Why Are Consultants' Fees so High?

Wes Bucey said:

In fairness, Jane, the OP said "so high" versus "too high."

Click to expand...

Yup, you're right and I stand corrected.

JaneB said:

Yup, you're right and I stand corrected.

Click to expand...

I bet you were actually sitting!

is this coach body that consultants you said?

if it is, in my opinion, mainly reason is the requirements are so much

JaneB said:

'Too high' compared to what? More details please.

Typically, when people complain about consultants' fees being high they simplistically look at the hourly (or daily) rate, compare it with their own salary, and then immediately decide consultants earn 'far too much' and are too highly paid. Your average manager or business owner understands better how to compare.

A much more accurate thing would be to at least double the employee's salary (if you're using that as a comparison), because typically that's what an employee will cost the company, by the time you add in:

• on costs - costs of finding and recruiting
• training costs - start up/induction and ongoing
• government taxes (eg, there's payroll tax here)
• statutory costs (eg, there's a compulsory Workplace Health and Safety levy here)
• other costs (such as insurance)
• holiday pay (plus any other loadings, eg long service leave? parental leavel etc)
• sick leave
• and so on - accommodation, management costs, performance reviews, etc etc... the list just goes on!

Another comparison: look at what an experienced consultant can deliver to a company in let's say 50 hours all up, compared to, say, an employee with no prior experience of implementing a QMS. First, you'd have to send the employee to a course on ISO 9001, and also perhaps an audit course. Then, you'd have to factor in the time it would take them to find out what to do and how. Figure on months - overall, it's going to take your employee one heck of a LOT longer.

And then, do you really need a FT employee after it's done? One of the benefits of the consultant is that you don't keep us on (and we don't want to be kept on). We work on your job and move on. Suits both of us.

As a consultant, I get paid only when I work and for what I deliver. No sick leave, no holiday leave, no leave for training. I don't get paid for the business development/marketing calls I make, or for the time I spend on the phone with people asking me questions like 'what is ISO 9001 and how do I get it?'. I don't get paid for the proposals I write or doing estimates for work. I only get paid when I work.
And yeah, I spend a lot of time sitting around in places I'd rather not go to, not getting paid for it. If I go on any training course, it costs! I forego 'billable time' + pay for the training. I pay taxes, book keep, do the marketing, accounts payable and receivable, manage the staff, etc etc. Yes, if I work 60 hours a week and don't take holidays, I will earn well. But few consultants can or want to or are able to sustain such a pace.

I'm not complaining - I enjoy being a consultant and far prefer it to being an employee. But as consultants, we run a business. It's much easier, in many ways, to just sit back, be an employee, and let someone else do all the worrying. And complain that consultants' fees are 'so high'.

Click to expand...

Spot on!!!

this really can be summarized by two items: Taxes and Benefits.

If you've been a people manager at a company, you understand that the salary you pay someone is a portion of their total compensation. Here is a list of typical benefit costs companies incur for employees beyond salary:
Health Care Premiums
Retirement funding (matching 401k/IRA)
Life Insurance (most employers offer modest life insurance coverage)
Potential stock-based compensation.
Vacation/Sick pay allocation
Performance/Annual Bonuses
Payroll taxes (a 1099 employee like a contractor has to pay ALL of their estimated taxes vs for W2 employees where the employer is sending in matching payroll tax payments on their behalf).

Consultants need to cover all of these expected costs out of their 'pay'. When you add all of this on top of 'salary' you can see that consultants aren't as 'overpaid' as it seems by comparing salary to consultants' rates. At large multinationals, 'Total Compensation' is usually 170%-200% of salary.

Some management systems consulting firms design their consulting. and training services to result in a service specification to fulfill the prospective client’s objectives as part of a fixed price quotation (paid monthly or per milestones). The service specification also specifies the scope of the project and what the client must do for project success.

Never do they quote a day rate.

Instead they sell the value of their work.

John Broomfield said:

Some management systems consulting firms design their consulting. and training services to result in a service specification to fulfill the prospective client’s objectives as part of a fixed price quotation (paid monthly or per milestones). The service specification also specifies the scope of the project and what the client must do for project success.

Never do they quote a day rate.

Instead they sell the value of their work.

Click to expand...

In fairness, I agree "most" consultants (using my description wetten more than 10 years ago) quote fees based on pre-agreed results or benchmarks, there is a subset of practutioners who provide a narrow, generalized service which is so "routine" that the time and effort it takes can be estimated according to a metric such as employee count or range of products.

Purists a.ong us might argue they are aren't "consulting," only "cotracting" by providing a "service."

Let's avoid the semantics o labels else we title those who replace toilet paper oils as "sanitation engineers."

John Broomfield said:

Some management systems consulting firms design their consulting. and training services to result in a service specification to fulfill the prospective client’s objectives as part of a fixed price quotation (paid monthly or per milestones). The service specification also specifies the scope of the project and what the client must do for project success.

Never do they quote a day rate.

Instead they sell the value of their work.

Click to expand...

I will need to add a big BUT here, as esp. regulatory work is often seen as a necessary evil that has to be fulfilled somehow, but please shouldn't cost anything and therefore the work is hardly valued. However, this is also because they have no idea of the work (as they have never performed it by themself) and therefore do not know the effort involved - a list of publications with a few reviews and additional information may look like little work, but reading the associated publications is time-consuming, but isn't comprehensible. Admittedly, as a consultant you can cheat a lot here and charge for a lot of time, but don't read the publication and simply write down that there is nothing relevant given - very few customers will check this. But that's a general question of a consultant's ethos. Unfortunately, I had the experience of subcontracting where the given time budget was used to the maximum and at the same time all the information of the publication was stated as not relevant, even though it was highly relevant and required follow-up action and I was more than shocked by this as I couldn't believe, that it took that long to state this....

Fixed prices are not always a good idea for regualtory tasks, as quite often problems only show up, when working on the task or often, clients bring up new information (or hide problems until its impossible to do so), after you have processed the old information and then you will need to restart and I hate to waste my time to do things again due to wrong information and if this wouldn't even be paid due to a fix price is unsatisfying. I think it's fairer for everyone, including the customer, to charge based on time - if the customer changes the information several times, he needs to pay for the resulting extrawork. If the customer provides the data in a good quality (also sufficient data and not more gaps than data!) and I can thus complete the task quickly based on my experience, everyone can be happy and the customer needs to pay less than estimated. However, there are certainly consultants and freelancers, who would like to take a little longer to charge for more time, and you will only see this when working together.

In general as an experienced consultant, you can implement things much faster, you know where to find data and if specialized in a certain area, you don't need to look up for details like the scientific background and special requirements etc. The consultant himself bears the costs for further training and does not always charge the effort to dive deeper into a specific regulatory topic. In this respect, purely on an hourly basis, the consultant achieves more within a few hours than an employee and is only paid for the effective working hours. If the consultant is sick or needs further training (costs time and money), the customer doesn't have to pay anything, which is different to an employee. In view of the shortage of skilled workers, which means that experienced employees are difficult to find and who then expect (very) high salaries, the consultant can be just as expensive or even cheaper, taking all costs into account, like the required training period of the (unexperienced) employee or and also the work speed could be an aspect......

necessary evil

Help the client to understand how such work could benefit the customer perhaps by making it part of a valued improvement to the organization’s service, product or system.