Recent trends in the global management consulting industry: Deciphering the rate cards of global consulting companies
By Beroe Inc
In 2017, the global management consulting industry was valued around $260 billion, and it is expected to grow at about 4–5 percent to reach $285 billion by 2019. A drift in the management consulting industry has also been observed globally in the past few years. Most companies regularly resort to consulting firms to provide solutions for various business issues ranging from strategy and finance advisory to hands-on implementation support.
There are a wide range of consulting firms in the market specializing in different sub-categories of consulting services such as strategy, operations, Finance and HR consulting. Consulting firms have specific set of rate cards which is unique to each client. These rate cards include various components such as overhead costs, margins etc.
Cost cutting has become a corporate mandate across many organizations to find savings. It is natural for companies to try and reduce the overall spend whenever the need arises — and in this backdrop the consulting firms across the globe are regularly scrutinized for the fees they charge.
Fee in the consulting industry
Consulting firms do not disclose their rate cards and cost structure, especially those firms who are in the high-end market segments. These rate cards provide them competitive advantage and the consulting firms regard it as very confidential. In addition, the fee charged by consulting firms vary by region, clients, service offerings, brand value, expertise etc. Hence the consulting firms keep a very tight control over their cost structure to reduce the risk of reputation or having to negotiate with their clients.
Global Strategy Consulting Firms: High-end strategy consulting firms such as McKinsey, BCG, Bain, Strategy&, AT Kearney etc. charge the highest rates in consulting followed by other strategy boutiques and other high-end specialist firms that have national or regional presence and cater to some niche areas.
Middle Market Fee range is occupied by three types of consulting firms. Global Functional Specialists who focus of service lines such as HR consulting (Aon, Willis Towers Watson, Hay Group etc.), finance advisory (FTI, Navigant etc.) or Operations Consulting firms (LEK, Oliver Wyman etc.). The Big four accounting firms (PwC, Deloitte, KPMG and E&Y) compete in this market range, however they charge higher rates for strategy consulting services and lower rates in some service areas like accounting, audit or some operational advisory services. Regional Functional Specialists charge similar to big four accounting firms; however their fee structure depends on the services they offer, reputation, and functions of focus.
The firms who position themselves in the revenue range between $150,000 and $ 250,000 are the regional, small and mid-sized players that are categorized as tier 3 firms who can cover single service lines with limited presence across the globe and some mid-sized accounting firms such as BDO, Grant Thornton, Baker Tilly etc. who provide financial advisory, accounting and tax services.
Finally, the independent contractors, who charge anywhere below $ 50,000 to above $ 400,000 depending on the type of services they offer and their expertise and brand value in the market.
The cost structure of consulting firms
Salary, Benefits, Overtime and cost to subcontractors account for 40 – 60 percent of the total consulting firm’s cost. Reimbursable expenses are taken into account when fixing the project cost. The industry norm usually ranges between 10 – 20 percent of the total project expense and high end firms would tend to charge higher.
Source: Primary Experts
Conclusion
Most of the management consulting cost relates to human resource cost, hence the buyers of consulting services must be aware of the scope and engagement management composition and their contribution to project performance. Then the procurement team must evaluate the complexity of the project, involvement required, duration of the contract and usage of technology and determine the areas where there is scope for negotiations.
Buyers must evaluate which pricing model is best suited for different types of projects; the contributions required by job role and ensure that the consulting firms do not swap out more experienced resources for less expensive resources during the course of project. This could potentially jeopardize the outcome of the engagement in terms of quality.
Lastly, buyers must have clear understanding of reimbursable costs and other expenses consultants charge them. There should be transparency in terms of consultant expense policy and a maximum cap to ensure compliance. Understanding the key components of consulting fee structure will enable in better negotiations.
About Beroe
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source http://news.statii.co.uk/recent-trends-in-the-global-management-consulting-industry/
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