ROI-based consulting contracts: the pros and cons

Engaging a consulting firm can cost from the high six figures to the mid-seven figures weekly. To justify the hefty investment, consulting firms often use ROI-based contracts. Some CEOs fear that this could incentivize consulting companies to focus only on helping clients meet short-term financial goals. To ease this fear, CEOs should carefully vet consulting firms they’re considering.

At a glance

• ROI-based contracts use a hybrid fee-and-incentive structure to peg a consulting firm’s fees to achievement of the client’s goals.
• These contracts might call for a smaller flat fee up front, and a larger fee down the line if the engagement is successful.
• Some CEOs worry that consulting firms incentivized to focus only on helping clients meet short-term financial goals might design change programs that cut short-term costs—at the expense of longer-term performance.
• To select the right consulting firms, CEOs should assess their competence, credibility, and chemistry.