How AI is Changing the Consulting Game

Consulting / consultant crossing a street

As artificial intelligence transforms the consulting industry, the traditional pricing model based on billable hours is quickly becoming obsolete. With AI cutting the time needed for many consulting tasks, clients are demanding a shift to value-based pricing.

That’s the essential premise of a thought-provoking article last month by Tracey Shirtcliff that I stumbled upon via a post on LinkedIn.

The Billable Hours Model is Under Pressure

Shirtcliff – CEO of CPQ pricing platform SCOPE Better – argues that AI’s ability to automate and speed up many consulting tasks means the old model of charging clients based on billable hours no longer makes sense. Clients will expect to pay for the insights and value provided, not the time it takes to generate them using AI. Consulting firms must adapt their pricing to be based on the value and results they deliver.

This crystallises my own thinking on this subject. As a consultant myself, almost everything I do is either based on the time I estimate I’ll spend on a client’s work, or an overall value attached to a specific project.

Recently, in working out a budget estimate for a proposal for a new client, I kept thinking that quoting a price based on an hourly or daily rate doesn’t work well if you’re a consultant where much of your time on client work is focused on research and development. Increasingly, the research part of that picture is carried out by an AI assistant, faster and more accurately than I (or a human research assistant I work with from time to time) could do it.

And, as AI tools become more sophisticated and widely adopted, they enable me to automate many tasks, especially initial topic or subject-matter research, summarising articles and reports, and pinpointing the key issues on a given topic. Even creating an outline or first-pass draft of, say, a report I need to write. As a result, I can generate insights far more efficiently and quickly than before. In fact, the most time I now spend is in verifying what the AI assistant has created so that I can confidently apply the results to the work I need to do. I call this “applying the Wikipedia principle“.

Generally speaking, all this means that I can complete the same amount of work in a fraction of the time it used to take.

Of course, I can see a temptation for consultants who might think they can continue charging out as they have been doing to make quite a bit more from the work the AI would do. Resist that! Clients are increasingly aware of the potential of AI – and you should expect clients’ own use of AI to increase exponentially in the coming year or two – and they are starting to question why they should continue paying high hourly rates when a significant amount of the work is being done by a different kind of intelligence. This puts pressure on consultancies to re-evaluate their pricing strategies and find new ways to demonstrate the value they deliver.

And that is the key point – how to demonstrate the value you deliver to the client.

Shifting to Value-Based Pricing

In my view, the consultants who will thrive in the age of AI will be those who proactively shift to value-based pricing models.

This is a model I have started moving to. Instead of focusing purely on the time spent, I will base fees on the unique insights, recommendations, and results I provide to my clients. This will require a deep understanding of each client’s business challenges and a clear articulation of the specific and measurable ways in which my expertise and AI-powered solutions can drive meaningful outcomes.

I’m still thinking this through, so I don’t yet have a complete approach that I’m fully confident with. I’ve already had one discussion with a current client on how we can transition to this. I’m sure we’ll know the answer to that quite soon.

I think this change won’t be a huge issue for independent consultants like me. We’re small, we don’t have committees, we make decisions about our business and processes quickly (for better or worse), and we don’t typically have huge overheads. As the saying goes, we’re agile and nimble.

But for some consultants, and especially big consulting firms, making this transition will likely not be easy. It will require a significant mindset shift and new approaches to scoping and delivering projects. However, I believe it is essential for the long-term success of the consulting industry. Firms that cling too long to the billable hours model risk seeing their revenues decline as clients baulk at paying for time rather than results.

One thing is clear: AI is not just changing how we work, but also how we value and pay for that work. The consultants who adapt quickly to this new reality will be the ones who chart a successful course in the years ahead.

I’m curious to hear from other consultants. How are you adapting your pricing and service delivery for the age of AI?

(Photo at top by Ryoji Iwata on Unsplash.)

Related reading: