Key Takeaways

• The value-based structure involves charging for services that take into account the "tangible and intangible value" or the business results that can be generated for the client as this method will not involve charging based on time and deliverables.
• Across all consulting industries, the following are the three types of fee structures that are being used: the hourly method, the project-based method, and the value-based method.
• The hourly method is typically used by new players in the market. However, this method is not recommended for specialist consultants who are highly knowledgeable in a specific field.

Introduction

Healthcare Consulting Insights

• Consultants in the U.S. typically earn $131,000 yearly. 
• The earnings of healthcare consultants are impacted by various factors such as experience, certifications, company size, business reputation, past client dealings, and the coverage of specific projects.
• The complexity of the market can also be a factor but individual earnings are controlled internally in most companies based on a consultant's role, performance, and service length.
• In terms of medical device consulting in the healthcare field, charges can greatly fluctuate based on the device complexity and the goals of the consulting project.
• These varying cost differences meant that identifying exact costs for the right consultant is difficult to achieve. If this is the case, consulting averages are used.
• For medical devices consultants, their hourly fees typically go from $75 to $300. This depends on the consultant's level of education and experience.
• The typical hourly fee charged by typical medtech consulting companies is around $150 to $200. This does not take into account the materials or travel expenses.
• Furthermore, engaging a specialist that delves into regulatory or clinical trials is more expensive than a generalist one. Lawyers or ex-FDA employees typically charge an hourly rate of $300 to $500.
• Aside from education, experience, and knowledge, other factors that impact the consultant's hourly charges include the location, the duration of the consulting engagement, and the individual's pricing model.
•  Choosing the most suitable medical device consultant's rates can further lead to more business value.

Fee Structures

•  Healthcare consulting organizations such as BHR are increasing their focus on generating a good return on investment as a result of company downsizing and the widening gap between workload and employee availability.
• Previously, companies would hire consultants on an hourly or daily basis.
• However, unexpected terms are common in this approach, resulting in additional funding decisions and expenses.
• Healthcare consulting companies are now finding out that daily and hourly charge structures cannot offer enough value for expected results. Instead of these hourly or daily pricing schemes, value-based fees and retainers were found to have an increased probability of success in terms of customer satisfaction and a strong return on investment.
• Based on the studies done by healthcare consulting companies such as BHR, the value-based pricing structure is the most effective price arrangement for clients.
• Value-based fees are aligned with the customers and are a mutually beneficial deal.
• In today's highly competitive business world, this is an effective strategy to deal with costs.
• Value-based fees eliminate cost unknowns and provide incentives to boost productivity and decrease resource wastage.
• Value-based fees also shift the focus from "How much time?" to "What is the value and outcome?" This fee structure optimizes the delivery of consulting services by focusing on more desirable and predictable results that offer value to the client.
• The following are some of the advantages of this model:
• There is a limit on how much that the client can spend. At the start of the consulting engagement, clients are made aware of exactly what the fee will be.
• If more resources are required to finish the project, the consultant will hire additional personnel at no additional expense.

• Because the pre-determined price or investment cap has been paid beforehand, clients can be assured that the project will be delivered on time even if there are conditions or budget changes in the client's company.

• The management and governance teams can also be made aware that the project will not go over the budgeted amount and that the predicted return is justified.
• Typically, a 50% deposit is needed when the consulting contract is signed, with the remaining payment due after one month.
• With the value-based contract, there is also no need to have an investment decision each time that the client needs to talk to a consultant.
• A single investment choice is already set at the moment the proposal is submitted.
• This takes away the worry on the cost of each communication made with the consultant. There is also no need to decide whether it is a $75 phone call, a $500 on-site visit, or a decision that needs to be made by the client.
• Value-based fees are a straightforward method to collaborate and focus on the end result instead of the time spent.
• The consultants are also accessible to support the client as needed, without the need for approval for each interaction. As a result, "efficiency, productivity, and morale" are expected to improve.
• The consultant can also complete some additional tasks at no expense to the client.
• Across all consulting industries, the following are the three types of fee structures that are being used: the hourly method, the project-based method, and the value-based method.
• The hourly method is typically used by new players in the market. However, this method is not recommended for specialist consultants who are highly knowledgeable in a specific field.
• This method typically results in undercharging.
• With this method, clients can become uncertain around the total final charge that they need to pay. Clients that feel this way might prevent them from proceeding with the project.
• With the project-based approach, this type of uncertainty can be prevented.
• The project-based structure is a solid pricing scheme both for those who are just starting, as well as those who have already gained some consulting experience.
• This method is not as simple as the hourly method. However, it can take out the uncertainty that comes with the hourly method as clients can already be made aware of the total amount that they need to pay at the start of the engagement.
• The method involves listing down all the deliverables of a consulting project, the duration of each deliverable, and calculating the amount associated with all these cost elements.
• For those who are highly experienced in the field, the best structure will be a "higher-leverage pricing model" such as the value-based scheme.
• The value-based structure involves charging for services that take into account the "tangible and intangible value" or the business results that can be generated for the client. This method will not involve charging based on time and deliverables.
• The value-based method involves determining the client's end goals and aligning on both the tangible and intangible value of a successful initiative such as productivity gains.
• The ROI formula can also be used here to determine the value: "The ROI Formula: Intangible + Tangible + Annual = Value-Based Price"
•  Clients can also be offered three pricing options that can let them select based on their risk tolerance. The typical options are the following:
•  Option 1 - Lowest Cost: The bare minimum of a consulting service that clients can avail of to achieve successful results.
• Option 2 - Middle Cost: Option 1 offerings and added services that can increase the value. However, the level of uncertainty will also rise in this option.
• Option 3 - Highest Cost: If a client has not set any budget and needs the outcome to be delivered urgently, offerings from option 1, option 2, and some additional value can be offered if they are open to add more budget.
• Clients can be offered the highest option first to enable consultants in taking advantage of the anchoring bias. Typically, the initial price that clients has been given will determine their perception on the rest of the pricing options.
• The options are best presented to the client through a telephone call to ensure that all their cost concerns can be addressed immediately.
• In general, value-based pricing will increase consulting fees and generate more value for the clients. However, this can only work successfully for those who are already highly experienced in the field.
• The following flowchart illustrates the step differences between cost-based and value-based pricing:
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  Source
• Specialist consultants who promote their expertise have double chances to receive most of their consulting earnings from retainer-based jobs. They can also enjoy more consulting engagement value as 25% more of these consultants earn around $20K-$100K+ for each consulting project than those who don’t promote their specialization.
• Productized consulting offerings are becoming more common as around 40% of consultants provide a "fixed-scope, fixed-price productized service."
• The following figures provide the breakdown of consulting pricing strategies:
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  Source
• Around 23.38% of consultants charge clients on an hourly basis. Around 40% have monthly retainer offerings while 12.55% of them use charge on a daily basis.
• Around 17.30% of consultants apply value-based charges to cost their projects.
• Meanwhile, around 31.37% apply project-based rates to cost their projects.
• Consultants also engage in performance-based charging.
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  Source
• Around 60.46% of consultants never signed a performance deal yet, but they're considering it.
• A performance deal has been done by 15.40% of consultants, and it has turned out well for all sides.
• Around 14.26% of them have never done a performance contract and are uninterested in this pricing model.
• Meanwhile, 9.89% have attempted a performance contract and failed miserably.
• The healthcare consulting industry typically provides the following types of consultants based on the work involved:
• The chart below shows the distribution of these types of consultants across all industries:
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  Source
•  25.10% – Management consultant  
•  19.20% – Strategy consultant  
•  16.73% – Other  
•  10.46% – Operations consultant  
•  6.84% – Marketing consultant  
•  4.75% – HR consultant  
•  4.75% – IT/Tech consultant  
•  3.99% – Non-profit consultant  
•  3.23% – Sales consultant  
•  2.85% – Financial advisory consultant  
•  1.14% – Data consultant  
•  0.95% – Design/branding consultant

Research Strategy