A COO asks: “What is your day rate?” It is a fair question, and it sits inside a bigger one. What is the work, what does it produce, and which shape of fee suits that shape of work?
What a day rate is good at
A day rate is simple to budget for, and you can stop it at any time. It suits work whose content changes from week to week: leading a portfolio while the priorities move, coaching project managers, sitting with a program that has gone off track. Nobody could write that scope down in advance and have it still be true a month later.
Its weakness shows when the work has a defined edge. If the output can be named in a sentence, paying for time leaves the buyer carrying the risk of how long it takes. That is where the outcome-based shapes earn their place.
Two outcome-based shapes
Fixed price per output
A defined deliverable, a fixed fee and a date in writing. The consultant carries the risk of how long it takes. The buyer carries the risk that the deliverable, as defined, turns out to be the wrong thing.
This suits self-contained work: an audit, a memo, a policy, a diagnostic, a pre-deal read in M&A. The test is that the output can be named in one sentence and the buyer can read it when it arrives.
Base plus value share
A modest base fee plus an agreed share of measured value against a baseline both sides sign. The base covers part of the consultant’s time; the share ties the rest of the fee to what the engagement is for.
This suits work where the prize can be measured against a baseline both sides sign, such as the synergies in an acquisition. All of the discipline is in the baseline.
The controls that keep value share fair
Outcome-based pricing fails when one side feels the other is taking more than its share. Three controls, used together, prevent that:
- A signed baseline. Written before the work starts. It names the method of measurement, the timing, the inflation and currency assumptions, and what counts as a result.
- A cap on the share. A ceiling as a multiple of the cash fee, a maximum percentage of realised value, or an end date. Without one, the structure rewards extraction.
- A written attribution method. What counts as the consultant’s contribution, what the business would have realised anyway, and how disputes are settled. Agreed up front, before anyone knows the numbers.
When a day rate is the right answer
- Ongoing leadership. The work changes week to week and the buyer needs someone who owns it. Fractional portfolio, PMO and delivery leadership sit here.
- Exploratory work. No output can be named yet because the question itself is still being shaped.
- Small engagements. A day or two of work, where agreeing a baseline would cost more than the work itself.
The test is one question: can you name the output in a sentence? If you can, ask for a fixed price. If the job is to own something that keeps moving, a day rate billed on actual hours is usually the fairer deal.
How I price
My fractional work is the ongoing-leadership case above, so it is billed at a published day rate: $1,850 + GST a day, pro rata on the hours I work, up to two days a week, with no minimum hours or term. Quiet weeks cost less.
Defined outputs have fixed prices. That covers the self-serve tools on this site and the Sound and Bearings reads in Passage, my M&A integration method. Running a Passage integration is billed on the day rate, or a base fee plus a share of realised synergies by agreement, where the baseline can be measured.
If you want the fractional terms in writing, the statement of work takes two minutes and is made out to your company.
Matching the fee to the work
A defined output suits a fixed price. Synergies measured against a baseline both sides sign can suit a base plus a share. Ongoing leadership, where the work moves every week, suits a day rate billed on the hours actually worked.