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What Does $1m Buy You at Mckinsey, BCG Or Bain?

What Does $1m Buy You at Mckinsey, BCG Or Bain?

01-11-2017
Submitted by global_admin on Wed, 11/01/2017 - 08:07
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Even if you have not had first-hand experience of buying an assignment from MBB, everyone knows they are deemed to be expensive. This being said, some feel the peace of mind they receive when tackling business-critical matters is well worth the money.

The pricing structure of the management consulting firms is a well kept secret. There is usually no set rate card as such, more a loose formula that firms adhere to, but as with most things in life, everything is negotiable.

Unlike the top tier consulting firms, tier 2 consulting firms may well price a strategy project at a loss if they think they can on-sell a large operational or implementation project after this initial piece of work. The MBB do not have deep on-selling potential, therefore they usually price their projects substantially higher - they have the added cost of dedicated research functions that sit behind the scenes in support of the consultants.

While there are always negotiations to be had, it is harder to get the MBB to drop their prices for just any potential client. There are certain times that the MBB will substantially discount their prices, for example when working with new clients with multinational buying power, or as an entry step into a new country. But if you don’t ask you don’t get right?

One ex consultant I spoke with cited that typically a consulting firm will try to establish the cost of the problem (i.e. what the value will be to the business if the problem is solved), and then charge circa 10% of the value of the solution. For example, if the consulting firm can save your business $30m with their solution, they will ask a fee of $3m. 

The brand of the consulting firm has a big impact on the premium commanded, as does the length of the project and the number of consultants staffed on the project , which can be divided into two discrete factors:

1/ The level (experience) of the assigned consulting team

Typically a Partner and other senior Principals will be staffed on multiple projects at once, whereas junior resources might be dedicated to just one project at a time. An example of a typically constructed consulting team might be ¼ of a partner, ½ a principal, 1 manager and 2 consultants - and rates charged based on amount of time, which increases in proportion to seniority of dedicated resource. 

2/ Staff Expenses - Lodging, Travel, Food and Overheads

For a 12 week assignment, most junior consultants would be expected to be at the client site for 4 days a week, so 48 nights accommodation. Flights (usually a round trip each week for each consultant) also quickly add up. 

Below is a generic example of the costing of a typical 12 week assignment, which, with the consulting firms margin added on, comes in at a rate around $1m.

Personnel costs

Team member

Quantity (#)

Compensation ($)

Allocation (%)

Year (%)

Cost ($)

Partner

1

$700K

33%

25%

$58K

Principal

1

$400K

100%

25%

$100K

Associates

2

$225K

100%

25%

$113K

Analyst

2

$100K

100%

25%

$50K

Support staff

2

$80K

10%

25%

$4K

Personnel subtotal

       

$324K

 

Additional costs

Type

Staff (#)

Days (#)

Daily cost ($)

Cost ($)

Lodging

5.53

48

$300

$80K

Travel

5.53

12

$800

$53K

Food

5.53

48

$75

$20K

Overhead

5.53

60

$250

$83K

Other subtotal

     

$236K

 

Total costing: 

  • Revenue: $1,000,000
  • Costs: $559,828, $324,250 from personnel and $235,578 from other
  • Margin: $485,180 (48.5%)

 

Of course this is just an example and every project is different - but you get the general idea. 

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