Spending EUR 4.000 or more per day on a single resource seems ridiculously expensive. However, such price tags are common among professional services firms (PSFs) and especially in Management Consulting. One might easily question the justification for such rates. Such critics are nourished by a certain opaqueness of the market structure and pricing methodologies of PSFs. With this article and our related study, we want to shed some light on the cost structures and daily rates of PSFs in 2020 and possible implications behind them.
Despite high rates, companies around the globe are contracting PSFs to solve their business challenges. The Consulting industry alone has grown roughly 7-8% p.a. over the last 5 years [BDU] and accounts for almost € 40 billion in the DACH market. At APADUA, we offer a software suite to digitally manage PSFs as a strategic category in Procurement. This article summarizes the Pricing Benchmark 2020 study of APADUA that reveals unique insights around the industry.
Get the full study here:
The most important insights from the study
1 | Cost per man-week is an important cost indicator and varies drastically
The study compares ~90 PSFs proposals with similar overall project budgets. However, analyzing cost per man-week shows significant differences across different types of firms. Specialists, which focus on a few service types and industries, offer almost half the man-week cost (€ 19.000) when compared to Generalist companies (€ 36.000) that offer a wide portfolio of services and a global corporate footprint.
2 | Daily rates start on a similar level but stretch out to a high end
Daily rates of junior resources analyzed in the study start on a similar level across the three PSF types. However, the upside for senior roles for Diversified and especially Generalist firms is huge. Even though the overview chart ignores lower and upper outliers it already shows how the composition of project budgets is directly affected by these internal cost structures.
3 | On average, daily rates increase linearly, but …
While average daily rates by role across all PSF types increase linearly, they vary within different categories of PSFs (like Specialist versus Generalists) or project scope types (like IT Consulting versus Strategy Consulting). Outliers on the lower end are found in IT Consulting projects and on the upper end in Strategy Consulting companies. Both outlier types highly influence the overall project volumes. Thus, clients of PSFs need to decide carefully what type of project or type of PSF they are using as a base for project budgeting.
The displayed charts are an overview of a part of the insights that are discussed in the Study Pricing Benchmark 2020. The paper itself reveals more details for the presented charts, explanations of the dataset itself, further points of view, and specific implications and interpretations. We are happy to have had Dr. Lars Immerthal as an advisor to the study team. This is what he says about the study and its impact:
Only a clear idea of project goals will lead to a successful project for the inquiring company, which is worth its price and does not strain budgets. PSFs, on the other hand, have to rethink their service offering and value proposition, adapt it to specific needs and make it transparent. This is especially true for generalists, who feel the pressure from below.
With this first issue of the Pricing Benchmark study, we aim at initiating a series of annual insight papers that shed more light on this important industry. Feel free to download our study by clicking on the image below.
About APADUA – Smart Professional Services Procurement
APADUA makes purchasing Professional Services as easy as online shopping. To achieve this, we provide a software suite that incorporates data gathering and analysis algorithms for market analysis, a lean process tailored to suit the requirements of Professional Service procurement, and a unique concept for the measurement of project quality and performance. As APADUA, we are committed to becoming the one-stop-shop for Smart Professional Services Procurement and are happy to have Fortune500 as well as mid-sized companies among our clients.
