The Real Value of Time: How Consulting Principals Drive Growth

Ask a consulting principal what their time is worth and many will quote a billing rate, often $200 to $250 an hour. That number is the client's view of the work performed for them. It is not the value of the principal's time to the firm.

Principals also build the firm. Marketing, process improvement, training, and mentoring are part of the job because the principal is responsible for growth and performance. Those hours are harder to price, and they are often the ones that change what the firm is worth.

A plain example

Take a midsize firm worth $10 million, with four principals. One principal spends a year opening a market or an office. If that work lifts net revenue 10 percent at the same margin, earnings and market value rise by at least 10 percent, about $1 million. Across a year of roughly 2,000 hours, that principal's time is closer to $500 an hour than to the billing rate.

Market value is driven by earnings, and the same logic applies to book value through receivables and revenue. The gain is often more than 10 percent, because higher earnings can also raise the multiple. A 10 percent earnings gain and a 10 percent multiple gain is about a 21 percent increase in value, which can push the hour toward $1,000. Margin improvement through process, client mix, or training moves the same direction. Whether the principal is growing revenue or margin, the contribution to firm value usually exceeds the billing rate.

Overhead is not free

Principals are often treated as overhead, so their time looks free. That leads them to do work someone else in the firm could do. I have seen the president of a 250-person firm run a quality review on a billable project because his time would not hit the job cost and would make the margin look better. Those four hours had an opportunity cost. They also distorted the client data, so the firm could no longer see whether the process was actually efficient.

Who, not how

Dan Sullivan's book Who Not How makes the same point from another direction. The question is not how the principal will personally complete every task. It is who can do the work so the principal can stay on the activities that build the firm. That shift is how a high-performing consulting practice gets built.

The first step is seeing the real value of the hour. The second is choosing the person, inside or alongside the firm, who can carry the work that should no longer sit on the principal's desk. Assessment and coaching usually show that person before a new executive is added.