Consultants

by Peter Parkes

How much do consultants cost?

The more appropriate question is how much are they worth? If there is not a clear business case, then cheap is still too much.

Why do experienced executives pay millions for the advice of young punks who’ve never run anything?

Harper’s Magazine, ca 1975

Rates of up to £3000 per day were being achieved by senior consultants (partners) in the 1990s, before over-supply in the new millennium caused wide-scale redundancies and reduction in rates. Today, there is still a factor of up to ten between the most expensive consultant and the cheapest available to do similar jobs.

The difference is a reflection of brand, level of experience and track record of achieving results. A cheap consultant is not good value if you don’t achieve your business outcomes. Equally, an expensive brand that applies a junior and inexperienced resource is hardly value for money. What you should pay depends on

  • How valuable the results are to you – the price of a few days’ consulting pales in comparison with the cost of a merger
  • How much you will reduce your risk by bringing in relevant skills and experience
  • How rare the skills and experience are.

Days or deliverables?

The majority of consultancy engagements are done on a day-rate fee, usually with an estimate of the number of days that will be required to complete the assignment. This has clear downsides from the client’s perspective:

  • Any delay will put the price up and costs may even exceed the available budget
  • Equally, delay will increase the consultant’s revenue, so there is no incentive to complete early.

Consultants (and other professional services) look expensive when you consider their day rates, which is why they should only be used when there is clear benefit over trying to do things yourself. Once it is decided that there is an advantage in buying-in help, however, you should seek to move away from a day rate to prevent misalignment of objectives. That is to say, if you want something done quickly, then you should not incentivise your partners to stretch things out in order to increase their revenue.

On the other hand, a fixed fee can also cause problems as the consultant might try to cut corners to minimise his own costs and input. Instead, you should reward the consultant as you get rewarded; in other words, rewards should be based on achievement of required outcomes, such as improvements to your bottom line.

Example

Rather than pay a project manager from 9–5 every day, why not pay a flat fee for delivery of the project, and thus incentivise them to complete it ahead of time?

Rather than contract X days of training, why not pay the trainer for successful results?

Since the harvesting of business benefits, such as consequent reductions in payroll or even decisions around project delivery, is normally at the discretion of the client, a compromise is usually required to reduce risk to the consultant. Hence, a proportion of an agreed day rate can be paid as incurred, with the balance of payment triggered by agreed deliverables.