Should you hire a consultancy on a fixed fee or day rates?

What is the real difference between the two?

The difference is not the arithmetic. It is who carries the risk, and what each side is paid to care about.

On day rates, the buyer pays for effort. If the work takes longer than expected, the buyer pays more. If it goes faster, the supplier earns less. Nothing in that arrangement is dishonest, but it quietly puts the incentives in the wrong place. The supplier is never rewarded for finishing early, never penalised for a slow start, and never forced to say at the outset exactly what the buyer will have at the end.

On a fixed fee, the buyer pays for a result. The supplier carries the risk of overrun, so the supplier has every reason to understand the job properly before quoting, to work efficiently and to finish. The buyer knows the cost before signing and can compare it directly with the value of the result.

Professional services firms know this argument well, because many of their own clients now make it to them. Clients push back on open-ended hourly billing precisely because it asks them to fund uncertainty they cannot control. The same logic applies when the firm is the one buying.

Who should carry the risk of the work taking longer?

The party best placed to control it. That is the simplest test of any commercial arrangement, and it usually points one way.

When a consultancy rebuilds a process, it controls the method, the sequencing, the tooling and the people doing the work. The buyer controls access to its staff and its documents, and its willingness to make decisions. Delays caused by the method belong with the supplier. Delays caused by the buyer, such as a key person never being available, can be handled by the terms of the agreement.

Day rates put every delay on the buyer, including the ones the supplier caused. That is not a neutral structure. It is a structure that asks the least informed party to insure the most informed one.

Why does fixed pricing force better scoping?

Because nobody sensible fixes a price for something they have not defined. A supplier quoting a fixed fee has to ask the awkward questions early. Which process, exactly? Which documents and templates feed it? What does it connect to? Who reviews the output? What does finished mean?

Those questions are uncomfortable for both sides, and on day rates they can be postponed. The engagement starts with a discovery phase, the discovery produces a report, the report recommends further work, and the further work is also billed by the day. At no point is anyone committed to a working result. Most of what is sold in this market looks like that: an assessment, a roadmap or a feasibility study, a document telling a firm what it could do.

A fixed fee cuts that loop. It cannot be set until the job is known, so the scoping happens first and is short and specific. That is the role of the audit on our side: it identifies the single process to tackle before any fee is agreed.

What does scope creep look like under each model?

On day rates, scope creep is invisible. Every new request is simply more days. The buyer often does not notice until the invoice arrives, and by then the original goal has blurred into a series of related tasks that never quite finish.

On a fixed fee, scope creep has to be named. If the buyer asks for something outside the agreed process, the supplier has to say so, and both sides decide whether it becomes a separate piece of work. That conversation can feel less flexible. In practice it protects the buyer, because it keeps the original result on track instead of letting it dissolve.

This is why we rebuild one process at a time. A narrow, clearly bounded job is one where a fixed fee is honest, and where both sides can tell when it is done.

When are day rates the right choice?

Day rates are not always wrong. They fit work where the outcome genuinely cannot be defined in advance. Open-ended advisory support, an interim person covering a gap in the team, or early exploration where the question itself is still forming are all reasonable uses. In those cases the buyer is buying access to judgement over a period of time, and paying for that time is fair.

The mistake is using day rates for work that does have a defined result. Rebuilding a reporting process, a proposal process or a file note process has a clear finish line: it is running on live work and the team is using it. When the finish line is clear, paying by the day just means paying for the supplier's uncertainty.

What should a fixed fee agreement actually contain?

A fixed fee is only as good as the definition of what it buys. Before signing, check that the agreement states:

• The result, not the activity. A process running on live work, with the team trained, rather than a set of workshops or a report.
• What sets the fee. For a process rebuild, that is the process itself: how many steps it has, how many documents and templates feed it, and what it has to connect to.
• What happens if it overruns. The fee should not move if the build takes longer than planned.
• What happens if it is not delivered. The strongest agreements tie payment to the result arriving on time.
• What counts as a change, and how new work is agreed separately.

For how fees in this market are typically set, and what drives them, see how AI consultancy is priced. For the wider questions to put to any supplier, see questions to ask an AI consultant.

Why do we only work on a fixed fee?

Because we sell a working process, not advice about one. Our fee is agreed in writing before work starts, there are no day rates, and it does not move if the build takes longer than planned. If the process is not live in 30 days, the firm does not pay. That promise is only possible because the structure makes us own the risk we control. How we work sets out what the fee covers from kickoff to support.