Daily Archives: February 10, 2008

Consultants are Cheap!

Last month, over on the CNet blog, Steve Tobak posted a great entry on when to hire a consultant. However, instead of repeating all the reasons why you should hire a consultant, I want to echo his sentiment that too many executives still think that consultants are parasites that charge ridiculous rates, waste precious time, and present obvious conclusions when, in fact, good consultants can be the most cost effective business saviors you’ll ever have the good fortune to hire! But I’m not just going to do the traditional “soft-sell” and wave rhetoric. I’m going to put some hard numbers behind my justification of why hiring a consultant, even at thousands per day, is not only a great deal, but maybe even a better deal then what you get when you hire a senior director or vice president.

  1. A top performer demands a high salary.
    Usually 200K to 300K for a high-performer. Let’s say $250K.
  2. A top performer demands pricey benefits.
    Health insurance (10K+), life & disability insurance (5K), 401K matching (10K), and a performance bonus of at least 10% to 20% (25K to 50K) in a good year. This will cost you another 50K to 100K. Let’s be very conservative and say 50K .
  3. A top performer comes with overhead.
    First off, there’s all the standard overhead of maintaining the nice office, the telecommunications equipment, and the IT equipment. There’s also a share of an administrative assistant’s salary, a transportation budget, and a reasonable expense account. This could easily eat up 25K to 50K (or more). Let’s be moderate and say 30K.
  4. A top performer needs a decent vacation to recharge.
    Depending on how long this performer has been with the company, we’re probably talking 4 to 6 weeks. This is a hidden cost, as it means you’re only getting 46 to 48 weeks of work, at most.
  5. A top performer needs to keep his skills up to date, and this will require good training.
    You should allow at least two weeks for any employee. For a top performer, I’d highly recommend three or four weeks of training and education related activities. Let’s be conservative and say this person is an extremely fast learner and you can get away with two weeks. Now your top performer is only working 44 to 46 weeks, at most.
  6. Training costs money.
    Whether it’s courses, workshops, conferences, or self-study guides, expect to shell out for this. A couple of conferences and a couple of courses could easily run you 15K to 25K to keep your top performer at above average performance levels. We’ll be realistic and say 20K.
  7. There will be other costs that arise with respect to raises, promotions, recognition, and performance.
    However, since you can always make them next year’s budget problem, we’ll ignore them for simplicity.

This says that your 250K top performer, that you believe is only costing you approximately 1K a day is actually costing you over 1.6K a day in a conservative estimation, and possibly over 2.1K in reality. (350K to 450K+ over 220 days, vs 250K over 260 days)

Now, it’s still less than a consultant, but let’s not forget the following:

  • Your top-performer will have most of his or her time consumed with the tactical day-to-day operation of the business.
  • If your top-performer is struggling to complete two weeks a year of training or education related activities, he or she is not going to be up to date on new ideas, technologies, and movements within the marketplace.
  • If you’re starting to run into stiff competition or problems within your business, you can be too close to the problem to make good, objective decisions.
  • Even a top-performer can only be an expert on a handful of technologies, processes, or business functions. At least collectively, outsiders will always know more about the best way to run your business with today’s technology in today’s market than you do.
  • It’s an innovate-or-die marketplace out there today. And if we’re in a recession, that’s doubly true.

In comparison,

  • A consultant can focus purely on the strategic, and purely on the problems you need help with.
  • A consultant will spend a considerable portion of his or her time keeping up to date on new processes, technologies, and advancements. Their knowledge is there to be used.
  • A consultant can be much more objective. Furthermore, a consultant probably has a better comprehension of the state of the market you compete in than you do.
  • Even though, like any top performer, a consultant can only be an expert on a handful of technologies, processes, or business functions, you are free to pick the consultant with the skills you need to advance your business.
  • When a consultant puts in a day, a consultant puts in a day. Usually 10 to 12 hours, compared to the 9-5 with a 2 hour lunch an employee will often try to get away with when he or she can. Plus, a good consultant can’t stop thinking about your problem until she goes to sleep at night, and usually starts thinking about it the minute she wakes up.
  • Consultants live by the innovate-or-die mantra.
      and, most importantly,
  • When the project is over, you can cut the consultant loose without any additional cost. In contrast, it could easily cost you six figures to cut a top-performer loose. Furthermore, if you’re smart and do a short initial engagement with a new consultant before agreeing to a long term engagement, the loss associated with hiring the wrong consultant is next-to-nothing. In comparison, the loss associated with hiring the wrong person for a director or vice president job will be hundreds of thousands by the time you add up the losses with dismissing the current employee, finding a replacement, and getting that replacement up to speed.

So, given that a consultant can bring you the badly needed 1) expertise, 2) objectivity, 3) credibility, 4) leadership, and 5) time that you need to be successful, don’t balk at standard consulting day rates. It’s a bargain compared to the value they can bring, especially when you remember that it’s not tactical day-to-day operations that bring you substantial cost savings and new markets, but strategic improvements that consultants can bring with them.