How to Structure Payment Terms for Consulting Projects

Intentionality in who you are in business is a requirement. So, when it comes to setting up my own agreements, I practice what I preach. These are the things I disagree with most often in consulting agreements and the way I address these items in my proposals: **Flat fee for scope, no hourly, no % on costs** My value is not based on how many hours my team spends on a project. My value comes from our experience, relationships, systems, and management tactics. While hourly billing has a time and a place, a flat fee based on scope is the more appropriate structure for most high-value work. Our fee is determined by the cost for my team to do the job, not by a subjective percentage of the project's cost. If we're managing a project, it shouldn't matter whether the tile specified costs $8/SF or $200/SF. The expertise we rely on and the time we spend are the same. Using percentages to benchmark against the market is ok, but at some point, it stops making sense. This has allowed us to be competitive without racing to the bottom. Additionally, I am weary of consultants that add a markup for any material they specify in addition to charging a fee (IDs, I'm looking at you). This is an incredibly poor structure that can leave a project owner on the hook for what could be unlimited consultant fees. **Reimbursables at cost** Making a percentage over reimbursable costs continues the point above. It incentivizes the wrong thing, and it is not always proportionately related to the administrative work required to bill a client for reimbursables. All administrative fees should be contemplated in the fee being charged for the project (even if that is hourly). **No termination fees** If we break up, we break up. That's life. These fees are less common these days but I've seen them as recently as earlier this year. They are most common in construction management or owner's reps proposals. They are usually designed to lower the project owner's upfront fee liability with the assumption that a project will live a full life. We all know that doesn't always happen, and when a project dies, then the owner is on the hook for a future that never happened. I prefer to see a fee adjusted to reflect the work done to date, so both parties can walk away as whole as possible. **Termination for convenience** Projects are sold, they're put on hold, they die halfway, etc. and sometimes, teams can't figure out how to get comfortable working together. Real estate deals are fragile and adding another layer of obligations to a project is the last thing a project needs. As long as reasonable notice is given and fees are settled up to date, termination should not require an agreement. -- I've spent a lot of time thinking about how the terms of my agreements show that I stand behind my work, and I can confidently say that my agreements reflect the values and integrity my team stands for, emphasizing intentionality in how we present ourselves and our work.

You hire a consultant, expect transformation, but nothing changes. Money gets spent, and your business stays exactly the same. Here's the uncomfortable truth: Most consulting relationships fail because both sides avoid accountability from day one. The problem with typical consulting: Vague deliverables that sound impressive but measure nothing. "We'll optimize your operations and improve efficiency." What does that actually mean in dollars and timeframes? Payment structures that reward time spent, not results achieved. Hourly rates incentivize longer projects, not faster solutions. Exit strategies that favor the consultant. No penalties for missing targets. No skin in the game. Here’s how to structure consulting that works: Define specific, measurable outcomes before any work begins. Revenue targets, efficiency improvements, customer satisfaction scores → metrics that actually matter to your business. Align payment with performance. Base compensation should include success fees tied to hitting agreed KPIs within defined timeframes. Build in accountability mechanisms. Regular check-ins, milestone reviews, and clear exit clauses if targets aren't being met. Stop buying consulting hours. Start buying specific business outcomes. The consultants worth hiring welcome this structure because they're confident in their ability to deliver results. The ones who resist it are selling time, not transformation.

My actual New Year’s resolution is to put out more informative content. Let’s start with payment terms in a contract: 1) What is Payment Based on? Why are you paying? “Because they are doing work for me.” Sick, great response. I mean specifically, why are you cutting a check at that very moment? What triggered the need to pay (major project item, a time frame passed, job done, etc)? 2) Payment Structure There are many different ways that payment can be structured. Usually it’s dependent on the type of work (maybe someone is building software for you) and relationship of the parties (person or company is working with you on an ongoing basis). 3) Per Milestone/Project A common structure is payment per stage of a project (or just completion). Think construction: x% up front, x% once you hit some critical path item, and then finally x% when the job’s done. If this is what you’re doing, a clearly defined scope and understanding amongst the partiesis key. If the vendor/contractor gets paid after “kitchen repaired” and you thought that included appliance electrical work (and it doesn’t), it’s a payment dispute. 4) Quarterly/Monthly/Weekly Pay You could be paying for ongoing work that may end on a certain date in the future (or not). Think IT support for your company. Generally, you’re going to get an invoice on a certain day and have to pay within x calendar days (called Net X days). Timing of payment is important here. Can you pay within 15 calendar days (Net 15) of the date of an invoice? Maybe your company does check runs twice a month so that’s fine. Maybe that’s too fast for your accounts payable folks (or you). 5) Bespoke Payment Sometimes payment terms are unique and based on the industry/type of service or product. Like paying a base subscription fee (monthly payment) and an amount in additional once a certain amount of data has been used (milestone). 6) General Considerations A) Make sure there is a mechanism in place to handle disputed payments (like the kitchen example) (if you can hold that payment and pay whatever isn’t in dispute). B) If you’re the vendor, collection language is important (interest + fees). C) What happens to payments made upfront? Is it a deposit? If so, what happens to it? (Applied at the beginning? The end? Returned if work isn’t performed?) D) Can you off-set what you owe by how much you paid to fix the work the vendor did? E) What if we terminate the agreement? Consider language that clearly defines exactly what is owed (and what isn’t) when one party terminates the contract. F) Is payment final or just an estimate? Clarify, clarify, clarify. G) Is there a mechanism in place for when the scope/time/contract price changes? Very important and needed by both parties. H) In the same vein as G), are you approving (in writing) changes to the contract? Just a quick, non-exhaustive list of considerations for payment terms. Consult with an attorney.