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The consulting category experienced considerable growth in recent years as business activity has picked up. A rising number of businesses paired with growing corporate profit has spurred demand growth for consulting services. As more new businesses are created and existing businesses expand, all types of companies turn to consulting service providers for advice to set them on the best path for success.

Consulting services have been continually expanding to encompass a growing number of areas of service. Consulting providers are increasingly offering hands-on implementation of projects rather than operating in a strictly advisory role. Moreover, a strong understanding of and focus on technology has become paramount to consultancies’ success across all types of practice areas. Growing demand, along with high specialization and generally low availability of substitutes, has been propelling service prices upward, creating challenges in the purchasing process for buyers.

Specialization

  • Specialization is high across the consulting category
  • Vendors customize consulting solutions to each individual buyer based on needs and objectives

Key Takeaway: High specialization hampers buyers’ ability to compare suppliers. The full value of a vendor’s solution cannot be realized until it is put into practice. To ensure quality, buyers should carefully evaluate providers’ experience and references prior to entering a contract.

Concentration

  • Market share concentration is very low across most consulting markets
  • The number of providers is consistently rising
  • Each consulting market is fragmented among large diversified consultancies, boutique agencies and individual consultants

Key Takeaway: Low market share concentration benefits buyers by boosting competition. While many buyers require the more extensive resources and experience of a large, well-known consultancy, those that do not can save money by leveraging the availability of many smaller boutique agencies and independent consultants in the market.

Profit Trends

  • Profit levels are high, on average, for suppliers across the consulting category
  • High levels of demand and improving vendor efficiency boost margins
  • The largest consulting players enjoy name recognition and a reputation for quality service that enable them to consistently garner higher prices and margins
  • The majority of vendors are expected to either maintain or grow their margins in the coming years

Key Takeaway: Despite high margins, most large vendors are unwilling to negotiate significantly for small contracts. Instead, buyers should consider purchasing multiple types of consulting, if needed, from a multiline consulting provider to leverage a larger total contract value.

Outlook

In the next three years, ProcurementIQ anticipates that prices for consulting services will continue to rise on the back of business expansion. As in recent years, growth in corporate profit, the number of businesses and the number of employees will drive a greater number of buyers to seek out advice on how to operate as efficiently and effectively as possible. Moreover, the proliferation of technology and rapid innovation across areas of business that have not previously been automated has sparked greater interest in advisory services. In response to demand growth, provider profit margins are expected to rise or remain stable across most consulting markets in the coming years.

Buyers should seek out contracts sooner than later to take advantage of lower current prices; however, buyers that choose to delay their purchasing decisions will still have some opportunity to negotiate with suppliers in the coming years. Notably, low market share concentration will persist, allowing buyers to leverage many vendors’ bids against one another. Moreover, buyers that require various types of consulting services can bundle offerings from a single supplier to garner more favorable rates and simplify the purchasing process.

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