4 min read
Fairness in Pricing for Consultants is not a Pipe Dream
By: Indie Tech on Sep 14, 2021 8:30:00 AM
In our last article, we illustrated why ensuring transparency through Indie Tech’s product will be a game-changer. Transparency as the first step ensures fairer practices as the second. Any engagement that propels feelings of parity and fairness among participants reduces disruptions during the contractual period. Indie Tech will drive greater transparency—and thus fairness—across the consulting landscape.
Niche skills worldwide are high in demand. This is likely to continue, especially as the gig economy pushes into the consulting space. As demand rises, so too does price. The impact of vendor management systems (VMSs) with fixed-rate cards has attempted to put an end to this, in a futile attempt to control costs. This has flooded the marketplace with economical yet ineffective labour, who will add skills to a résumé without truly mastering them, to game the system. In contrast, consultants who have truly mastered a skill get priced out.
Lack of fairness drives consultants to cheat the system, do back-door deals to avoid fees and leave markets that pay fairly. This behavioural change across the industry increases demand further, as skilled supply gets lost in the mess. In the end, the only people gaining from this system are staffing and consulting firms that can game the system, as middlemen charging egregious margins.
The problem with rate cards
What are rate cards exactly? Procurement teams try to manage budgets when allocating resources for consulting services. In doing so, they have always tried to figure out ways to manage pricing risk. By setting rate cards on the VMS side, and asking their suppliers to describe rates or the rate card, the enterprise seeks to fix prices. Such inflexibility runs contrary to practical economics principles and often fails to accomplish what it sets out to do. Rate cards restrict the offers made to consultants for critical projects to be done and are far too general to reflect accurate market costs.
Rate cards are set in the industry with little or no flexibility incorporated. They ideally should be based on demand and supply. Enterprises prioritize working within a budget over paying a fair rate for an in-demand skill. The hard-coding of rates is a one-size-fits-all approach. The industry needs a better understanding of the demand and the supply of skills and talent needed to reach a fair market rate.
Certain projects require highly specific and niche skills. As the rate card, once fixed, does not always align with the dynamic variances in demand and supply, the resulting disconnect forces enterprises to incorporate risk one way or another. As mentioned in our previous article, the consultant more often than not takes the hit.
Hidden fee structures
The margins and fee structure of consulting firms is never revealed—even to consultants. According to consulting.ca: “Consulting firms—especially those active in the higher segments of the market—do not unveil their fee structure. Consultancies regard their rates as one of their key competitive assets and, therefore, manage their fee structure as a ‘trade secret’, similar to salaries, which are also shrouded in secrecy. In addition, fees commonly vary per region/client/service offering, so firms keep tight control over their fee structure to minimize the threat of reputation risk, public debate or having to renegotiate their fees with clients.”
Zapier makes a great point on advocating for fair compensation for consultants and their services. “If either the company or the contractor doesn’t feel comfortable with the compensation, it’s a recipe for a bad working relationship—and a bad end product.”
At Indie Tech we have witnessed this phenomenon first-hand and agree that any contractual pricing should be agreed upon unanimously, to limit resentment among stakeholders.
Zapier further notes “the time it takes to acquire clients, provide estimates, draw up contracts, and keep your business organized while managing invoicing, schedules, and myriad other considerations. It can be tempting to find a comparable salary for the full-time employee equivalent and divide it by 52 to get your weekly rate, for example. But remember: Full-time employees are getting loads of benefits that you’re not, including everything from sick days to 401ks. You need to account for the cash you’ll need to get health insurance, take time off, and everything in between.”
Equity of pay across groups to build fairness
Indie Tech’s solution drives the best consultants to its marketplace by ensuring a transparent and equitable engagement process that pays fairly. This helps large corporations find the best expertise at the fairest rate.
Diversity and inclusion among suppliers are of growing importance to enterprises looking to hold their team and their industry peers accountable for fair and inclusive practices. This focus has brought an increase in the number of supplier-diversity programs in companies, expanding spending with diverse suppliers. Unfortunately, enterprises rely on certifying bodies for this, and the process is disconnected. Indie Tech can drive a streamlined experience for enterprises by acting as a central repository and generating a diverse ecosystem, based on its relationships within the consulting industry.
According to clockify.me: “Although the idea of closing the gender pay gap is a popular one…men still out-earn women in all surveyed industries. On average, freelance men earn $21, and freelancer women earn $18, though the actual figures vary by industry.”
Fairness in pricing for consulting should not be limited to consultants’ groups at a broad level. Instead, the conversation should happen for each segment. Indie Tech commits to the value of transparency to drive fairness in the market, not just because it makes business sense but because it’s the right thing to do. We are levelling the playing field, and we want you to help us.
Are you convinced of our vision yet? We are excited to reiterate that we are now accepting early signups from consultants and will be rolling out in the marketplace soon. We would love for you to be part of changing the future of consulting. Join us.
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