How to Set Consultancy Fees

Came across this fantastic nugget the other day:

Some
consultants set their rates by the project. They estimate the number of
hours they expect to spend on a project, then multiply by their hourly
rate.

However,
some consultants set their project fees using the value the client
derives from the consultant’s advice. There’s an old joke about
physicist Niels Bohr that illustrate this principle.

A
company’s machine breaks down. The company’s owner, an old school chum
of Niels Bohr, calls in the physicist for help in fixing it.

Bohr examines the machine. He draws an X on the side and says, "Hit it right here with a hammer."

The
company’s mechanic hits the machine with a hammer. It springs into
action. The company’s owner thanks Niels Bohr profusely and sends him
on his way.

A few days later, the owner receives an invoice from Bohr for $10,000. Shocked, the owner phones Bohr!

"Niels! What’s this $10,000 invoice? You were only here for 10 minutes! Send me a detailed invoice."

Bohr agrees to send the invoice. A few days later, the company’s owner opens a new invoice.

INVOICE
Drawing X on the side of your machine                             $       1
Knowing where to put the X                                             $ 9,999
———————————————————————————————–
Total                                                                             $10,000

2 thoughts on “How to Set Consultancy Fees

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