Reply to: Consultancies - we are in the wrong business

[bobspud]

A mate of mine was working for a client for a few years and always though a Preferred Supplier agency who charged the client about 4% markup on his rate, all open and transparent like. So all is fine and dandy for a while but now he's found himself some work back at the same client but they have decided to engage him through a consultancy firm who have a few other people on site. Now get this, they are putting about 60% markup on his rate. Note that although the consultancy have people working on the project for the client, they had nothing to do with getting him the work, he was asked to come back based on his reputation from previous work done for the client.

He's happy enough with his rate but I'm a bit bemused. Why on earth do clients pay these consultancies huge amounts of money like this? What are the consultancies doing that we as contractors aren't?

Markups like that would have agencies wetting their pants with glee. How do we get a piece of that action?

I have worked in consultancy for years thats the going rate for markups. If you think thats bad imagine being a perm employee in the same firm. Many of them will be struggling to break £80k for 100 hour weeks

I have tried to get in at the ground level for years there are a number of issues. You need at least 5 of you to start with no more than 12 at the top of the game. You need a salesman with good contacts and then the most important part enough money in the bank to run all of you for 90 days + expenses... The sales guy is a pain because a good one will throw more options at you than you can manage and a bad one will leave too many of you on the bench at the same time...

[Vandalay]

Why on earth do clients pay these consultancies huge amounts of money like this?

One reason is that consultancy costs usually come out of a different pot of money to agency contractors, and usually don't form part of headcount numbers. £500 a day might be far too high for a line manager to sign off, but for a senior manager signing off the budgets for major projects it's peanuts.

[Vandalay]

I do a lot of work through a consultancy, and their cut is 30%... and I don't mind because my cut is still about 25% higher as a consultant placed contractor as I would be through an agency. That, plus I can actually see the effort they put into sales and marketing - it's a proper b2b relationship, rather than some shark who's on a PSL taking a 20% cut for doing almost nothing. Nice to have transparency too.

[SueEllen]

They pay senior managers at the client firms kickbacks and incentives to take them on. Said managers own no shares in the companies they work for and their salary packages are completely divorced from any performance related elements so they have on incentives to do otherwise.

Boo

You believe everyone is on the take.

There is an anti-bribery law in the UK so you can't pay managers kick backers.*

However there is nothing stopping you entertaining clients by taking them out for very expensive meals or sports events. Or getting them involved in your charity event. This is called "networking".

*BAE systems is exempt from this.

[Boo]

He's happy enough with his rate but I'm a bit bemused. Why on earth do clients pay these consultancies huge amounts of money like this? What are the consultancies doing that we as contractors aren't?

They pay senior managers at the client firms kickbacks and incentives to take them on. Said managers own no shares in the companies they work for and their salary packages are completely divorced from any performance related elements so they have on incentives to do otherwise.

Boo

[BolshieBastard]

They have more money than sense \ business accumen. Plus it looks better to the shareholders when the CEO says they engaged so and so consultancy rather than Joe Bloggs Ltd!

[tomtomagain]

I'd gladly take on a multi-million pound risk via my "limited" company.

Wouldn't we all?

But the difference between Indenture, Infosh**, et al is they have the "credibility" with senior management.

Whereas you and I don't.

Even if we are the ones who actually deliver the goods.

Ironic.

[jmo21]

This isn't new news.

Sell high, and try to supply the bodies cheap.

This is how consultancies work, and to a lesser
extent, how agencies work.

As it happens I am flying the flag for 'tractors at current client co.

The PM for my project loves the work I do, and is currently spitting teeth over a consultancy who built another system she deals with. She hates them, and is desperate to get rid of them as they are so expensive, always changing account managers and technical leads. That system needs a re-write for a number of reasons (needs to go national across merged agencies, needs to ditch it from being embedded in Sharepoint).

I'm quietly polishing off my current work, and positioning myself for the re-write.

[kingcook]

Simple. Take on a multi-million pound risk.

I'd gladly take on a multi-million pound risk via my "limited" company.

[tractor]

...

Way back when.... the adage was 'No one ever got fired for buying IBM!'

It is still true today and the board usually goes for the big sales pitch, they never 'buy' from techies, only sales people.

[Bluenose]

In general a 40% profit margin for a consultancy is classed as a minimum threshhold. Many consultancies will turn work away if the margin is less than 30%.

Even still, the profit margin for consultancy work is classed as low and would also need to be bolstered by other attractive benefits which would contribute to the bottom line.

There are high risks involved with running a team of consultants and many don't survive a downturn.

For example in a software house, the profit margin in software can be 80-120%. It is hard therefore, to argue a case for keeping a consultancy team in-house and many software houses decide to go down the VAR route or partner route and only keep a small in-house team of consultants to deploy on very high value accounts or, brand new accounts where success is of high strategic importantance.

All said, many consultancies I know of run the body-shop model of resourcing on a 10% margin on some major accounts, just to keep their toe in the door, ready for the up-tick.

[d000hg]

Partly stability - they perhaps guarantee to have people available rather than a X-month gap when a contractor leaves and the client has to advertise for someone suitable?

[BillHicksRIP]

I have worked for current client through a consultancy several times for 6-month gigs in the past where I was charged out at £850 p.d. plus expenses, while I was on a 50k permie salary. I've also done a 2-year stretch where the client engaged IBM, who engaged the consultancy, who sent me to do the work. God knows what the daily rate was there. Been at current client for a while now and charging them around half of what the consultancy was charging and they're happy, and I'm happy. I'm just basically going to undercut the consultancies for as long as I can until crap like the Employed Consultant model and useless bobs working for buttons either goes away if the market picks up or it kills my line of work completely in the UK.

[Ticktock]

Simple. Take on a multi-million pound risk.

Not necessarily.

I did a gig for a consultancy. They sold their "services" to the client, agreed the basics of the project scope and got a contract signed, along with supplying another trainer.
I turned up, fully scoped the project and delivered all of the work, including training the other trainer.
I got my usual day rate, they got a huge mark-up for delivering a project (wot I done).

In short, I could have done the whole thing directly myself, using one of my contacts / ContractorClub for the other trainer, as I did do the whole thing myself. Where I lacked is that the consultancy are a recommended training provider by the software developer, so have the market knowledge to find the work.

[malvolio]

A mate of mine was working for a client for a few years and always though a Preferred Supplier agency who charged the client about 4% markup on his rate, all open and transparent like. So all is fine and dandy for a while but now he's found himself some work back at the same client but they have decided to engage him through a consultancy firm who have a few other people on site. Now get this, they are putting about 60% markup on his rate. Note that although the consultancy have people working on the project for the client, they had nothing to do with getting him the work, he was asked to come back based on his reputation from previous work done for the client.

He's happy enough with his rate but I'm a bit bemused. Why on earth do clients pay these consultancies huge amounts of money like this? What are the consultancies doing that we as contractors aren't?

Markups like that would have agencies wetting their pants with glee. How do we get a piece of that action?

Simple. Take on a multi-million pound risk.