- The new pricing structure allows consultants to share project risk with clients.
- The change comes as consulting firms help clients adopt AI, a process where the ROI can be uncertain.
As companies chase the shiny but often uncertain promise of AI, they're asking the consulting firms helping them to share in the risk.
Consulting firms from Boston Consulting Group to Accenture are now shifting more of their projects to outcome-based fee arrangements, in which they are paid for the results they deliver rather than a fixed or hourly rate, current and former consultants told Business Insider.
Typical fee structures these days vary from firm to firm, but consultants told Business Insider they often fall into two buckets.
Fixed-fee arrangements are when a firm scopes a project upfront, estimates the team and timeline, and charges a single agreed price for the entire engagement.
Then there is risk-based pricing, in which the client pays a minimum fee upfront, and the remaining compensation depends on achieving agreed-upon outcomes such as cost savings, bottom-line impact, stock-price goals, or efficiency gains.
This shift toward risk-based, or outcome-based, pricing comes as firms take on more complex client projects, such as large-scale AI transformations. AI has changed both the work consultants do for clients and the way consultants work.
Major consulting firms have rolled out internal AI tools to help employees move faster: McKinsey consultants use Lilli, an in-house generative AI chatbot that synthesizes the firm's intellectual property. BCG has slideshow editors like Deckster and countless custom GPTs to support tasks like research, analysis, and presentation building. Deloitte, Accenture, and KPMG are using tools to automate the rote, manual work often delegated to entry-level workers.
And most major consulting firms have reorganized around supporting clients who want to integrate AI into their own companies.
AI is still in its nascent stages of corporate adoption, however, and the returns on investment aren't always clear. That's one reason clients are opting to tie fees to outcomes.
"I feel a lot of client pressure on it," Bret Greenstein, the chief AI officer of West Monroe, a Chicago-based consulting firm focused on technology, told Business Insider. "I think it's AI that caused the conversation to be about outcomes because one, it's a moving target, and two, it's transformational. There's an enormous risk in it."
At Accenture, one employee familiar with the firm's AI transformation work told Business Insider that it's been moving toward outcome-based pricing in certain pockets of the business as a result of client discussions. "To be able to do something that nobody else was doing, they had to show up differently," they said.
At BCG, three-quarters of the firm's largest AI cases now operate under a variable-fee arrangement, the firm's CEO, Christoph Schweizer, told The Wall Street Journal in May.
"My very first case as a partner was a variable-fee arrangement. So this is not new," he told the Journal. "However, now with AI changing every industry and every function, there are novel situations."
Greenstein said that clients typically want to define clear targets for success. "The shared risk that comes from outcome-based pricing, whether it's pure gain share or just tied to outcome metrics — most companies actually want tied to outcome metrics, not pure gain share."
As a result, Greenstein said AI is putting pressure on the traditional economics of consulting. If a project that once required a large team and months of work can now be delivered by a smaller AI-enabled team in less time, clients will expect the price to come down, and that could translate into lower revenue for the firm.
Clients, he said, are effectively asking consulting firms to put "skin" in the game.
Read the original article on Business Insider