How do the MBB's Charge thier clients?
Once again another question I have for the WSO consulting community. Additionally, this may have been asked previously, but how do the MBB's bill their clients? Does it depend on how many MBB employees are sent out and their respective levels in the firm? Is it based on the type of problem they are solving? Is it based on industry?
I'm aware that there is no "menu board of options" at a McKinsey Office, like there is at McDonald's Restaurant (lol) and it probably isn't standardized but I am pretty curious to hear your explanations.
I'm going to venture a guess. They charge by the hour. Sure there are fixed fee engagements but those fixed fees are priced by multiplying the hours each consultant will likely spend multiplied by their hourly rate.
Lol. They don't.
Based on what I have seen from invoices my firm pays to consultants- a rate is negotiated at the onset of a project as well as a project timeline. Monthly billing is done based on # of billable hours X each consultants hourly rate.
they charge weekly
for example 120k per week for a team of 1 manager + 2 consultants with support from research and experts
then you multiply that by 8 for a 2 month project
MBB do not charge hourly, but most other consulting firms do (e.g., Accenture, Deloitte, etc.). Caveat: I don't know how "tier 1.5" firms bill (e.g., Booz, OW, Monitor).
MBB charge on a monthly basis. This monthly fee is agreed upon in the engagement letter. The fee is flat whether the team works 60 hours per week or 100 hours per week. Also, the engagement letter states the duration of the engagement, and states the total fees for the engagement (monthly fee x # months). So total fees are agreed upon in advance (pending any client-requested extension to the engagement; unlike IT consulting, MBB cannot get to the end of the engagement and say, "shoot, we're not done yet... we need another month, and that will cost $x").
The monthly fee will vary depending on: - Existing relationship with that client (potential discounts for new clients or for huge clients) - Number of consultants on the engagement
One great thing about not billing hourly is that consultants at MBB do not have to track their time, and are not rated on utilization. When I was at MBB, I never had to track billable hours. All I had to do was track what state I worked in each day for tax purposes (if you work >10 days in a state, you have to pay state income tax).
My friends at Accenture, Deloitte, etc., hated tracking their time. They also hated being rated on billable hours, because at the analyst level, you really have no influence on your billables. If the partners aren't generating projects, you don't get hours. If, for budget reasons, partners force you to bill 45 hours when you worked 60, tough luck. So that is one nice thing about MBB relative to some other firms (granted, there are definitely nice things about these other firms relative to MBB as well, such as fewer hours).
I'm at one of those 1.5's and its basically exactly what you described. 95+% of projects are billed weekly for us and the proposal stating X thousand for Y weeks worth of work. If a project blows up, the client has to pay for the rest of the week and thats it. I'd say 5% of cases are T&E, but thats very rare from what I have seen.
We also don't log our hours and I love not caring about utilization!
These are exactly the types of responses I wanted to hear thanks guys!
I'm working for a big consultancy in Europe and here it works like this: Each consultant is billed a certain amount for each day based on his position, 1st year analysts 2000 €, 2nd year analysts 2500 €,... Then you agree with the client, how many percent each consultant is working for that project (usually 100% at the lower levels, lower percentages at partner level). By multiplying days of the month by percentage by rate and adding up all of the consultants you get the monthly rate for the project. Now you substract a couple of days so that your proposal is competetive and you have a solid estimate of how much the project costs.
.
At my MBB firm, expenses are charged as a 25% add-on to the project fee - there's no direct pass-through, most clients (unless they request them) never see your expenses.
I am at non MBB and we have 3 different types, at least within management consulting. - Hourly+Expense: Charge by the hour. Not preferred, lowest profit
Fixed Fee: More preferred. Basically Partner/Project Manager figures out staffing need to get the job done (number of people and duration), figures out their cost by internal firm bill rate (which is still much higher than what we get paid), multiply by some factor to represent profit margin (each group has their own margin expectations) and modify it based on client's susceptibility. They will also add some expense amount they see fit. I was in one of these projects where we just banked.
Profit Sharing Type: Very challenging to set up. We do it mostly on cost cutting type projects where we get a certain percentage of well documented savings through our activities. Client doesn't care how many of us are there or how much expense, etc. We just have a certain duration to get as much savings as possible. Depending on deal structure, opportunity and how good the team is, it can be very profitable (early on sucks though cause you haven't made any money and there is a we are screwed feeling). Generally near the end client figures out that we made a lot of money. It's nice for them cause it's no risk and no hit to their balance shit, especially if we have an army of like 75 consultants running around. Pressure can be high within the team to deliver, especially downward. Was in one of these as well.
Obviously not all clients get the same deal. It depends on the relationships, who else is competing, how well the client negotiates, how badly the firm needs the work, etc.
Can people throw out actual numbers for MBB and other engagements? Say per month based on a certain team size
Germany - McK, BCG, Berger: Analyst: 1000€/day Associate: 2000€/day Project Manager: 3000-4000€/day Principal/Partner: 5000 - 10.000€ / day
If an engagement is a manager and two consultants, we charge about 150K per month.
Brazil - never saw the Letter of Propposal, but heard from someone who did: EM + 2 engagement, USD 1 million per month (with a 20% discount since it was a big client). Oh and that is for McKinsey... by far the most expensive of the MBB (30% more expensive than Bain/BCG, at least here).
You don't even have to go that far. Simply put, 99% of the clients WILL NOT pay $1 Mn per month for a team of 3. Unless, may be, your client is GS and you are building trading strategies for THEM?!
.
@redninja
I don't get the "In Brazil" part of your comment. MBB consultants salary here is almost the same as in the US (in USD). Associates here made more than associates in the US until 1 month ago - now our currency devaluated 20% and twisted it a little. And our economy is doing great, thank you (opposed to the US) and there are fewer consultancies here so competition is less and more expensive prices may happen.
And this is what I heard from a fellow consultant that had little to no incentive to lie about it. What I heard from EMs was that the typical project cost about ~1 million BRL a month (after discounts). One project that cost 1 million USD (1,5 million BRL at the time) seemed reasonable.
Don't forget that EM+2 usually includes an AP, Principal and/or Director, besides the EM + BA/ASC. Our work weeks were 35h btw (just on paper).
@manbearpig
I think I saw in your other posts that you are at the manager level already, so you may have more experience than me in this topic, but we never competed with Deloitte in our LOPs so I think you can't really compare prices directly. Our competitors were BCG and Bain and, as I've said, we were 30%+ more expensive (and that is reasonable since we have a MUCH bigger structure with a large R&I, global expert network, etc.)
Anyway, I am not in McKinsey anymore and I have 0 interest in defend their pricing structure or anything like that. Hell, if I could choose I would never go back to work for them ffs. I enjoy my life 10000 times better now. My intention was just to give some insight on the matter discussed.
you've never competed against Deloitte? I'm surprised to hear this! They're said to be top 5 in strategy with MBB in Latin America, what gives?
I'd be very interested to hear what non-MBB firms you did occasionally compete with in Brazil!
/edit: some actual numbers http://i56.tinypic.com/24fcosn.png
1mm per month with 20% discount is 800k, which means 200k per week
it is on the high side but it is not outrageous, i've personally seen bills that were 160k per week
Voluptatem aspernatur quo omnis sed sapiente. Modi non necessitatibus consequatur aut quis ex. Perspiciatis aspernatur esse ea qui et exercitationem. Voluptatem molestias nobis perferendis velit qui illo.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Laudantium consequuntur cum harum in quo. Soluta inventore veritatis voluptas quam.
Sunt ad sunt dolores natus consectetur ipsum nulla. Consequatur quas ratione repellat accusamus. Sit et odit aliquam sunt natus voluptates. Quo et non ratione non deserunt. Ut eius minus ipsam harum nam est sint.
Dignissimos architecto voluptatem placeat autem. Non ex commodi natus facilis porro iste. Aut et cumque et omnis qui voluptatem aut. Unde laborum suscipit qui voluptatem animi voluptas architecto sit.
Quo sed commodi voluptatem aut autem. Perferendis ducimus soluta sed a magnam. Qui rerum vel fugit inventore illum. Et ut et esse iste autem at optio. Excepturi tenetur voluptates nobis temporibus. Est iure voluptates animi sapiente assumenda qui nobis.