Full Heads, Empty Pockets
Why do consultants get exorbitant fees for their services? It seems like all these guys are swarming around in Armani suits and getting paid boatloads for doing almost nothing. Contractors are the same way, all of these government services people, what's their deal?
Consultants are cheap and cost-effective.
First, let's look at what the difference is between a consultant and a contractor. My friend, Geoff Day, owner and CEO of The Consulting Exchange, explains that consultants charge $100 an hour or more for their services, while contractors charge under $100 for their services. Geoff's definition is great pricing advice for anyone looking to be in the contracting or consulting services; however, you won't see the industries dividing themselves by this price point.
In essence consulting services are outsourcers. They allow management to move business functions off of their employee role so that they can reduce the intangible costs that come with employees (healthcare, pensions, insurance, etc.). These services are particularly cost-effective for short-term and high-risk projects. Why you ask?
Consultants can be hired and fired in no time flat.
There's no severance pay, no parachute, no three weeks notice. It's, "Team, I have bad news. I just got off the phone with CEO X and we lost the contract. I may have to let some of you go.". So all that job security, all that 9-5, high-pay, Armani suit perks, all that higher-paying-job-than-your-friends is out the window in less time than you can say "Screwed".
Now that's the worst-case scenario. Things are usually a little better, because big consulting companies make contracts with there clients, which prevents the instantaneous "You're out." However, these companies are still the first to go in a down cycle.
Consultants are knowledge workers. That means that they trade their knowledge for a premium now and forfeit the potential for future payoffs.
Think about it. Every person that is engaged in management, professional services, or technology is a knowledge worker. However, employees still get their names on patents and often times get stock options and other compensation plans. What do consultants get? Nada. "Hey thanks, without you we'd never have IPO'd!" and a slap on the back.
Now if you've read this far, and you're a consultant, there's probably steam coming out of your ears... or you're on MonsterTrak looking for a new job. But I really don't mean to knock consultants. It's a great way to get an understanding of how businesses work in a short period of time. In addition, it's a great personality fit for people who think outside the box, but don't want to experience life without a paycheck (trust me, it sucks). However, it's important consultants understand the downside, particularly in such a hot market for consulting jobs (see my article "Sniffing Out the Wannabes" Jan 25 2006).