Your consulting rates are so high we might hire people with lesser salary

This is one of the typical sentences, I always hear from my client negotiators or my client personnel who insist on my people rates instead of the overall fee we offer. I try to be transparent,

But then, I keep hearing -

'We should apply for a job with your firm and get better salaries looking at the rates you are offering and come back to work with our company'

'If we hire people ourselves it might cost us less than the rates you are offering'

'Who pays so much ridiculous amount we don't even get such salaries'

The biggest problem is, people who read this, equate consulting rates with salaries on face value. Which is not the right, 'apple to apple' comparison.

Elaborating a bit more on the difference I perceive, there are many factors which justify this difference.

1. Consulting rate is the "Overall Cost of Service/ knowledge" offered on the specific resource defined for a consulting service engagement;
2. Salary paid to any employee of the Client company or the Consulting firm is not the "Overall Cost" to the company, but just the one part of it like a raw material;
3. Generally as per thumb rule, Cost of the employee to the company, ranges between 1.5 to 2 times the salary, depending on the level / scale/ seniority/ contribution to company revenue. Higher or more valuable the employee to the organization more is the cost factor for the company
4. Consulting role needed for the client, is an add-on responsibility for a limited period. Here an existing employee may not have skills or band width to take it on nor if company wants to hire. When a company wants to hire such professionals for 'short term', generally the professionals ask for a premium for no long-term job stability and continuity. Hence, add-ons to "Overall Cost" increase.
5. Consulting firms, which comprises of advisory professionals, who advise, who support, who guide specific initiatives of clients, by bringing in experience, knowledge and learnings from industry or competition or general market. Primarily an outsider expert view.
6. A Consulting rate hence, often covers salary plus "Overall cost" of a consulting firm, plus add-on price of internal value add brought on by senior leaders/ advisors who may not reflect on the consulting team, but constantly guide and advise the engagements behind the curtains.
7. Hence, the consulting rate ratio to salary is much higher than general industry thumb rule and goes higher for seniority of advisory professionals brought on the engagement.

Therefore, in my view, it is not justified to compare consulting rates with salaries of professionals, because its an incorrect comparison, something like comparing raw material cost with finished goods cost, and ignoring the conversion cost.

I sometimes feel the consulting fee should be discussed in lumpsum, and on the returns they would offer to the organization, basis the knowledge and value which the consultant brings on board.