More and more, we’ve noticed an increasing fascination around the internal mechanics of consulting firms. Lately, we’ve received questions about how Partners sell projects, and how consulting firms bill clients. Today, we’re diving into the latter.
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Without further ado, here are the two ways consulting firms bill clients.
By Project By Team
The first way consulting projects are billed are by project by team. Before diving into what this means, it’s important to note the typical length of consulting engagements:
- Due Diligence – 2-4 weeks
- Strategy – 3-6 months
- Implementation – 6-24 months
At the MBB level, a Partner will bill out a month of work something like this:
“For services rendered, 1-month, team of 5: $500,000 + 20% travel.”
Yes, we’ve actually seen invoices at the MBB level that are that short and sweet. What are the consequence of this? Firms that bill by project by team tend to have pretty flat levels on a team – about everyone on the team carries equal weight and has a say in the direction of the project. Overall, you are incentivized to solve problems quickly. The difference between MBB and other consultants isn’t the quality of their insights, typically, it’s the speed in which they get there.
All MBB and boutique strategy firms (L.E.K., ATK, Strategy&, etc.) employ this model, and it really makes a difference in the work culture when you’re not expected to max out your billable hours on a project.
By Person By Hour
The second way consulting firms bill clients is by person by hour. A benefit of this model? Firms (Big 4, implementation, tech) can be more flexible based on the client’s budget. Want to save money as a client? The firm can reduce the size of the engagement team, or sub out a more senior consultant with a junior analyst. In addition, this model allows a firm to work further downstream into the client organization. Project scope can increase by the month, and multiple teams can be assigned to work with a lot more levels inside a client organization. This is why Big 4 firms are bigger than their MBB and boutique counterparts. For example, Deloitte will have a lot more levels on a project than their counterparts at Deloitte S&O.
One big difference between firms that employ hourly billing vs. per project billing: consultant compensation. Generally, purely strategy firms bill by project by team, and these roles are the highest paid in the industry. While implementation and tech consulting are the fastest growing sectors inside of management consulting, salaries (and salary growth) in these roles are lower than their strategy cousins.
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