Pricing Models

Last week, I unpacked the difference between costing and pricing, the “how much it costs you” versus the “what it’s worth to them.” This week, I’m diving into a few pricing models. I’ve used a few, been trained on others, and I’m always hunting for smarter twists. Most of us default to the models we (or our clients) already know, but sometimes the right model is the quiet edge that wins the work.

Here are some common pricing models and their pros and cons.

Time & Materials & Capped T&M (Hourly/Daily Rates)

Definition: In a time-and-materials model, consultants charge for the actual time spent (often hourly or daily rates) plus any direct expenses. The client pays for the work as it unfolds, often to a “budget” or contract duration. This is sometimes called Capped T&M . This model is straightforward and offers flexibility for projects with uncertain or evolving scope. For example, if a government agency brings on a consultant to support an IT project in an advisory capacity, they might pay a daily rate for each day of service.

Time & Materials has become the default setting for both consultants and clients. It feels safe, familiar, and administratively simple. Firms like it because it demands little forecasting discipline or commercial risk management. Clients like it because they can scale up or down without complex renegotiations. But let’s be honest: T&M often prevails not because it’s the best fit, but because neither side has built the capability, or confidence, to manage more sophisticated models like fixed-price or outcome-based contracts. For consultants who have developed that maturity, this is an open invitation to differentiate. Proposing an alternative pricing model signals commercial acumen, trustworthiness, and a willingness to share risk, qualities that stand out in a sea of same-old bids.

Pros: Time-based billing is transparent and easy to understand. The client pays for the actual work done. It’s ideal when the project scope is not well-defined or may change, since it allows scaling the consultant’s involvement up or down as needed. Clients can get started quickly without a lengthy scoping process, which suits urgent or iterative tasks.

Cons: This model shifts much of the cost risk to the client. If a project takes longer than expected, the client’s costs increase accordingly. There’s also a potential incentive problem: a consultant paid by the hour might have less incentive to work efficiently, and clients may worry about consultants stretching out work or they themselves stretch out the work because they want additional things done (which can be fine). Strong project management and trust are needed to ensure hours are used productively. In government contexts, time-and-materials contracts are often used when requirements are uncertain but immediate help is needed, given that the client (agency) must closely monitor hours and deliverables to control costs.

Consultant Tip: You can sometimes turn a projected underspend on a Capped T&M arrangement into extra value for the client. For example, if your burn rate shows you’re likely to finish $20k under budget, make a proactive pitch to use that balance to bring in a colleague to tackle a specific problem or deliver an additional outcome. It’s a win-win: the client sees initiative and added value, and you deepen the relationship while keeping your team engaged. Of course, this approach depends on disciplined WIP management and the kind of trusted relationship where such a proposal feels like collaboration, not upselling.

Fixed-Price (Project or Deliverable-Based)

Definition: A fixed-price model (also called flat fee or project-based pricing) means the consultant and client agree on a total price for a defined scope of work or deliverable, regardless of the actual time taken. For example, a consulting firm might quote a fixed fee to develop a strategic plan or implement a certain system for a government department, with that fee covering the entire project as specified.

Fixed-price work demands commercial discipline to cost accurately, price strategically, and manage WIP with precision. It’s not for the faint-hearted, but that’s exactly what makes it valuable. Many firms avoid it because it exposes weak estimating and delivery controls. For those who do have the maturity, tools, and confidence to manage it well, a fixed price becomes a point of differentiation. It signals to clients that you understand your business, trust your delivery, and are willing to share risk. In a field crowded with T&M bids, that level of discipline can be the deciding factor in winning the work.