Plug and Pay

 

Consultant Gordon MacDonald in Shawnee, Kans., insists the rates are justified. "Most clients get into trouble because they don't want to pay my rate to start with--$125 to $195 an hour--but they will pay somebody $50 an hour," he says. "The problem is, the $50 person is probably a rookie or a part-timer, and when they blow a job, the company ends up calling me in, anyway."

  • Value-added resellers. Close cousins to independent consultants in some respects, so-called VARs are authorized reps for software and hardware vendors. They get a piece of the action when they sell a product in their channel; hence they have a distinct bias. Ethical VARs disclose their vendor relationships, but the less scrupulous sometimes masquerade as independents. The upshot? An unwary customer might purchase product A, whereas product B might be a better fit and cheaper to boot.

    VARs generate two income streams: hourly consulting fees, and commissions and discounts. Ricki Letowt, president of Letowt Associates Inc., in Norwalk, Conn., for example, carries one product, an accounting package called SBT, which is not commercially available. She buys it directly from the publisher, including the source code, which allows her to customize the program to suit clients' needs. "The value I add, aside from configuring, installing, and training, is modifying the software to help a business run smoother," she says. "With a shrink-wrapped package like Peachtree, you have to adapt your business to fit the way the program runs."

    Letowt makes money on the margin, buying SBT at a discount and "reselling" it to customers at full price. Software VARs, she says, typically enjoy discounts ranging from 25% to 50%, based on volume. The cost differential contributes almost a quarter of her income.

    Given intense competition among computer manufacturers, hardware VARs get lower price breaks. Leonard Shostak, who runs L&D Computer Consulting Corp., in Garden City, N.Y., is a "solution partner" for IBM, NEC, Hewlett-Packard, Novell, and other computer manufacturers. "With hardware, you buy from a distributor, like MicroAge, and your discount reflects your purchasing volume," he says. With HP products, for example, his margin ranges from 2% to 35% below street prices. The biggest competition for hardware VARs: mail-order operations like Dell, Gateway 2000, and PC Connection, as well as unauthorized resellers.

  • High-tech-temporary staffing agencies. Thousands of people who consider themselves independent consultants work as temps, farmed out by "body shops" for projects or assignments typically running six months to a year or more. The National Association of Computer Consultant Businesses (NACCB), the trade group for this sector, lists 310 members, but it says roughly 3,000 companies are operating in the field.

    For employers, high-tech temps provide staffing flexibility and the specific skills needed at the right time. "We work like Kelly Girls or Manpower, but the rates are much higher, the contracts are much longer, and the ability to match the right individual to clients' needs is harder," says Joel Adams, chairman of the NACCB and founder of Devon Consulting, in Wayne, Pa. Adams currently has 220 consultants out on contract--programmers, database experts, systems analysts, software engineers. They pull down $40 an hour on average, although some make $80; rates vary by skill and are higher in a place like Silicon Valley. "These people know what they're worth in the marketplace, and they are scarce resources," Adams says. "They could find steady work tomorrow, but they prefer to be hired guns, moving from job to job." Brokers like Adams make money by charging clients a billing-rate multiple, usually 1.3 to 1.5 times the wage paid to the consultant.

  • Giant consulting firms. This is the gold coast of computer consulting, in both cost and prestige. Some of the names are familiar--Electronic Data Systems, IBM, Boeing Information Services, and the Big Six accounting firms. Andersen Consulting, a business unit of Andersen Worldwide, by itself has 45,000 people in 47 countries and last year posted revenues of $2.9 billion in the Americas and $5.3 billion worldwide. The 11,400 member companies in the Information Technology Association of America (ITAA), which represents this top tier, are engaged in everything from business-process reengineering to custom software development and systems integration.

    These services are expensive; hourly rates are in the $200-to-$350 range. Is the cost worth it? Maybe. "If a management team requires the imprimatur of a big name, they're probably well served by someone like a Big Six firm that has installed a standard practice many times," says independent consultant Steve Epner. "That gives you confidence that you'll reach the end of the path successfully with a working system."

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