The price or cost of interim and consulting services is often difficult to understand. Your comparable executive compensation may for example be 150 K€/year. Divided by work days that makes ca 700 €/day. An interim executive or consultant most likely charges much more than that. Why's that? For one, you didn't compare apple-to-apple. You missed part of the costs related to the executive compensation above.
The general opinion appears to be that it's expensive to use these kind of services. And I must agree, that would be the case if you don't know what the intention and target of using these services is. You shouldn't waste money on redundant services. Therefore, let's have a look at value and price.
Number one is value. Clear and backed by estimated numbers, or even just a strong perception of significance should preferably be the outset for considering using services.
What is the value (or reduced risk) you are targeting when considering interim or consulting services? How important is it for you and the company to reach this value? How much are you willing to invest to realize the targeted value (ROI)?
In many cases value (or risk) isn't easily quantified, but can always be defined in some way or another. Your considered interim executive or consultant is experienced in assessing and defining value and can help you here.
I have chosen to list my price on my web pages, so that anyone considering my services knows from the very beginning what to expect.
My price level indicates a couple of things:
experience and value; I've done challenging and versatile work for over two decades contributing to significant value creation.
ambition; I want to work with assignments that are meaningful and valuable for my clients.
The price level also sets the expectations for my clients and encourages me to do my very best to meet and if possible, exceed these expectations.
If a broker is doing the match making between the client and the service provider, a brokerage fee between 10-20% may be added to the price or shared by the client and service provider.
Value can be considered as my clients top-line for the assignment, while the price can be considered his/her cost, leaving the difference as the bottom-line. This margin should be clearly positive, preferably manyfold compared to the price of the service.
For the interim and consulting services provider price is the top-line, whereas the costs are these:
- Gross salary including tax
- Vacation salary including tax
- Pension insurance
- Side expenses related to salary
- Work tools; laptop, software, phone etc
- Healthcare services
- Business insurances
- Bookkeeping services
- Marketing services
- Education costs
In addition to these running costs, the interim and consulting services provider needs to observe that he/she will not likely be on assignments 100% of a normal work year. Still he/she needs to cover the above running costs. In other words, every assignment needs to leave a sufficient margin to buffer for the associated uncertainty. The price and invoicing rate will therefore determine how well the service provider will do financially.
The client can compare the price to the full cost of an employed full-time executive, given he/she has the same qualifications for the considered assignment:
- Recruitment time and costs
- Cost of delayed value capture due to the above
- Annual compensation including bonuses
- Dismissal compensation (cost of flexibility)
- Benefits (car etc)
- Pension and other side costs
- Unproductive work time
- Paid time off work
- Work tools
- Indirect costs of the employment (admin, healthcare etc)
Compared to all these, how much more does a service provider cost? Probably not that much. Can the difference be justified with availability on short notice, relevant experience and capability, flexibility, low risk and provided value?