Consultancies - we are in the wrong business

[Wanderer]

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?

[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.

[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.

[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.

[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?

[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.

[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.

[kingcook]

Simple. Take on a multi-million pound risk.

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

[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.

[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.