How consultants overcharge their customers

Consultant '' Profit Enhancer'

When an organization hires a manager or IT consultant, the line manager must ensure that the consultant provides the promised results. In this article, I summarize the six technologies used by consulting firms to maximize their profitability. Some of them are just smart business, some are dishonest, some are fraudulent - all of which are widely spread throughout the consulting industry. By getting the organization to understand these practices, I hope they can be better armed because they usually pay generous fees and expenses to consultants.

1. High profitability
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A junior consultant usually receives about 30,000 pounds [$45,000] a year. Therefore, due to social and other costs, the consulting firm may pay approximately £1,000 a week. But they typically charge private sector customers £7,000+ [$10,000 or more] per week - for larger public sector projects, some consulting services will drop to £5,000+ [$7,500] per week. An experienced consultant may spend £2,000 a week [$3,000] on consulting fees, but can charge £12,000 + [$15,000 or more] per week. Therefore, while many manufacturing businesses have a gross margin of about 80% and retailers have a profit margin of about 100%, management consulting firms typically have a gross margin of 500% to 800% - compared to the profits our customers can earn. This is a pretty amazing and huge difference. Surprisingly, few customers do simple math and ask why they should pay more than £300,000 [$450,000] a year for an inexperienced junior consultant, and the consultant's salary may be only ten One.

2. Retain travel expenses discount
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Last year, three consulting companies agreed to pay about $100 million in damages to a former client who was sued "unfairly enriching themselves at the expense of customers." The lawsuit was a decade when the three companies worked with external suppliers. For example, airlines and travel agencies receive up to 40% discount on airline tickets and other fees that are not passed on to customers. "

This way is very simple. The consulting firm has reached an agreement with travel agencies, hotel chains and major airlines to obtain year-end discounts. The consulting company issues full travel and accommodation expenses to customers, sometimes even increasing management fees. At the end of the year, the consulting company received a rebate from the travel provider. None of the refunds were returned to customers who paid for all travel and accommodation costs first. The defendants claimed that they had "stopped this practice", but this contradicted the recent email from one of the company's consultants. "This is what we do every time. We stated in the contract that we will be &#39 Actual charges & #39; fees. Then we bill them according to your air travel expenses. Then we will give you a rebate for the ticket. But we will not reply to the customer. "A British consultant estimated that his employer This way it stole more than 20 million pounds from a customer.

3. Charge for non-customer work
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In most consulting firms, partners or boards allocate time between customers and assign a certain number of days to each customer each month - even if this time is not actually spent working for that customer. In addition, you often find that general consultants are told how long it takes to charge customers for internal consulting. A consultant who quoted a company with more than 100,000 employees said: "I was in internal meeting with more than 100 other consultants. The partner told us to charge the project so that we can bill the customer because it is almost the end of the quarter. We need to make our numbers. "It's just that this seemingly harmless decision may cost customers more than £100,000 [$150,000].

4. Overhead overcharge
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In many consulting firms, customers pay fictitious overheads. In a large consulting firm, an additional 10% is automatically added to the consulting fee, which is said to be able to pay for overhead. As a result, each consultant spends £300,000 [$450,000] per year and the client pays an additional £30,000 [$45,000] to cover administrative costs. However, the London office has about 300 consultants and about 50 administrative support staff - secretaries, receptionists, human resources, bean counters, marketing support, resource managers, trainers, information center researchers and document producers. However, with a 10% surcharge, our customers are accused of being equivalent to approximately 300 executives - therefore, the salary of up to 250 support staff is not spent because the staff does not exist at all.

5. Resettlement staff
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Many management consulting firms are international and transfer employees to customers on a global scale. In the £2.3 million [$4 million] project sold to the regional health department in the UK, the consulting firm did not have enough UK staff. As our CEO wrote in an internal memo, "The project was carried out while we still have strong support from American expatriates. Of course, we provide accommodation for them and their families at these costs. Part of it is borne by the customer."

As a result, our NHS customers had to pay an extra thousand pounds a week for these import consultants, which was described in the official survey as a "financial fiasco".

6. Fraudulent fixed fees
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Consulting companies often agree on customer fees, such as 12%. Customers will be charged a 12% fee per week, and then at the end of the project, 12% of the customer's payment will be reconciled with the actual costs incurred.

In a leading military aircraft, missile system and satellite manufacturer project, we reached a 12% agreement, but in fact only about 7%. The vice president of the account informed the rest of the consulting firm that he had enough room to pay for the costs from other projects and headquarters, rather than paying customers.

Occasionally, the customer will review our expenses. If they find some real terrorist incidents, we will only say that there is an administrative error and return the minimum requirement to maintain customer satisfaction.

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