Consultant’s Compensation: An Owner/CEO’s Perspective

Happy Friday,

Here are some fundamental things about the economics of a consulting business that I don’t think most people appreciate, including a lot of leaders, and they directly affect you.

1.    There’s a strong financial incentive for consulting businesses to promote the professional advancement of their consultants. Professional advancement boosts consultants' market value, which supports higher billing rates and increases revenue and profit. Each new dollar of profit adds about ten dollars to the value of the firm.

2.    A consulting business earns more profit when the market value (billing rate) of its consultants is maximized.

3.    Consultants can control their own market value. Thus, consultants can control their own compensation.

When it comes to compensation, the ball is in your court. Yet, a lot of people accept the notion that compensation is firmly fixed by salary surveys, made-up classifications, and years of experience. That's bunk.

In fact, it's a belief that's both false and counterproductive. These are just generalizations, useful as a defensible backstop but counterproductive when they become a limitation.

A consultant is a business within the business, not just an employee. By making themselves indispensable to clients or the company, every consultant has the opportunity to increase their compensation anytime and without artificial limitation. When they do, everyone benefits.

If in 2026, you find yourself confident that you can command a higher billing rate, discuss it with your boss. The decision comes down to a judgment on the long-term reliability of market support. That is, will PMs and clients still want you on their projects if you cost them more?

If your boss keys in on this reliability factor, that's a good sign. Hear them out. They understand the potential benefit, but also know that both you and the company stand to lose if a higher rate isn’t supported. The company would lose a good employee, and you would lose your job.

If, instead, your boss reflexively references salary surveys, made-up classifications, years of experience, the need for equity with others, or the need to keep rates low to be 'competitive, ' then they either don’t understand the fundamental economics of the business or aren't a willing advocate.

Punchline: Consultants are quick to blame the greedy corporation for paying them as little as possible. It's not the corporation. The ‘greedy corporation’ profits most when its consultants increase their market value as much as possible, enabling them to get paid as much as possible. But all a company can do is support, encourage, promote, and try to create opportunities for its consultants to increase their market value (billing rates). They can't force them to do it. Increasing your compensation is up to you. If you want to maximize it, make yourself indispensable.

Have a great weekend, 😄

Dave

Feedback and blowback are always welcome: dave@goodnewsfriday.com

All 150+ topics are available at @goodnewsfriday.com