Imagine you are a firm looking for external advice. Typically, there are four ways external consultants could be paid: a fixed fee, an hourly consultancy rate, “free” advice and finally “no cure, no pay”. Let’s take at a look at the advantages and disadvantages of these four types.

Fixed fee. With this remuneration method, you are sure of the amount you will pay upfront. This makes the investment clear. However, you are not sure of the possible returns or quality.

Hourly rate. The consultancy firm charges you by the hour. On the one hand, this could be cheaper than a fixed fee. On the other hand, you are not sure which amount you will see on your invoices. If the interests of your organization and the consulting firm are not aligned, this may cause them to charge additional hours.

“Free” advice. Some consultants claim they work for free. Who doesn’t want free advice? Beware. When you hear this, a red flag should go up immediately. If they do not charge you, somebody else must be paying them. Therefore, their advice is probably not independent. Most likely, a supplier is paying them to suggest their solutions.

“No cure, no pay”. This remuneration policy makes sure the interests of the principal are fully aligned with that of the consulting firm. This is because it leads to a win-win situation. The more the firm saves, the more they are financially rewarded. No costs are due in advance and all risk lies with the consulting firm.

Regarding to the type of project you want external consultants to take a look at, select the best possible remuneration policy.

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