Getting The Most From Your Consulting Dollars – Cost Effectiveness: Part 2

In the prior article we began covering the typical realities firms often experience when engaging consultants and, more importantly, how to ensure you get the most from YOUR consulting dollars.

The purpose of this article is to share another concrete example of the cost-ineffectiveness of “some” consulting firms.

At the end of the day consulting firms charge by the hour. While a particular project engagement may be fixed price, the total fees were rolled up based on the number of hours and related expenses that the consulting resources are expected to accumulate during the course of the engagement.

As mentioned in the previous post, these fees must cover the costs of the consultant (his/her total compensation package) as well as the firm’s overhead.

What is often not realized is the SIGNIFICANT overhead costs that the fees from typical consulting firms include. This excess cost is necessary to cover multiple layers of management, posh offices in large cities around the world, expensive advertising and, in many cases, providing value to their investors.

To add further insult to injury we share this example:

Members of our team (myself included) have been engaged on a subcontract basis under the banner of a few typical consulting firms. In doing so we offer a fair rate to the firm (slightly less than what we’d offer direct to a client, since we didn’t actually land the business). The typical firms then mark up our fee by 50% (or more), which is billed to their end-client!

Let’s build on this, to quantify the pain…

Assume that the above example was merely a 3-month engagement for a single contract / consultant resource – at a 50% markup. The excess cost absorbed by the end-client in this scenario is greater than $40,000! Extend the engagement to 6 months and the client would have “overpaid” by $80,000. And, at 12 months the “over spend” is more than $160,000!!!

Ouch!

Had the client only called us directly…

That’s ok, as plenty do. And, those who do engage us directly experience the benefits of our “model for success”, shared in the prior post.

Given the above insight it is clear that the value received for the cost can vary to a large degree for the very same resource (depending on how / where they are sourced).

This is not to suggest that there is never value in engaging a typical / large consulting firm. It can be appropriate to do so when a project requires a large number of specialized resources who have worked together on numerous, similar engagements and can be simultaneously deployed, globally. By all means, call them!

On the other hand, if you have a key initiative that simply requires a handful of highly skilled resources (or just one), you are likely to get more bang for your buck from a smaller firm.

Another consideration when engaging your next contract / consulting resource…

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s