The unfortunate math behind consulting companies: This is a great article about why consulting and professional services can be a tough way to make money, and why a lot of Web services companies are just product companies biding their time until something they do can be marketed and sold.
Consulting can be a great way to fund a startup or make a bunch of cash. It’s easy to start; Just pick an hourly rate and jump in.
But someday soon you’ll notice there’s only so many billable hours in the day, and you’ll be tempted to expand. Maybe hire an employee for $30 per hour and re-bill them at $60. Easy money, right?
Unfortunately the math doesn’t work that way.
This guy does a great job of breaking down, step-by-step, why a $30/hour employee is really costing you $60/hour.
I even think he’s optimistic with a lot of these numbers. One of the biggest problems is keeping the pipeline full, and managing downtime between larger projects. If you’re clearing the decks for a large project that starts on the 1st, but the client gets behind and is not ready to go until the 15th, do you have something to fill the two-week gap with? This happens all the time.