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Could fee rates in Germany be even higher?
Sounds impossible. Germany boasts – if that’s the right word – the highest consulting rates in the world. Executives we speak to in the region regularly complain about the amount they have to pay, especially to the big strategy firms which are so strongly represented in this market. “Their fee rates aren’t just high, they’re immoral,” is how one senior manager memorably put it when we spoke to him a couple of years ago.
Which is why we were so surprised when our latest round of client research suggested that there’s room to increase fee rates: more than 40% of the people we surveyed (all senior people in big, multinational organisations and spread across a range of industries) would be prepared to pay more for strategy work. So what’s going on?
First, I think there’s a broad point about consulting. German executives, like most (but not all) their equivalents in other parts of the world have reasonably positive views about the quality of work consultants do: 54% would describe it as high or very high and only 13% would say it’s poor (if that sounds a more negative result than your own client satisfaction surveys, then you have to remember that we try to capture a snapshot of the entire market – your prospects as well as your current clients). For all the casual cynicism we encounter in the media, consultants are generally seen to do a good job. People are similarly positive about the characteristics and behaviour of consulting firms – two thirds think that consultants demonstrate a high degree of clear thinking, for example. As a result of all this, clients, recognising that they’ve kept fee rates under pressure for some years, may think that it would not be unreasonable to permit small price increases.
But that’s not the complete answer, because the scope to increase prices varies depending on the type of consulting firm – and it does so in a counter-intuitive way. We might expect technology firms, with their relatively low fee levels, to have the biggest opportunity, but no: 52% of Germany executives think that their fee rates are about right and only a third would countenance an increase. Compare that to strategy firms: despite having ‘eye-watering’ fee rates (a client’s word, not ours), just over 40% of people say they’d be prepared to pay more. The Big Four firms fare worst, with more people saying that prices are either about right or should be lower than technology firms, despite the fact that the quality of work they do is often seen to be comparable to that of strategy firms.
The explanation lies in the value firms are seen to add. 51% of executives think that strategy firms add value, despite the high fee rates they charge, but only 43% would say the same of technology firms, dropping to 38% for the Big Four. And in that 13% difference between the Big Four and strategy firms, there’s an awful lot of money to be made.