Chapter 4: The Consultancy Sales Process

OVERVIEW

If you are sick and want treatment, you must go to a doctor. If you run a company, you are required to have an auditor. If you have legal problems, you need to consult a lawyer. Nobody has to have a management consultant. Consultants must therefore sell their services actively if they are to survive.

Simple arithmetic shows the commercial imperative to sell in a consultancy practice. Assume you have a medium-sized firm with 25 consultants with a basic pay, on average, of £40,000 per annum. Assume that fully absorbed on-costs and overheads are as much again as their salaries. The annual expenses of that consultancy will be £2 million. The fee income has to be £8,000 per working day just to cover costs. Sales of consultancy work obviously have to equal this if the firm is to break even.

It is a fortunate business that can generate sales at this level without any selling effort. Selling has to be active. If professionals are to be able to pursue their calling, there has to be an economic base sufficient to support them. The same applies to internal consultants. Although they may be 'free of charge', they receive a salary and incur other costs; they too have to justify their existence commercially.

How to manage selling is an issue for a practice with any more than a few professionals in it. There has to be some coordination through an organization structure, systems and procedures. Key to managing selling is recognizing that time is a consultant's stock in trade. If selling can be done more efficiently, hence requiring less time, a consultancy has competitive advantage.

A simple example illustrates this. Imagine that a one-person consultancy practice has 180 days available for work each year, after allocating time to holidays, training and administration. The consultant has set a revenue target of £75,000 for the year. If his or her sales ratio is 50 per cent, this means that he or she has to spend one day selling to generate two days' work. (This selling time would include pursuing unsuccessful prospects, as well as successful sales.) This means that he or she has to spend 60 days selling to generate 120 days' work. To reach his or her revenue target, his or her fee rate has to be (£75,000/120 =) £625 per day. If, however, he or she were a more successful salesperson with a sales ratio of 20 per cent, he or she would generate five days of sales for each day spent selling. In the consultant's year of 180 days, therefore, he or she would spend 30 days selling and 150 days operating. The consultant would therefore need to charge only £500 per day to reach the target revenue. Alternatively, were the consultant to charge the same as he or she would need to if he or she were less effective (that is, £625 per day), his or her annual income would be £93,750 or 25 per cent more. The reason, therefore, for being concerned with selling performance is to optimize this sales ratio.