Profitability of consultancies is directly linked to recovery of staff costs and time. For optimum profit margins, the percentage of income consumed by staff costs should be no more than 55 per cent. For this to work, 'success fees' would need to be premium.
Clients will eventually try to negotiate success fees down. 'Payment by results' (PBR) often becomes a penalty for failure, rather than a bonus.
Improving existing PBR models so that consultancies get paid for the time they spend, with an upside for 'super success', would be a better way of demonstrating the value of consultancies.
Esther Carder, partner, Willott Kingston Smith.