How do Consultancys work ? Why everyone want to open a Consultancy ?
If there is free money in US with little one time effort or just with nice talk and networking, it is just by having your own consultancy or working with a consultancy. The amount of money you make by having a consultancy is UNBELIEVABLE. It is a CASH COW !!!
If you are in the consulting business, you might know this, but if you are not…read the article….
If you are not familiar with consultancy jargon like vendor, client, consultant refer to this post. Consultancy Jargon Who is Vendor, Client, Consultant ?
Here is the way it works : The client wants a project to be implemented and he needs skillful people. He will say, I am willing to pay $100 per hour to a qualified guy with the technical skill set. They send out an Ad or email to the prime vendors, the prime vendors then send out the same email ( taking of the rate and client info of course..! ) to other consultancies. What they say is, we have a position and ( they do NOT mention the client name ) we are willing to pay $ 70 – 80 an hour for a qualified candidate. Also, they post Ads on Dice.com, CareerBuilder.com, Monster.com etc. Big Consultancys now supply the technical skill set resumes to prime vendors and if they do not, they will send out an email to smaller consultancies saying, we have a position and we are willing to pay $ 50 – 55 per hour.
Average money distribution if the Consultant is paid $100 per hour by the client. This is pretty close in reality.
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Average
Money Paid in Dollars
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Minimum Profit Margin
of the Original amount
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Money per Year in dollars if the rate was $100 per hour
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Client
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Source of Money
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||
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Prime Vendor
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100
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20%
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$ 40,000
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Big Consultancy
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80
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20%
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$40,000
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Small Consultancy
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60
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15%
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$30,000
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Smaller Constancy
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45
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15 %
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$30,000
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Employee or Consultant
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35 – 40
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35 %
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$70,000
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Of the total $ 200,000 given by client in an year $120,000 (65 % of source money) dollars is taken away by various consulting companies as they act as Layers.
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If you want to take some of that $120,000 dollars, all you have to do is OPEN A CONSULTANCY.
All consulting companies do is marketing, they send resumes and find people who have the skills. If you have been in industry for some time or if you know lot of people in Industry, you can get the right candidates. So, it is a very easy way to find someone. Once the deal is signed up, ALL YOU DO IS NOTHING. Just send Time sheets to Client or vendor and count the money. Give a part of money to Consultant or employee as salary. This is where your skill comes in, if you know all the above process and how much they eat, you better negotiate well with your employer. Here is the previous article I wrote on negotiating How to Negotiate Salary and Benefits as Consultant with Employer
Because of so much money paid by client, the vendors say if you find the right person, we will give you 5% on the total ( that is $10,000 per annum ), Similarly big consultancies do the same…so, even if you do not have a consultancy, if you have good connections, you can still make MONEY. So, just NETWORK !
Also, because of so much money involved and everyone is trying take some margin, it is good for consultant to be on the higher level to make more money. So, people keep jumping from one consultancy to other to get more money….
The amount you have seen above is only if the average billing rate per hour is $100.
Do you know how much big consulting companies like SAP, IBM, Oracle bill the client ? It is ridiculous. SAP bills from $240 – $360 per hour, IBM $150 – $250 per hour , Oracle $160 – $260 per hour. Just imagine, they do not even have any prime vendors, they only pay about $100,000 – $150,000 to their employees per year. So, their profit on an employee is like HUGE…around $200,000 – $350,000…It is UNBELIEVABLE how much BIG IT Consulting companies make…
After reading, Are you planning on starting one consultancy ? Get some of that free money ?
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{ 6 comments… read them below or add one }
I am Recruiter, Who hires h1b’s. The above table explanation on Consultancy profits is just 10% truth… Might have been few Greed companies back then… It’s Never that Easy.
For All Latest News: NO -Vendors /Prime vendors/Consultancy/Implementers/Refer-ales- Keep a margin more than $10-$20 per hour now!
Don’t get carried away with false messages… 1st know the consultancy and talk to them….
” One Candidate screws! the company lost a million dollar”
To Remove all these layers, all H1B and temporary workers unite and help each other for job. if one working on some project and project need more resource he should refer to all H1b or temp workers. That is one way to remove these suckers.
Considering the Big companies,Small companies,consultancies etc.. in this case, It seems very good and beneficial for Clients (who hire at least more than 5 H1B Consultants)having a separate Department to overlook all the Visa, Health care, other related matters so that they can reduce these unnecessary layers. Its beneficial for Clients as well to Employees. Atleast having one layer seems okay.
This is how I have seen in many countries who hire Foreign labor, Unfortunately in US, hiring foreign talent has been through many vendors through bigger,smaller consultancies.
Well, the reality is, big companies have many rules and compliance requirements…they require insurance and other paperwork, which small companies and individuals cannot provide. Also, big companies do not want to deal with too many small companies or individuals as it too much of hassle and paperwork. Clients typically screen and have a preferred vendors list and they like to recruit people through them as they have the contract with them and they are liable for any mishappenings.
Hmm… seems that consultancies have really made big bucks exploiting the situation. Looking into this consultancies do seem to be sweat shops (or chop shops
). And now US is slowly realizing the situation and starting crackdown in form of strict Visa rules & chasing fraud consultancies. It would be interesting to see how desi consultancies get around the situation.
I have a question on this. If companies knows of such difference in what is paid by them to vendors ($150-350) and what gets actually paid to employee ($50-150), then why don’t they hire people directly. I know it is cumbersome but wouldn’t be worth savings. Isn’t it?