You moved off the billable hour. If you’re still selling undefined work, you only renamed the discount.
Because the work underneath stayed undefined, the firm had nothing to attach a fixed or outcome price to. The firm can define one of three offerings first: a tool built on its method that the client uses continuously, a bounded change with a measured result, or a monitored program on a retainer. Then it sets the price.
What’s happening
The scramble off the billable hour is real and nearly universal. The Wall Street Journal reported consulting and accounting firms moving away from hourly billing, with a Deloitte town hall reportedly showing traditional hourly work shrinking toward a sliver of the market within a decade. The near-universal response is to change the pricing label, hourly to fixed fee, fixed fee to outcome-based, while selling the same undefined advisory work underneath.
Relabeling does not escape the squeeze. It renames it. Outcome pricing bolted onto advisory that was never productized is still a discount, because the buyer still can’t tell what they’re paying for. When AI compresses the analysis, and McKinsey’s internal tool now redirects roughly $12 million a month of consultant capacity away from research, a loosely scoped fixed fee locks in a lower number for the same fuzzy deliverable. The firm took on the risk of AI’s speed and handed the savings to the client.
The firms that actually escaped were not repricing. They were built differently. Newton Consulting has tied every fee to operational outcomes since 2001, measured in things like waste removed and costs cut, and its managing partner told the Journal it is “incredibly difficult to pivot toward this if this is not what your organization represents.” Pricing follows the offering. You can’t price an outcome you haven’t built the firm to deliver.
TSIA named the stakes for everyone still standing on the old base. Bo DiMuccio wrote that if a firm’s revenue still depends on hours or headcount, AI will keep eroding its margins. Changing the line item on the invoice doesn’t change the base the revenue rests on. Only redefining what the firm sells does that, and the pricing model is the last step, not the first.
Why the obvious responses don’t work
“Switch from hourly to fixed-fee”
This moves the risk of AI’s speed onto you without changing what the client is buying. A fixed fee on undefined work is a capped discount where you now absorb the overruns too. The scope is still fuzzy, so the price is still a negotiation the client wins.
“Rebrand the engagement as outcome-based”
An outcome you can’t measure is a slogan. If the deliverable is still a deck and a set of recommendations, “outcome pricing” is an hourly discount with better marketing, and the buyer can tell. Outcome pricing needs a defined outcome, and that has to be built first.
“Wait until you have the AI tools before repricing”
The pricing problem is not a tooling problem. The firms with the best AI stack and the vaguest offerings are repricing themselves fastest, because the efficiency shows up to the client as a lower bill instead of a better product. Tools without a redefined offering accelerate the squeeze.
What’s working instead
The escape is not a new pricing model on the old work. It’s designing what you sell so the outcome is definable, then pricing on it. The firms pulling ahead productize a piece of their methodology into something the client can see and name: decision infrastructure they use continuously, a bounded transformation with a measured result, a monitored program on a retainer. Once the offering is defined, the price has something real to attach to, and AI makes that offering more valuable rather than cheaper. Pricing follows the offering. Build the offering first.
The way out is to stop optimizing the old model and sell new services built on what AI can’t do. We find out what your clients will pay for, then build the AI that delivers it. Start with a pilot: in two weeks, a working first version tried on your own client work, then a decision on production. Or start with a plan for the whole firm.
Other pressures on Consulting Firms
The same pressure in other industries
Related reading
A Firm Changed the Fee Before the Tools
Platinum River set fixed fees before it rolled out AI tools. People spend fewer hours on each project. The CEO says he needs more people.
The Most Valuable Input in AI Is the Thing You Sell by the Hour
AI companies spent a decade pricing human work: commodity rates for execution, billions for judgment. Your hourly invoice charges for both at the same rate.
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