Research shows that gross profit margins greater than 60% are possible when consulting firms have the right visibility and project management tools. Having a single source of information allows consulting companies to offer higher quality projects and happier customers, in addition to better supporting strategic and revenue objectives. The professional services industry has varying profit margins. The average is around 30 percent.
The company Sageworks did an analysis of the industries with the highest profit margins to find out what types of services had the highest profit margins. There are many ways to increase your profit margins if you work in the consulting industry. You can improve your processes, diversify your product range, or reimagine the sales message to increase your margins. If you're lucky, you can get a threefold turnover multiplier, but in the end it will fall between 2.55 and 3.0.
The key point of this whole debate is that consulting, in my experience, is a business with values and not with fees. If the customer receives (and you are offering) a high value, the fees will pay for themselves, as will the profitability. If you hire based on demand, hiring constantly is a good problem; if people treat your front door like a revolving door, it's not because you're in the consulting business. While it is true that few consultants achieve 100% turnover, many companies have some “bodies” in place that have long-term tasks without incremental sales costs or administrative expenses, and these long-term tasks can include a lot of unbilled time and low utilization for other consultants.
Using consulting to finance a startup works, but I think it only really works if the consulting and development you need are aligned. You're referring to consultancies with dozens of employees who can afford a “consulting consultant”, while, as I said at the beginning and end, I'm referring specifically to one-person consultancies that think they can easily make a lot of money by hiring one or two people, and even more specifically to people who do it thinking that they're going to start a product company, which is what I usually write about.
