For most of this book, I speak from the perspective of working for a consulting firm, not a staffing agency. A consulting firm usually hires, trains and invests in employees like any other company, while staffing agencies gear towards independent contractors and temporary staffing. A lot of valuable lessons in this book will also apply to the independent consultant. My experiences have not taken me down the solo consultant path, I wanted to avoid unfair assumptions.
A firm will hire you at a salary based on your skills, education and experience. The compensation structure is like any other job. You get paid every two weeks, with taxes and fees taken out of your paycheck and, if you are lucky, you make a bonus from time to time. This is the cost the firm incurs to hire an employee and is lovingly referred to as “employee burden” in company metrics.
The firm will staff its consultants on a client project. This is where the consultants get assigned to one of the many projects they have been contracted to deliver. As a member of this project team, the firm is “billing you out” at a certain rate per hour. This dollar amount, which varies based on the role, is collected at some cadence, usually monthly, when the firm invoices the client for the time and expenses billed in that timeframe.
All that cash collected in billing goes directly to the firm. It is this income that drives salary and bonuses, benefits, and perk as well as investment into employees and overall growth.
The Plumber and the Leaky Pipe
There is a classic story that really hits home the point of why consultants are necessary and why they can charge the rates they do.
There once was a man with a leaky pipe in his home. He attempted to repair the leak but could not figure out the solution, so he looked up a list of plumbers. He called the cheapest one first. The first plumber came by and after an hour of trying to solve the issue and failing, he charged the man fifty dollars for this time, apologized and left. The second cheapest plumber was then called. He also spent an hour looking for a resolution to solve the issue to no avail. He charged the man seventy-five dollars for this time, apologized and left. Frustrated, the man called the highest reviewed plumber over to his house. The new plumber showed up and listened to the man describe the issue. He then pulled out a wrench, opened a cabinet and tightened one bolt all within five minutes. The leak immediately stopped.
The plumber then turned to the man as said, “That will be two hundred and fifty dollars”.
The man was appalled. “All you did was tighten one bolt? How can you charge that much?”.
To which the plumber replied, “Because I knew exactly which bolt to tighten”.
Are you interested in starting a career in consulting? Be sure do read the full book Jack of all Trades Master of Some; An Introduction to Consulting available on Amazon.