Consulting Firms Are Leaking 10’s of Millions of Dollars of Revenue

Revenue leak. Sounds bad, right? It’s a major challenge all Consulting firms face. If you’re a mid-market sized company this is an $8,000,000 a year problem in the best of scenarios. If you’re reading this from a Big 4, Top 3, or are a similarly sized systems integrator, well, you’re already aware that number grows to astronomical proportions that would get Neil DeGrasse Tyson excited.

It's 2023 so here's the TLDR (to long didn't read):?

• Consulting firms are at the biggest risk of revenue leak
• Lack of deal predictability risks the client relationship when you rush to staff it
• $8,000,000 a year is wasted per 1,000 billable consultants
• How to win the war for talent despite the challenges of hiring

Significant amount of money, people, and resources are spent dedicated to solving this problem of perfecting the supply and demand balance. I’ve been dedicated to solving this problem alongside companies for a while but the catalyst to write this post was after a conversation with a friend, a leader at a well known Consulting firm, who expressed something that I haven’t been able to get out of my head since.

We were on our way to catch up after not being co-located for months. We ended up at a too-dimly-lit-to-read-the-menu speakeasy in Washington DC. The type you disappear through the alley, down a few questionable steps, through an unmarked door all for overpriced cocktails. Hollywood would’ve approved the setting for two men to discuss life, business, and the pursuit of happiness.?

While discussing business, specific to why and when is best suited for Executives to hire a Consulting firm, areas to improve the impact clients receive, and opportunities to transform the inner operational mechanics of common Consulting firms, each of us having worked at a few, it was then he shared, “As a firm that sells Operational Excellence, we don’t really operate excellently ourselves”.

Six months later, I can’t stop hearing that pain. The feeling of selling someone a bottle of champagne you’d never drink yourself. Executives at all companies are taking notice of the opportunity to fix Revenue Leak and Consulting and Professional Services firms are at the biggest risk of it themselves.

Generally, What is Revenue Leak?

Revenue leak refers to revenue that your organization has earned or counted on earning but has been unable to capture. Don’t misconstrue this definition as a “cost” problem. Such as looking at a home budget and identifying where your money is going. Revenue Leak also includes top line revenue lost due to inability to address risk in opportunities, lack of rigor, and more. If you want a deep dive into Revenue Leak, this blog post knocks it out of the park.?

The purpose of this article is to share the themes, struggles, and opportunity for impact Executives from Consulting firms have been sharing with us. Chief Customer Officers, Chief Sales Offers, CEO’s, Commercial Excellence leaders, many more.

Ever experienced one of the below feelings?

• “Darn. I knew we could help that client, why didn’t they see it too?”
• “I can’t believe this deal isn’t closed yet. This is risking their go-live date.”
• “Sales sold what Delivery can’t deliver. Classic old scramble for us to catch up.”

If you’ve felt any of these ways, you’ve experienced revenue leak personified and let me be the first to validate how you feel. You’re not alone. In the first, you lost a cross sell/upsell opportunity or won a smaller deal than you thought right for the client. In the second, a deal slipped. Sometimes we push the start date back a week and think no biggie (see next section for why that's an $8,000,000 dollar biggie this article opened with). Others, the deal continues and as all sales professionals know, time kills deals. We end up spending more time on a deal whose risk is increasing. Finally, revenue critical employees are working out of siloed systems and spreadsheets that deliver stale data at best, incorrectly input data at worst. Hindering their ability to collaborate across departments and govern their respective teams.

Why Consulting Firms are at the Biggest Risk of Revenue Leak?

The firm that perfects the balance of their supply and demand challenge the best is the best firm to operate predictably through unpredictable times, manage through an economic downturn, and take advantage of a bull market. If you double clicked into the blog post I linked previously, you’ll see the various issues contributing to revenue leak on the demand side of the equation. Lack of predictability in demand makes managing the supply a guessing game. Guess wrong? Place the wrong team on a project, risking the client relationship and losing their trust. Delay to get the right team aligned with the SOW? You’re putting a client’s go-live date at risk.

The first Revenue Leak challenge specific to Professional Services firms. Remember the second feeling of a deal still not closed? It’s costing your company $8,000,000 in revenue a year due to deal slippage. I’ve commonly found people can be quick to write off seemingly small issues. A deal slipping a couple weeks, or delaying the start date of a Consultant billing one week seems small at first. See the footnote for the math but in summary, if 1,000 Consultants at your company are impacted by a one week delay in start date, it’s costing you $8,000,000 in revenue.?

You need perfect predictability on the demand side of your business to plug that leak and delight your clients.

The second challenge impacting Consulting Firms is managing the supply of talent. Your people are your competitive differentiator and the hiring funnel can be as long or longer than sales cycles. I couldn’t find great data on the number of Consultants employed in North America so I used LinkedIn data to find it myself. A quick analysis shows Consulting Services companies employ 4.9% of all people in North America. There's a mission statement here that Consulting companies have a purpose beyond just revenue to get this right. The failure to do so hurts a significant number of livelihoods and therefore the macro global economy.?

The tight labor market in the past couple years has been more competitive for employers than any other. Absolute precision on your client demand, confidence in the rigor your Firm has developed to minimize unpredictable deal cycles, is phase one in knocking down your backlog. As you progress further knocking down various revenue leak pain points, you should ultimately be able to align, top of funnel and people teams with next quarter predictability to get ahead of client needs, changing market trends, and begin the role requisition process sooner, with confidence to optimize your bench alongside client needs and in demand skill sets.

3 Recommendations To Solve Your Revenue Leak

1. Drink your own champagne and survey the people at biggest risk - Your Client Account Leads, Senior Partners, or whomever owns the sale for you, are the lifeblood of your business. Ask them what’s wasting their time. We commonly hear it’s time spent managing the CRM, low value pipeline calls, and lack of cross-functional visibility. Operations and Executives ask for more data so they have visibility into their business but the more you ask for, the less time CALs can sell and the more risk to erroneous data you create. Don’t strike a balance. Automate the data capture for them.
2. Change the Partnership with Sales & Delivery - Why do we spend hours a week in weekly Sales & Delivery pipeline reviews? What if we could achieve the same end result without them? How would you go about doing it? The worst I heard was a four hour pipeline and forecast call every Monday. FOUR HOURS?! That's a no from me. The call alone is expensive. Your revenue critical employees should be on a purpose built platform for revenue, not siloed systems. If you have no idea how to do that, I’ve got an idea I’d be happy to share further with you.
3. Baseline your Predictability - what gets measured gets managed. Can you answer these questions??What percent of your deals slip? How close to the pin are you on your call each quarter??How early in your quarter are you able to get within 5%??How about by practice and business unit??

The importance of predictability is top of mind for Executives. Whether you report to the street & shareholders, a PE Firm or Board of Directors, or are a private firm looking where to invest for growth, confidence in your ability to call your shot matters. Baseline these numbers and survey your teams for how long it takes to get to these calls each week. World class teams are able to get to within 5% of their quarterly number by Week 2 of your financial cycle.

Pro-Tip: Leave a comment with what I missed. Everyone gets better together as we exchange ideas. What is the most challenging part of managing your revenue process?

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(1) Revenue Leak due to one week delay in start date:

 Assumptions:

  - 1,000 Billable Consultants
  - 2,080 hour/year utilization target. 90% Target. $200/hour,?
  - Each billable consultant loses 1 week of billable work due to deal   slippage.?

 Formula: 

  - Annual Revenue from 90% Utilization = [1,000 Consultants] * [2,080 hours/year] * [$200/hour] = $374 MM
  - Annual Revenue from 88% Utilization = [1,000 Consultants] * [2,080 hours/year] * [$200/hour] = $366 MM
  - $374 MM - $366 MM = $8,000,000 dollars of revenue leaked due to each consultant impacted by a one week delay due to a deal slipping.


(2) Consulting Services employ 4.9% of North American employees (per LinkedIn): ?

  - Total profiles in North America = 226 MM. 
  - Total profiles filtered to include only “Business Consulting and Services” and “IT Services and IT Consulting” = 11 MM.