Management consulting fees: How McKinsey prices projects

Top-tier consulting firms like McKinsey, Bain, and BCG are notoriously close-lipped about any and all aspects of their client work - including their fees.

In this article, we’ll explain how consulting projects are priced and the different types of pricing, dive into why firms like McKinsey typically favor fixed fees, explore the range of consulting fees across the industry, and show some real examples of BCG and McKinsey projects and how they were priced.

How are consulting projects priced?

Consulting projects are priced based on several factors, including the complexity of the project, the level of expertise required, and the scope of work. Pricing models in consulting have historically been structured around four main approaches: hourly rates, daily/weekly rates, fixed fees, and mile-stone/deliverable-based. In more recent years, a fifth approach has been gaining steam: upside-based.

Let’s break down what each of these approaches means:

• Hourly rates: This is one of the most straightforward methods, where consultants charge for each hour worked. Consulting Success estimates that ~29% of independent consultants use an hourly rate.
  
  Many client procurement processes require an hourly rate as an input whenever they receive consulting proposals. However, it’s not the preferred pricing model for high-level strategy consulting, where clients typically expect to pay for outcomes rather than time spent. 
  Therefore, as we’ll see later in this article, top-tier firms like McKinsey may translate their fees to hourly rates but insist on a fixed fee or similar payment structure.

• Daily/weekly rates: Consulting firms sometimes charge daily or weekly rates, which provide more predictable pricing than hourly rates. 
  
  This model is common in long-term engagements where the consultant is expected to work on-site or have extended involvement with the client, e.g., on long implementation projects. 
  
  Daily or weekly rates are also widely used for independent contractors engaged as de facto team members within large corporations.

• Fixed fees: Fixed fees are the preferred pricing mechanism among most high-end consultancies. A fixed fee means the client pays a single agreed-upon price for the entire project, regardless of how many hours or days the consultants spend working on it. 
  
  The fixed fee is a safe option for the client as it puts a clear cap on costs and makes it easy to budget with. For consultants, a fixed fee means the consulting firm can be flexible in team setup and resources used to maximize the outcome of the project. 
  Although it can seem risky for the consulting firm to agree to a fixed fee before knowing exactly how much time is needed to complete the project, this is balanced by both a very healthy per-project margin for top-tier firms, as well as the culture of long work hours among consultants.
  
  We’ll dive deeper into why McKinsey favors fixed fees in the next section.

• Deliverable/milestone-based: Deliverable or milestone-based fees are a variation of the fixed fee structure. Instead of a single fee for an entire project, the fee is broken down by individual deliverables or milestones described in the project proposal. 
  
  This approach is sometimes used when it’s unclear if a client can accept a (often quite high) single fixed fee, or when requested in a request for proposals from the client.

• Upside-based: A relatively new pricing approach that is gaining traction is the upside-based fee structure. In an upside-based structure there are typically two components; a relatively low, fixed base fee and an adjustable value-based fee. 
  
  The base fee is often close to cost for the consulting firm, or with a somewhat smaller margin than the usual fixed fee. The upside-based portion of the fee is typically based on a formula that in some shape or form includes the quantitative value created during the project with a percentage of that value going to the consulting company.
  Examples of value creation can be costs saved in an operational excellence or cost savings project, or revenue uplift from implementation of a product or service.
  
  An upside-based price structure allows the consultants to align their financial incentives with the client and reduce the upfront asking price. This can make it easier to get a project approved, although many organizations’ procurement processes are not set up to handle upside-based structures.

Why does McKinsey prefer a fixed fee?

McKinsey, BCG, and Bain, in particular, lean heavily toward fixed fee pricing models, especially for large, high-stakes engagements. Their preferences for fixed fee models stem from a combination of client expectations, the type of projects these firms do, and the overall business model of MBB.
Using a fixed fee structure allows McKinsey and the like to provide clients with clear cost expectations, ensure alignment of project goals, and focus on outcomes rather than timekeeping.

Typically, requests for proposals specify hourly rates, as is evidenced in many governmental RfPs. However, top-tier firms like McKinsey insist so heavily on the fixed fee model that they most often include arguments in the proposal for using a fixed fee instead.

Here is a quote from McKinsey from a 2011 proposal to the US Department of Interior:

BEST VALUE APPROACH TO PRICING

McKinsey maintains a client service approach that requires a true partnership and shared risk.

Our firm-fixed price team model not only minimizes risk to the Department of the Interior (“DOI”), but allows DOI to truly obtain the best value. 

Unlike many other consulting companies, McKinsey recognizes that successful efforts of this size and scope require a true partnership and shared risk. We understand that labor hour contracts can be difficult to manage and present the inherent risk of uncontrollable costs. 

To demonstrate our dedication to your success and to shift the majority of the risk away from DOI, McKinsey proposes to perform all the work under this contract on a Firm-Fixed Price basis. Regardless of the time, energy, or hours, McKinsey assures DOI that we will do whatever it takes to make this effort a success. We will bring all of our global experts to bear for as many hours as is necessary to overcome the challenges, at no additional cost to you. We will customize our solutions to ensure that we are providing DOI the best of McKinsey on all tasks.

To provide the most effective and efficient services possible, we dedicate multi-party teams to our efforts. The structure of the team varies based on DOI’s specific needs but is always comprised of McKinsey experts with substantive knowledge and experience in the task at hand.

These teams have full access to McKinsey experts worldwide and regularly draw on the expertise of senior leaders. Our differentiating value proposition is the large number of experts we bring to the effort without additional cost to you.

We do not deploy individual people at an hourly rate. Rather, we deploy a suite of personnel including hands-on partner leads, world-class senior experts, full-time project managers and analysts and research support staff for each project. The team membership is tailored to the unique needs of the client and the individual task. Our “team bundle”, firm-fixed price approach ensures that each client receives the best of McKinsey when they work with us. Because we do not believe that hourly/labor hour rates provide the best value to DOI, McKinsey does not have hourly rates available.

To summarize, McKinsey prefers a fixed fee over hourly or daily/weekly rates due to three main reasons:

Reason 1: Creates a shared focus on outcomes

The first and most important reason McKinsey prefers a fixed fee is that it shifts the focus from the hours put in, to the outcome of the project. This is a benefit for the client, as it means McKinsey will push as many hours and people on the project as needed to get it to the high-quality end-products they are known for.

However, it’s also a big benefit for McKinsey as it shifts the entire relationship between them and their clients from a vendor-buyer dynamic into a trusted advisor - long-term client dynamic:

Occupying the trusted advisor role is crucial to McKinsey’s business model as it allows them to become the client’s go-to person(s) for advice and sparring, which in turns creates a unique insight and trust. This often translates to a position where McKinsey can both suggest and shape new projects proactively with the client, instead of having to wait for unknown RfPs and bidding processes. These factors together allows McKinsey to in the end charge premium fees and still win contracts.
 

Reason 2: Minimizes cost risk for client, while avoiding scope creep

Second, a fixed fee means McKinsey can minimize risk of costs spiralling for the client since the price is known from the start.

On the flipside of this, McKinsey can also use the outcome-based fixed fee to avoid any major scope creep from the client’s side. McKinsey typically outlines clear deliverables and objectives from the start, which ensures that both the client and the firm have aligned expectations. If the project needs to expand, McKinsey can negotiate additional fees based on a redefined scope, keeping things well-managed.

Reason 3: Creates flexibility in staffing

Third, a fixed fee allows McKinsey to staff the project in the way that is most beneficial for the outcome while being as efficient as possible. McKinsey, BCG, and Bain don’t sell individuals’ hours but instead sell what McKinsey calls “team bundles”. The typical team is 1+2 or 1+4, meaning a project leader or engagement manager together with somewhere between 2 and 5 consultants and associates under them. This team will be doing the day-to-day work of the project and has a size that is optimized for efficiency, with enough people to do the work but not so many that it drowns in coordination and project management.

On top of this team is project leadership. This most often consists of the consulting partner(s) that sold the project to the client and hold the client relationship, as well as senior people that are close to the subject matter and more involved with the project. The project leadership is not involved in the nitty-gritty details of the project, but provide support on an ongoing basis and help steer the direction of the project, as well as ensure alignment with main stakeholders.

Finally, the main project team is often supported ad hoc by subject matter experts or functional experts like data scientists or similar. It can be difficult to estimate upfront which resources will be needed, so there is a need for flexibility to make the setup efficient.

By charging a fixed fee for a project, McKinsey can scale the entire project setup up and down as needed to deliver the desired outcome, without having to clear it with the client.

How much are consulting fees?

Consulting fees vary significantly depending on the scope of work, the firm's reputation, and the level of expertise required. When it comes to McKinsey, its fees are generally considered at the top end of the consulting fee spectrum. While the precise fee for each client project is confidential, there are some publicly available government projects and databases that can provide a sense of the range of fees.

What we can see from these publicly available sources is that most consulting firms charge somewhere in the $200-$300 range on average, while premium brands like McKinsey and BCG are able to quote 2-3x that price with hourly rates of $700-$900 on average (sources here and here):

The hourly rates are broken down by seniority level in the actual proposals (if they use hourly rates), and here we can see a more detailed range of prices. In the latest General Service Administration federal supply lists, for example, we can see that a McKinsey senior partner charges $1193.57 per hour in 2024 while a McKinsey engagement manager costs the federal government $834.40 per hour and the analysts and associates on the team costs between $327.41 and $498.23 per hour (see full list here):

Similarly, BCG charges $1116.17 per hour for a senior partner and $711.35 per hour for a project lead. A senior consultant costs $629.35 per hour while an associate is $404.18 per hour (see full list here): 

Well-known, reputable consulting firms like Kearney are able to command $624.00 per hour for a project leader and $421.00 per hour for a consultant (see full list here):

Larger consulting firms like Deloitte typically operate with lower price structures, as seen in the example here, where Deloitte charges $373.00 per hour for a consulting management executive and $257.62 per hour for senior consulting staff:

Of course, the actual projects themselves are commonly fixed prices and can easily end up in the multi-million dollar range, as well see in the examples below.

Examples of McKinsey consulting fees

Let's take a look at some real, publicly available projects from McKinsey and their proposed prices.

McKinsey example 1

The first example is from the aforementioned proposal from McKinsey to the DOI. Here, McKinsey explains their reasoning behind their fixed fee by showing how the estimated weeks and teams needed and adding that all together. In addition, they propose a milestone-based payment schedule as opposed to a one-time upfront payment, or post-project payment.

The total fee for the project comes to $2,534,732.6.

McKinsey example 2

A second, more recent McKinsey example is this contract between McKinsey and the Puerto Rico Electric Power Authority in 2023 to support on various deliverables.

McKinsey has divided the project into two phases and priced each phase as fixed fee increments. However, they state the fee as a monthly fee:

McKinsey example 3

In a third McKinsey example from 2013 for the New Jersey Board of Public Utilities, we again see McKinsey argue against hourly rates and for a fixed fee. McKinsey has instead split the price structure up by teams, emphasizing their "team bundle" approach to pricing.

Like the first example, McKinsey estimates the weeks needed to deliver and splits the final fixed fee into weekly rates based loosely on team size.

The total fee for the project comes to $2,280,793.59.

McKinsey example 4

Our fourth example from McKinsey is a contract from a State of Michigan project covering four tasks, as well as strategy and operations consulting.

Here, McKinsey has estimated the hours and team roles needed for each task and priced each task separately. The total price for the entire project is $7,920,729.

McKinsey example 5

The final example from McKinsey is a 2020 contract to assist in the transformation of the Commonwealth's financial and HR applications.

In this example, McKinsey has chosen a deliverable-based price structure, where deliverables can be things like "Develop response evaluation process and criteria" or "Assess technical and architectural landscape". The plan also includes a rough estimate of when each deliverable is due.

The total price for this project is $1,663,158.

Examples of BCG consulting fees

Let's now dive into some real examples from BCG, which employs a very similar pricing strategy to McKinsey.

BCG example 1

Our first example from is a project for the The Financial Oversight and Management Board for Puerto Rico from early 2024. The project includes three well-defined workstreams, as well as additional ad hoc work that isn't material in scope change, and is set to run for seven months.

The total fee for these seven months is $2.85 million.

BCG example 2

The second example from BCG is another Puerto Rico governmental contract from 2023. Here, BCG again employs fixed fee pricing and is charging $1,780,000 for an 8 week project.

BCG example 3

Our last example of price is a 2012 proposal from BCG for The Association of German Private Banks (BdB) aimed at developing a new payment system for the German market.

Here, BCG presents a fixed fee for the overall project cost, as well as breaking it into individual sub-projects and including change request pricing. They price based on BCG utilization, counting each full time resource as 100% and estimating how many FTEs are needed. Note, that they also include a discount.

The total project cost is €695,000.

Conclusion

Understanding McKinsey’s pricing strategy for consulting projects sheds light on how the firm maintains its reputation as a top-tier global consultancy. By focusing on fixed-fee arrangements, McKinsey prioritizes the delivery of strategic outcomes and ensures cost and scope are contained, while still maintaining flexibility in staffing. 
As we saw, consulting fees can vary significantly depending on the scale of the project, the level of expertise required, and the duration of the engagement. Translated to hourly rates, we also see a large variation between consulting firms, with firms like McKinsey and BCG in the top range and larger firms like Deloitte and Accenture in the mid-range price spectrum. 

Regardless of where a project is priced, there are some general learnings we can take away from McKinsey’s approach: be clear on deliverables, focus on outcomes, and stand firm on your pricing principles.