“Profit enhancers” for consultants
A company’s line managers are tasked with making sure that consultants fulfil their obligations. In this article, I’ve outlined six methods that consulting firms use to maximize their profits. It’s not uncommon for consultants to engage in ethically dubious or even fraudulent behavior. By making businesses aware of these tactics, they will be better prepared when it comes to paying out their consultants’ often generous fees and bills.
1. Unreasonable returns on investment
A year’s salary for a junior marketing consultant might be about £30,000 ($45,000). So if social and other costs are taken into account, the firm may be paying about £1,000 per week. To personal sector customers, they’ll be charged at least £7,000 ($10,000), although some firms will charge only £5,000 ($7,500) for larger public sector projects. Some consultants charge £2,000 ($3,000) a week, while others charge £12,000 ($15,000) per week. So, although many manufacturing firms have gross margins of about 80% and retailers have margins of around 100%, management consultants often aim for gross margins of 500% to 800% – a huge difference from the margins that any of our customers would ever earn. Just how many people do the simple math and wonder why it is so hard to get an unskilled junior marketing consultant for less than 10% of the cost of a full-time marketing manager?
2. Retaining reimbursements for travel expenses
Three consulting firms agreed to pay a former customer $100 million in compensation last year after they were sued for wrongful termination “making use of their customers to benefit themselves When it came to obtaining discounts of up to 40 percent on the ticket and other expenditures from outside suppliers, such as airline companies and travel agents, the three companies worked together for more than a decade “We call these things “lines.”
It’s simple how this works. A year-end reimbursement is offered to clients who use the consulting firm’s services, which includes travel agencies, hotel chains, and the nation’s major airlines. The travel and accommodation costs are invoiced to the customer by the consultant, which may even include an administrative fee. The travel providers give a refund to the consultant at the end of the year. The customers who paid for all of the travel and hotel in the first place never get a penny of this return. According to the defendants, “Despite this, an email sent by a marketing consultant from one of the numerous firms reads in part: “Here’s how we do it every time. According to our contract, we only charge what we claim to be “reasonable” expenditures. After that, we’ll send an invoice for your flight travel costs. After that, we’ll earn a cut of the price of your plane ticket. Despite this, we don’t pay back the client’s kickback.” A British marketing consultant calculated that his business had stolen nearly £20 million from just one buyer using this method.
3. Non-client work should not be billed.
Many strange consultants have been told to charge clients for time spent working on their own consultation business. It’s common for consultants to split their time among their many clients and dedicate a certain number of days each month to each client, even when they aren’t working with that client. To paraphrase a marketing expert from a company with more than 100,000 employees, “I was in a room with more than 100 other consultants for an internal meeting. As the quarter was almost over, our partner advised us to bill the customer for the day so that we could meet our quotas.” Even this seemingly simple selection cost the customer more than £150,000 ($150,000).
4. The practice of charging excessive fees for overhead.
Customers at certain consulting firms are charged false overhead costs. A 10% “overhead” fee was automatically applied to consulting fees at one of the largest consulting firms. Shoppers would be charged an extra £30,000 ($45,000) to cover administrative costs since each marketing consultant costs £300,000 ($450,000) a year. There were roughly 300 consultants and about 50 administrative support staff in the London office, which included secretaries, receptionists, bean counters, human resources, advertising assistance, and trainers, in addition to information center researchers and doc production. The 10% surcharge, on the other hand, meant that our customers were paying for the equivalent of around 300 administrative staff members, even though we didn’t have any of that people to pay their wages.
5. Employers who must be relocated
At the cost of their customers, many management consultants operate internationally and relocate their workers. The firm didn’t have enough staff in the UK for a $4 million ($2.3 million) project that I helped the market in the UK to a regional health authority. According to a document sent by our CEO, “At the time of the project, we were still relying significantly on the help of U.S. ex-pats. The customer was charged for a fraction of the expenditures associated with hosting them and their families.”
According to an official inquiry, our NHS shopper was required by law to pay an additional thousand pounds a week for the services of these imported doctors.
6. Flat-rate billing scams
In many cases, consulting firms would agree with the customer that bills will be about 12 percent of costs, for example. There will be a 12 percent charge invoiced to the customer each week and then a reconciliation of that charge with the actual costs expended at the project’s end.
Even though we had committed to working on a project for a major manufacturer of military planes, missile systems, and satellites, we were only able to work on it for 7%. Account Vice Chairman informed other consulting members that he had space to take in bills from other projects and our head office, rather than making a refund to the customer.
Occasionally, we’d get a surprise bill audit from a consumer. We’d just declare there had been an administrative mistake and repay the minimum necessary to keep the customer happy if they found any true atrocities.