Understand Leverage for a Successful Career in Consulting

Published on by Dan KlcoPicture of Me Dan Klco

Give me a fulcrum, and I shall move the world. Archimedes

Leverage is an underappreciated, but pervasive concept in consulting. By understanding leverage and how it applies to your career growth, you can create an easy to understand path to grow your career in consulting by aligning your personal growth with the goals of your employer.

What is Leverage?

Leverage in consulting is the balance of the expense to deliver a project and the revenue gained from a project. As most of the project expenses are in the form of staff pay and pay is generally aligned with seniority, generally leverage in consulting is the balance of the senior resources required to make a project successful vs the junior resources required to make a project profitable.

Let's consider a couple examples. Say Ace Consulting sold a project for an estimated 2,000 hours at a fixed cost of $200,000, their average revenue per billable hour is $100. If Acme Corp were to then staff the project with only senior resources with a cost average cost of $95/hr the project would be extremely under leveraged and likely result in a profit loss to the company after overhead and other operating costs are considered. On the other hand, if Ace Consulting staffed the project entirely with offshore and junior resources at an average $25/ hour rate, the project would be extremely leveraged (and therefore profitable) but at the same time would be far riskier from a delivery perspective as the junior and offshore resources may require additional oversight or could even fail to deliver to the client's expectations.

Consulting Spectrum

To understand how leverage applies at your particular firm, you need to understand what model the firm follows. While there are a broad spectrum of different consulting organizations, I've categorized them into there categories based on how they approach leverage.

Expert Model

These firms market strategy is to win deals by being the best at what they do, either through expertise or experience. This can include operating at the pinnacle of a particular skill sets like brain surgeons of their field or experience like numerous digital transformations.

Expert consulting firms will be the least leveraged, as the business model relies on seniority as a differentiator. Expert firms will therefore generally pursue smaller, higher value projects at premium rates to offset their higher costs. Due to their higher costs, expert firm at a disadvantage for commoditized work, making it difficult to scale an expert firm.

While an expert firm may leverage some repetitive work such as analysis or configuration, this will make up a far smaller percentage of their work than in other models.

Unsurprisingly, therefore expert consulting firms tend to be smaller, ranging from sole proprietorships to dozens of employees. As owners may wish to expand their business, the cost of acquiring and retaining experts quickly become a challenge to growth and therefore expert firms may move outside of their expert roots to increase their leverage, bringing in more junior employees and transitioning to a generalist consulting firm.

Growing a Career in an Expert Firm

A challenge with growing a career in an expert firm is the chasm between the junior and senior resources. It is challenging to go through a different door than you entered, however expert firms offer the opportunity work with and learn from the top minds in the field.

Because of the limited leverage model of an expert firm, advancement opportunities may be limited to avoid incurring additional resource costs.

General Consulting

General consulting firms fit in the squishy middle of the consulting market. Which is of course not to say that they are not specialists in their field, but general consulting firms face pressure on both ends. Smaller, expert firms nip at their heels while staffing firms undercut them on rates and / or scalability.

While general consulting firms face fierce competition, they also have built in advantage in their balance of expertise and relatively affordable rates.

The biggest challenge general consulting firms face is not competition but the constant need for growth. In order to support lower rates and higher leverage, generalist firms must bring in younger talent. The younger talent provides the bulk of the project staff, but to create a successful firm for each senior role there are 2-5 more junior employees such as below:

Seniority Tree

To retain talent and provide opportunities for junior colleagues, while maintaining healthy leverage ratios, generalist firms must grow to expand and provide more opportunities to advance to senior roles. Every promotion either requires a vacancy or the addition of 2-5 junior members to every level below.

So even more than other companies, general consulting firms need to constantly grow the business to support the headcount to retain their best people. This constant growth, is challenging to maintain, especially as the company passes certain inflection points where the need to bring in more operations to deliver effectively.

Growing a Career at a General Consulting Firm

For you, however, because of this growth, general consulting firms offer tremendous opportunity for your career growth. As generalist firms grow they will promote upwards as they expand outwards as it's usually cheaper to promote than hire.

It is hard, though not impossible to move up more than 2-3 levels at the same firm as perceptions matter. The same leaders who hired you out of college may struggle to see you as a Senior Consultant. While jumping careers too often can harm your career prospects, reevaluating your career prospects every 3-4 years and realistically deciding if there are prospects for advancement.

Staffing Firms

Unlike expert firms which market themselves on their subject expertise or general consulting firms who market on their solutions, staffing firms market on their ability to deliver talent. This can be a broad range from individual placements to wholesale departmental staffing.

There can be a broad overlap between general consulting firms and staffing firms and it's not uncommon for the same company to do both general consulting and staffing on different projects. Every consulting firm feels the pressure on rates, and especially to land larger contracts, may adopt more of a staffing mentality. So be aware that general consulting vs staffing may not be a clear cut division.

How to grow a career at a staffing firm?

Staffing firms aren't entirely unlike general consulting firms in that leverage drives profitability and risk. However  because of their differing business models and value propositions, staffing firms tend to be less supportive of loss-leader projects and view leverage at an individual rather than a project level. 

Therefore while the principals remain the same, your career at a staffing firm relies more on your individual skills.

What do you need to get to the next level?

What kind of company you work for matters, but no matter what understanding leverage and the seniority tree will help you know the best way to advance your career. As you advance, the requisite skills and work to make it to the next level changes.

Junior Level

At the most junior levels, advancement and growth is based on a mix of soft and hard skills. When bringing in junior resources, a consulting organization tries to weed through an unknown quantity to find the individuals with the skills and acumen for consulting.

in the leverage model, junior resources represent the highest margin resources, but also have a higher risk due to their lack of experience.

While you need to be able to function at the job, you're not expected to be an expert. At this stage the key for advancement is the ability to listen, communicate clearly and avoid causing issues. Take this as an opportunity to train and learn as gaining both consulting and technical skills are vital to continuing to advance.

Intermediate Level

As you move up into the intermediate ranks of individual contributors, your hard skills become more important. In essence, you are the "workhorses" of the consulting world and the expectation is that you can take a well defined task and get it done without the need to be "babysat".

Remaining billable is critical, your compensation should be higher than a junior (or you need to make it so) so you are more expensive to be benched. Develop a deep but broad skillet to weather market cycles or project changes.

Senior Level

Beyond the intermediate ranks is where the numbers start to thin. There may be only 1-2 Senior Consultants to every 4-5 Junior / Intermediate Consultant. Expectations change as well, beyond just your individual deliverables, as a senior you are expected to mentor and coach others. Indeed one of the best ways to move to a senior position is to start mentoring Junior resources as an Intermediate. At the same time, as a Senior, you should be expected to be given some of the most challenging work and projects.

Lead Level

Beyond Senior level, communication and collaboration become most of your work. Whether you are a Project Manager, Architect, or Technical Lead, your job is to ensure that the project you are on is delivered and that the entire team is staying on task. You may still take on some individual deliverables, but your time and focus should be on the project and the team. Excelling in these roles and continuing to advance involves building a track record of successful delivery and project leadership.

Hopefully, this article helps you grow your career in consulting! Have a question, leave a comment below.

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