Understanding Consulting Services Choices: Part 3

This week, I have been writing a daily series all revolving around educating customers about the issues of consulting services.

These are the first two posts:

Understanding Consulting Services Choices: Part 1

Understanding Consulting Services Choices: Part 2

Today, I will go over some of the basics of subcontracting among the firms.

Subcontracting As a Way to Waste Time

Subcontracting is the case where a consulting company or software vendor has landed a customer or potential customer but does not have all the resources available to service the work. Then, they start calling around to see who they can subcontract some of the work to.

This is actually not the worst thing to happen. If you have a consulting company you know and trust and they are great networkers and can find people in other areas for you, this is where "one stop shopping" can work.

On the other hand, they might not be good networkers. They might have no idea who to call but they are not going to say "no" to getting more money from you, either, so they start randomly calling around and not making much progress. If you are on a strict deadline, this can be a problem to, usually unknowingly, let them waste time in this manner.

Subcontracting As a Way to Burn Money

The other issue we run into with subcontracting is that it dilutes the customer's money. This example is meant to keep the numbers simple, is not a real example, yet not as far from the truth as we might like to think:

1. Consulting company A charges you $150/hour for project resources and they specialize in ThingaMaLab LIMS. However, you are purchasing LabORama LES that you need implemented in your labs.
2. Company A tells you that they can find people for you. They start calling around and they find Company B specializes in your desired LabORama LES and charges $125/hour for their services. The two companies create a subcontract.
3. But Company B has more business than people to do it, right now. So, they look around and they find Company C who has a surplus of people without project work. B and C create a subcontract for $100/hour.
4. Unfortunately for the customer, Company C's people are trained in LaboratoriesRUs ELN, only, and have no idea how to use LabORama LES.
5. Company C starts calling individuals offering $80/hour to anyone with the right experience. Or, they might just offer their own untrained-in-LabORama people for the $80/hour, just to keep those people working.

The point of this example is that the customer is paying $150/hour for resources. They will probably get resources actually worth $80/hour. There is a big difference in the experience level of a $150/hour resource and an $80/hour resource (without considering other factors and just to keep the example simple). While this is an exaggerated example, it is not completely unrealistic.

The Margin

In the example above, notice in (1) that Company A keeps $25/hour. This is what we call the "margin." This is meant to cover whatever it costs to run Company A, to spend time working on finding people, and to make some money on the deal. In some truly large contracts, the consulting company charges a tiny, tiny amount for this because they are getting so much business from that customer, but that is not the normal situation.

In all cases, each company works to make their margin. While there are certain situations where this is not the case, as I just mentioned in the previous paragraph, unless you know otherwise, assume that everyone in the stack makes whatever margins they typically charge.

Note: At some point, the customer starts asking why it is that they are spending $150/hour and but have received a person who has not yet been through any training, let alone used the product, before. This example might spell it out to you, the reader, but the customer is still trying to deal with the gap between their expectations and what they ended up with.

Subcontracting As a Way to Just Get Some Help

Now, let us look at subcontracting slightly differently. If we look at it merely as a way to find a person you could not yourself find, then the cost does not matter.

First of all, the person they will call will be me, personally, Gloria. Yes, I do mean that. We have a limited pool in the industry and the same people get called for each contract, whether they are available or not. Having worked with so many different products, I get quite a lot of subcontracting contacts for every one of those products (LabVantage, StarLIMS, LabWare, SampleManager, and more), just as many of the other industry consultants probably also do. For example, every time someone needs a LabVantage person, every person in LinkedIn who has that word in their profile and who does not work for LabVantage or the larger consulting companies probably gets contacted. In any case, to make any money or to at least break even, the company that calls me would have to charge the customer a yet higher rate even than my own rate.

Thus, the customer pays more than if they directly called me, themselves. However, if they had known to call me, they had the option to do just that and save that money. But, they did not know to call me so they pay extra because they are paying that consulting company that they are already working with to know how to find the right resources.

As long as customers understand this is how the money is spent and the purpose, this is not a problem. You are paying an agent to do some work for you and to find what you need. You pay for that service of finding someone as well as paying for the actual work to be done.

Here is another way to think of this: we pay finders fees in other places in our lives and it works the same way here in the consulting world.

Upcoming

Next, I talk more about how remote work affects consulting choices.