Making Headcount Irrelevant

The solutions are many, and consulting clients have been hiring them for decades.

For most consultancies, your services are the most valuable IP (intellectual property) you possess.

Firms traditionally follow a strategy around leveraging junior staff. Once they document frameworks, processes, and templates, junior consultants are able to (at least in theory) produce the quality work of experienced consultants at a lower salary. Many successful boutiques have a team that costs the partners X and is sold out at 3X or so. This "cost-plus" model is still alive and well.

There's another option though. Consultancies can break out of the headcount = revenue equation, greatly improving their profit margins.

As Prof. Joe O'Mahoney puts it:

"Breaking out of the headcount = revenue equation offers consultancies significant opportunities to generate cash without paying people, and thus create very large profit margins. Contrary to the prophets of the digital revolution, opportunities to do exactly this have always been there. Retainers, for example, go some way towards this, as does value-based pricing, benchmarking, selling research reports and access to peer networks.

Yet, it is certainly true that digital offers new ways to break the link between people and revenue. The collapse in cost in developing and using digital services also means it is no longer the preserve of big firms. Apps, video courses, automated benchmarking and report generation, training simulations and software as a service can be created relatively cheaply and quickly through outsourced developers, cloud-based platforms and cheap DIY software ("low-code" or "no-code")."

These are all ways to sell your head instead of your hands.

Joe makes an excellent point reminding us that decoupling revenue and headcount is not a new idea. Digital solutions may have amplified it, making them accessible to boutique consultancies without large budgets. But consulting clients have been hiring retainers and paying for research and access to networks for decades.

Questions for you:

  • How could your consultancy deliver more value without hiring additional people?
  • Which of these new services can be easily sold to current or past clients, and work together well with your existing offerings?
  • Which existing ideas, frameworks, processes, and templates do you need to codify to make it happen?

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