Dropping demand forces consultants to slash fees by 30pc

Michael O'Dwyer
·2 min read
A man wearing a protective mask walks across Waterloo Bridge in front of the City of London financial district
A man wearing a protective mask walks across Waterloo Bridge in front of the City of London financial district

Consultants are being forced to cut their fees by up to 30pc as demand drops and a pause in on site working during the pandemic allows more firms to compete for contracts regardless of their location.

The UK consulting sector could shrink by 16pc this year as businesses rush to cut variable costs in an effort to survive the economic crisis, new research shows.

The downturn is particularly acute in hard hit sectors such as retail where consulting revenue is expected to fall 29pc this year, according to Source Global Research, which analyses the professional services industry.

The rise in spending on consultants to help companies to upgrade their technology is also set to slow, with 26pc of companies surveyed globally saying they expect to increase their use of consultants for “digital transformation” projects, compared to 55pc at the end of 2019.

Companies that do press ahead with upgrades could focus on more straightforward, essential projects, limiting the fees that consultants can charge.

Alison Huntington of Source Global Research said: “What seems likely in the next 18 months is that consulting activity is directed towards projects that are far closer to more basic IT infrastructure improvement work than wholesale transformation.

“Firms, no doubt, may badge this work as ‘digital transformation’, but fee rates will be lower than the wholesale digital transformation of before the crisis.”

Tamzen Isacsson, chief executive of the Management Consultancies Association (MCA), said business for advisers in sectors such as aviation, travel, leisure and sports has declined.

“There is a strong demand for public sector consulting because of the many critical projects in place across government at the moment,” Ms Isacsson said.

Big Four firms Deloitte, EY, KPMG and PwC have won tens of millions of pounds' worth of contracts for work projects, including the roll-out of emergency business loan schemes and preparing Nightingale hospitals.

Demand in pockets of the private sector has also held up during the pandemic. Consultants have been called in to help firms with cost-cutting and procurement, Ms Isacsson said.

Recent research by the MCA forecasts that growth in the consulting sector will be flat over the next year but that revenues could fall by as much as a tenth.

UK consultants focused on the pharmaceutical and biotechnology sector can expect business to increase by about 9pc this year, Source predicts.