As generative AI changes the way consultants work, the consulting industry's long-standing billing system is also being put to the test. As clients increasingly demand lower costs in line with reduced working hours, setting fees based on actual outcomes rather than time is drawing attention as an alternative.

On Aug. 24, IT outlet Business Insider analyzed that it is difficult for the consulting industry to prove its changed value by simply touting itself as AI-native, and that it needs to reflect the effects of using AI in its pricing structure. Consulting firms are forming large-scale partnerships with AI companies and shifting their business focus from general strategy advice to technology implementation and long-term projects, but clients are scrutinizing actual AI capabilities and results more strictly.

The greatest pressure for change is on hourly billing. In the past, the number of consultants assigned to a project and the hours worked were directly linked to revenue. But if AI automates tasks such as research, data analysis and document drafting and completes the same work in half the time, it becomes difficult to charge the same hourly rate as before. That means a paradox could emerge in which revenue falls as productivity rises with AI.

Fixed-fee arrangements, which lock in the amount before a project begins, are also facing challenges from clients. With the effects of adopting AI and return on investment still uncertain, clients must bear the full pre-set amount regardless of actual performance. The focus is not that fixed fees themselves are incompatible with AI, but that clients are more strongly demanding a link between costs and tangible business outcomes.

An alternative being discussed is outcome-based billing. Under this model, a client pays a base fee and decides the remaining compensation based on whether pre-agreed goals are met, such as cost reductions, revenue and profit improvements, and efficiency gains. It is a structure in which the client and the consulting firm share project risks and results. At Boston Consulting Group (BCG), three quarters of its largest AI projects apply variable fees, and McKinsey links about a quarter of its global fees to performance.

Outcome-based billing is not a cure-all. That is because variables that consultants find difficult to control, such as the economic environment and a client's execution capabilities, can also affect results. Market research firm Gartner also noted that while this approach can be a differentiator, it entails significant risk and requires a clear design for risk-sharing and performance measurement standards.

In the AI era, consulting competitiveness is shifting away from slogans about using AI and toward the ability to prove what business outcomes were delivered for clients. As AI reduces consultants' working hours, the industry is increasingly likely to shift what it sells from people's time to the value of results.