Compensation

Most consulting companies treat all compensation as an expense to be minimized, just like insurance or rent. Salaries are by far a company's biggest expense, followed by the various benefits. No wonder the focus on cost containment goes there and stays there. Now try to imagine a leader telling staff that the company's goal is to pay every consultant as much as possible. They should. Here's why:

1. Compensation for billable and overhead staff need to be thought of differently. Indeed, overhead salaries are a pure business expense that works against profit. But consultant salaries are linked to billing rates by what's called a direct cost (salary) multiplier. When a consultant's salary goes up, their billing rate goes up too, increasing revenue and profit. Salaries for billable and non-billable staff are almost always conflated, but they're fundamentally different.

2. The free market is the ultimate arbiter of your value (both billing rate & compensation). Not salary surveys, title, years of experience, what your peers make, or some arbitrary % increase over last year. Those are just estimations, or perhaps justifications. Your value ultimately comes down to willing buyer-willing seller, which should always be maximized!

3. The surest way to take charge of your compensation is to increase your value directly with the buyer (clients). A consultant with a lot of loyal clients is a compensation juggernaut.  

4. Leaders should reassess everyone's market value annually, because there will be hot shots who build trust (value) with clients and PM's faster than others. Smart leaders will increase those salaries and rates to increase revenue/profit, fuel staff loyalty, and avoid getting their pocket picked by a competitor.

5. If you demand a raise but find your own PMs'/clients think your new billing rate makes you too pricey to engage...well, you may have priced yourself out of a job. It's super important that your billing rate be sustainable in the marketplace. 'Sustainability' is at best an informed judgment by you and by leaders. This is the key point to discuss in a salary negotiation. In the end, the billing rate risk is mostly yours.

6. Because salary and billing rate are linked, there's a strong economic incentive for companies to always pay their consultants as much as the market will reliably bear. If they don't, someone else will. And of course, a 15% profit on more revenue is better than a 15% profit on less. "But we need to be cost competitive!" If the market will reliably bear higher billing rates, then that argument defies logic.

7.     Being a consultant is a lot more like being in business for yourself than most realize. The very same maxim applies: 'Your compensation reflects the trust you sow in the marketplace.' Most companies would gladly pay you $500/hr if your clients would pay $600. So forget ridiculous salary ranges. There is no upper limit on your billing rate or on your compensation. There never has been.

8.    Unfortunately, there's no corresponding revenue increase associated with overhead salaries, so how does one soar? Once again by building more trust. The best way? Stop acting like an employee and start thinking and acting like an owner. Demonstrate that you understand the business-at-large and its competitive challenges. M-a-a-a-a-a-jor trust-builder and opportunity creator.

There's a big fat beautiful weekend on the horizon. Make it's great!

Dave

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