Why People Hire Consultants. The Math. Consultants can usually run a rate of anywhere in the range of one hundred to two hundred dollars an hour. Some larger firms in the “Big Four” can charge up to six hundred dollars an hour for senior resources. Multiply that by the average of forty hours a week and fifty or so weeks a year, and it is easy to see how that adds up to more than you will see in your paycheck. Sorry to break it to you. What a consultant bills is never what they pocket in salary for reasons we will soon discuss.
When I first started consulting and reviewing my own billable rate, I could not even process how and why companies would pay that kind of money for someone like me. For that kind of money, companies could pay the salary of three or four versions of myself for the same period. It just did not add up.
There are a few major reasons most companies will hire consultants instead of hiring their own employees:
The work is project-based
The first major reason it makes sense for a company to hire a consultant is that the needed work must be completed in finite time with limited scope. Although the cost of the project can be high, a client will save thousands of dollars by not having to hire long-term, full-time resources. They can pay highly skilled, subject matter experts to come in and knock out the job. After completion, they can send the consultants on their way and transitioning the ongoing support to existing employees as a portion of their day job. The initial cost of the project is considered an investment with a long-term payback.
The work is temporary
Similar to project-style work, sometimes a company is simply short staffed. Maybe it is the year-end, maybe Mary is on maternity leave, and maybe they just need an extra hand hitting a deadline. In these cases, this work is usually called “Staff Aug,” short for Staff Augmentation. Staff augmentation is where the current staff is supplemented by consultants for a limited time. The cost in this scenario is temporary because the role is temporary.
Consultants don’t get benefits
The cost of a company’s full-time employee exceeds his or her salary. Companies pay for the employee’s desk, computer, parking pass, coffee, perks and—most importantly, the second most expensive item next to salary—benefits. With most reputable companies now offering retirement matches and health care benefits, the usual cost of an employee is over 20% beyond that person’s salary. This is where the cost of hiring a consultant can begin to make a lot more sense.
The work is hard
Many times, a company will bring in a consultant because they just cannot do the work themselves. The work may be too complicated, or the organization may not have enough time or resources to complete the work on time or at all. Finding an expert to assist in complicated tasks is usually very hard to find and even more expensive to hire for the long-term. This is where specialty firms and their resources can flourish. Deep expertise in a business domain, an industry, or a technology drives most of the work for consulting firms.
The work is mandatory
Mandatory or regulatory work is where Big Four firms make much of their money. Audit season, Tax season, Merger and Acquisition reviews can be the reason you see an empty conference room get invaded by forty new folks dressed in the basic business casual starter kit and travel laptop. It is not rare to see these consultants working 80 hours a week, ordering take-out, hunching over documents and filling out spreadsheets. This type of work is necessary either by law/regulations or is required because of due diligence work. This is frequently where consultants get started.
For more insight into an Introduction to Consulting, check out my book Jack of All Trades Master of Some, An Introduction to Consulting.
Check out the rest of the series tied to the book on the blog as well!