The cause and effect of higher bill rates

The cause and effect of higher bill rates

FinancialForce
Jo Birtle

Price realization based on realized bill rates in combination with billable utilization is a leading indicator of the overall quality and differentiation of the professional services (PS) organization. The fact that PS organizations with the highest bill rates and price realization tend to reinvest profit into their employees leads to a continuing improvement cycle.

Highly skilled, well-trained, motivated and loyal consultants undoubtedly produce the best client results. In turn, satisfied clients provide referrals and buy additional services resulting in improved sales effectiveness.

The correlation between high bill rates and employee investment resulting in superior project delivery metrics and overall financial profit is one of the consistent themes we have seen through five years of benchmarking over 800 service organizations.  But bill rates only tell a small part of the story.  Rates are primarily governed by the market, the types of services provided, and the reputation of the firm.   SPI Research has seen management consulting senior partner daily rates as high as $8,000, but the top strategic management consultancies do not publish their rates, nor are they visible to their clients.  These rates are justified based on the significant “bet your business” types of projects these firms deliver; high rates are indicative of the strategic business value provided.

At the other end of the spectrum, the lowest bill rates are shown in the hardware and networking sector, where providers are still primarily focused on implementation and have not yet moved to more strategic consulting services.  Staff augmentation garners low rates because the client assumes almost all of the responsibility for successful business outcomes – clients are buying a “body” with a specific skillset as opposed to a project based on a defined business outcome.

Service Performance Insight Founder and Managing Director, R. David Hofferberth, P.E., has over 25 years experience in information technology (IT) serving as an industry analyst, product director and consultant. Hofferberth’s research is focused on the services economy, and in particular, on white-collar productivity issues and the technologies that help people perform at their highest capacity.

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