How are Consultants Paid?
Management consultants typically bill their clients in increments of time: hours or days worked. This is not unique to consulting. In fact, most professional services bill their clients by the hour, including accounting and law firms.
There is no “standard rate.” A single consulting firm may have a steep hierarchy, with hourly billing rates rising sharply from consultant to senior consultant to manager to partner.
Moreover, within each rung of the hierarchy, there may be multiple billing rates on offer. A second-year consultant might be expected to carry a somewhat higher billing rate than a first-year consultant. A specific senior partner, recognized for possessing a unique expertise, may command a premium rate even compared to his peers.
How Much Should I Pay?
Unfortunately, there is no easy answer to this since the scope of work can vary greatly in both duration and difficulty. Changes contemplated by a Fortune 500 company will differ vastly from those contemplated by a small retail chain with half a dozen stores.
Consultants have a reputation for earning high salaries, but that applies only to leading firms whose employees earn very handsome pay packages that far exceed the national average.
Most consultants, even those working for large firms, don’t earn exorbitant salaries. It’s important to consider that a consultant’s hourly rate is business income, not personal income. All of the firm’s business expenses, from office space to printer paper to phone and internet and insurance and taxes, must be paid out of operating receipts. Salary comes last.
For larger projects, a consulting firm may offer discounts on their hourly rate since many hours—often adding up to months or even years of work—will be contracted.
For smaller projects, it is not unusual for clients to negotiate a cap on total billings so that they do not exceed a reasonable budget for the scope of work. The more detailed that scope, the better the cost estimate will be.