You can price a consulting assignment in three ways: by the hour, for a fixed price, or with a fee that depends on the result, the success fee. The big difference lies in the risk. If the assignment takes more time than expected, or the result is disappointing, who pays for that?
Research on professional services shows that clients often prefer a fixed price. It also shows when a fixed price is risky for the consultant. On top of that, Dutch law has a few rules you should know before you agree a price.
In short
- With an hourly rate the client bears the risk of extra hours, with a fixed price you bear it, and with a success fee you bear part of the risk of the outcome.
- In Dutch auctions for legal cases, fixed-price bids won more often than hourly-rate bids, while 87% of law firms in a sample mentioned only an hourly rate.
- A fixed price suits work you know well and whose scope is clear. If the scope is uncertain, agree a price per phase or a fixed price with a cap on hours.
In this article
- What is the difference between an hourly rate, a fixed price and a success fee?
- What applies if you agree nothing about the price?
- Which pricing model do clients choose according to research?
- When is a fixed price risky for you?
- When does a success fee fit?
- What do you get if the client stops the assignment early?
- How do you choose the right pricing model per assignment?
What is the difference between an hourly rate, a fixed price and a success fee?
The difference is who bears the risk. With an hourly rate, also called time and materials, the client pays for every hour you work. If the assignment overruns, the client pays more. With a fixed price you agree one amount in advance. If it takes more hours, you earn less per hour.
With a success fee, part of the fee depends on an agreed result, such as a saving, a candidate found or a completed sale. If the result is disappointing, you get less or nothing for that part. In between there are mixed forms, such as a fixed price per phase, or a fixed price with a cap on hours and an hourly rate above it.
What applies if you agree nothing about the price?
Then the client pays the customary fee, or otherwise a reasonable fee. A consulting assignment is usually a contract for services (overeenkomst van opdracht). If you work in a profession or business, the client owes you a fee. If the amount has not been agreed, the fee calculated in the customary way applies, and if there is none, a reasonable fee (Dutch Civil Code 7:405).
You do not want to rely on that. You can disagree with a client for a long time about what is customary or reasonable. So always set out the pricing model, the rate and what happens with extra work in writing in the engagement letter.
Which pricing model do clients choose according to research?
When they can choose, often a fixed price. Felsö, Onderstal and Seldeslachts studied Dutch auctions in which law firms bid on standard cases, such as employment disputes for individuals and debt collection for businesses. The firms were free to choose an hourly rate, a fixed price or a mixed form. A fixed-price bid won significantly more often than an hourly-rate bid (Felsö et al., 2022).
At the same time, 87% of a random sample of Dutch law firms mentioned only an hourly rate on their website. The researchers write cautiously that their result contradicts the argument that an hourly rate is in the client's interest. The study concerns lawyers and one-off standard cases. For a consultant with a returning client it may be different.
The reason is obvious. With an hourly rate the client does not know the cost in advance, and cannot check whether every hour was needed. A fixed price removes that uncertainty. That makes a fixed price a selling point, provided you can estimate the price well.
When is a fixed price risky for you?
When you cannot estimate the scope of the work well in advance. Gopal and colleagues examined 93 software projects of a large Indian supplier. Whether a project got a fixed price or was paid by the hour was linked to factors including how uncertain the client's requirements were, team size and staff shortages. The chosen pricing model was clearly related to the profit on the project (Gopal et al., 2003).
In a follow-up study of the same projects, the supplier earned more on average when paid by the hour. Even so, for larger, longer projects with larger teams it preferred a fixed price, because there it could make better use of its own knowledge and experience than the client. Where there was a high risk of team members leaving, payment by the hour was more favourable (Gopal & Sivaramakrishnan, 2008).
Translated to a consultancy: a fixed price works well for work you have done before, such as a standard scan or a training, and whose hours you know from earlier assignments. If the scope depends on the client, for example on how quickly they supply data or take decisions, a fixed price puts a risk on you that you cannot control. How much risk a client wants to bear also depends on your name. At Indian software firms, the terms agreed and the outcome after renegotiation differed with characteristics linked to the firm's reputation (Banerjee & Duflo, 2000).
When does a success fee fit?
When the result is easy to measure and depends mainly on your own work. A success fee ties your interest to that of the client. Research on personal injury and medical malpractice cases in the United States found that hourly billing produced more weak cases and lengthened the time to settlement. A fee that depended on the outcome led to stronger cases and faster settlements (Helland & Tabarrok, 2003).
An obvious explanation is that someone paid on results chooses more critically which assignments to take on. For a consultant it also means you take a risk on things the client decides. A saving the client does not implement then earns no fee. So set out precisely what success is, how it is measured, within what period, and what you get if the client itself stops the implementation.
Usually combine a success fee with a fixed base. Then the base covers your costs and the success fee is the reward for a good outcome. An assignment with only a success fee is in practice an investment of your own hours.
What do you get if the client stops the assignment early?
A reasonable part of the fee, unless you agree otherwise. The client may always terminate a contract for services. As a consultant you may only terminate yourself if the assignment is for an indefinite period and does not end by being completed, except for serious reasons (Dutch Civil Code 7:408).
If your fee depends on completing the assignment, as with a fixed price or a success fee, and the assignment ends early, you are entitled to a part of the fee to be set on a reasonable basis. This takes into account, among other things, the work you have already done, the benefit the client gets from it and the reason for the end. You only get the full fee if the end is attributable to the client and that is reasonable (Dutch Civil Code 7:411).
You may only not deviate from those rules to the detriment of a private client (Dutch Civil Code 7:413). With a business client you can therefore agree yourself what happens on early termination, for example a notice period or a fee per completed phase. With a fixed price or success fee, such an agreement is no luxury.
How do you choose the right pricing model per assignment?
By asking four questions per assignment. They are about how well you know the scope and who determines that scope.
Have you done this work before, and do you know the hours?
Yes: a fixed price is the obvious choice. Use the recorded hours from earlier assignments, not your gut feeling. How to work from costs to an hourly price is explained in the article on the hourly rate of a tradesperson.
Does the scope depend on the client?
Yes: work by the hour, or agree a fixed price per phase. Write down what the client must supply and what happens if it comes later.
Is the result measurable and mainly your work?
Yes: a fixed base with a success fee may fit. Set out what success is and what you get if the client stops early.
Is the assignment large and long?
Split it into phases, each with its own price. Then after each phase you can adjust the price based on what you have learned.
Keep recording your hours even with a fixed price. Only then can you see afterwards whether the price was right, and make the next proposal better. If you want to raise your price, also look at how to know whether a price increase is wise.
Sources
- Dutch Civil Code (Burgerlijk Wetboek) Book 7, articles 400, 405, 408, 411 and 413, version in force from 8 October 2026. wetten.overheid.nl
- Felsö, F., Onderstal, S. & Seldeslachts, J. (2022). The pricing structure of legal services: do lawyers offer what clients want? Review of Industrial Organization, 61(2), 123-148. doi.org
- Gopal, A., Sivaramakrishnan, K., Krishnan, M.S. & Mukhopadhyay, T. (2003). Contracts in offshore software development: an empirical analysis. Management Science, 49(12), 1671-1683. doi.org
- Gopal, A. & Sivaramakrishnan, K. (2008). On vendor preferences for contract types in offshore software projects: the case of fixed price vs. time and materials contracts. Information Systems Research, 19(2), 202-220. doi.org
- Banerjee, A.V. & Duflo, E. (2000). Reputation effects and the limits of contracting: a study of the Indian software industry. Quarterly Journal of Economics, 115(3), 989-1017. doi.org
- Helland, E. & Tabarrok, A. (2003). Contingency fees, settlement delay, and low-quality litigation: empirical evidence from two datasets. Journal of Law, Economics, and Organization, 19(2), 517-542. doi.org