An advisory Board can be instrumental in helping a business successfully navigate a range of challenging scenarios by providing invaluable advice and insights. Where a business lacks the required knowledge or expertise in-house, an advisory board can help close the knowledge gaps between where a business is right now and where they want to be in the future.
While the benefits of establishing an advisory board are strong, cost remains an important consideration.
Investment in a well-structured advisory board built on a best practice foundation is an important step for an organisation. With a clear scope and carefully managed expectations, an advisory board can be a cost-effective way to tap into the skill set of highly experienced and accomplished professionals.
Let’s explore the various ways an advisory board can be compensated.
How much does an advisory board cost?
The cost of an advisory board can vary significantly depending on the specific needs of the organisation.
Factors including the size of the business, the number of board members, the level of involvement required, and the rates charged by individual members all influence the overall cost of an advisory board. Businesses will also need to account for any travel or other expenses incurred by members.
The Advisory Board Centre’s 2021-2022 Advisor Engagement Market Rate Analysis Report found that the expected annual investment by organisations in their advisory board is between $40,000 – $70,000. The investment reflects the most common advisory board structure – including monthly meetings with the business representative and independent Chair and quarterly meetings with external advisors. Individual businesses should tailor their investment to suit their business needs and budget.
How are individual board members compensated?
Compensation for individual board members is negotiated between the business and members.
Advisors will typically set their rates based on their level of experience and the expertise they can offer the business, their network or connections, the level of involvement and preparation required of them, and any expenses they will accrue during the course of the appointment.
Be mindful that an advisor’s rates are usually proportionate to their level of experience, commitment to professional development, and currency in the market.
While the arrangements with individual members can vary, they are generally compensated in one (or a combination of) the following ways:
- Per-meeting compensation: This is the most common arrangement. The advisor is remunerated for each meeting they attend, including any pre or post-meeting activities. Most businesses conduct between four and six half or full-day meetings per year.
- Annual retainer: Some organisations may opt to compensate their Chair or advisors on an annual retainer often paid monthly.
- Company stock: In some cases, such as a startup company, equity may be offered as part of the advisory board compensation. These types of arrangements require careful consideration and expert advice on structure to ensure they are appropriate to the short-term and long-term goals of the organisation and individual advisors.
- Post-launch profits: Another less common option typically used by small startups is to offer advisors a percentage of the post-launch profits of the business. Navigation of these structures can be overly complex and potentially impact long-term business operations.
- Expenses only: In some cases the organisation and advisors may opt for a pro-bono advisory engagement. Clear expectations should be outlined from both parties and generally, the business will still need to cover any expenses incurred by the advisor during the course of their participation.
How can the Advisory Board Centre help?
The Advisory Board Centre is an independent professional body for the advisory sector. The Centre was founded to support and improve the effectiveness of the global advisory board sector, including the professionals who fulfil an advisory function and organisations for whom they serve.
We provide education programs for organisations, certification for advisors and the complimentary Advisor Concierge service.
If you are exploring an advisory board for your organisation or considering joining an advisory board as a member, the ABF101 Advisory Board Best Practice Framework™ is a helpful resource.
Find out more about our Advisor Concierge service or contact us for more information.
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