Revenue of management consultancies grows and prospects for 2024

05 April 2024 Consultancy.uk 5 min. read

Despite uncertain economic conditions, management consultancies globally were able to increase revenue by 9% last year, due to high demand for artificial intelligence (AI), technology, and sustainability services.

Now in its 19th year, SPI Research’s annual Professional Services Maturity Benchmark Report provides an in-depth insight into the performance of consulting and professional services firms worldwide. The report found that while global growth across the professional services landscape dipped to an average of 7.8%, management consultancies boosted their revenue growth by nearly two per cent to 9%.

Global profit reported by professional services firms also dropped, with management consulting firms the only exception, reporting a slight uptick in profit.

Revenue Growth by Market - 3-year Annual PS Revenue Growth by PS Submarket

So, what has been driving management consulting’s growth? The answer lies in the booming demand for data and AI services, as well as the continued strong demand for wide-ranging technology services.

“The move to implement artificial intelligence (AI) in every industry was a key factor driving growth during 2023,” says SPI’s report. “The technological and organisational transformation that comes with AI is profound, and consulting firms are at the forefront of helping organisations to explore, test, build and implement AI solutions.”

Demand for IT services such as cloud, cybersecurity, robotics, business process digitisation, and systems implementation remained high, with SPI’s data showing that pure-play IT consultancies managed to outperform their management consultancy counterparts for the third consecutive year in revenue growth.

Profit by Market - 3-year Annual PS Net Profit by PS Submarket

Although SPI highlights that inflation causes several issues for consulting firms, including in areas such as pricing, profitability, cost management, and demand planning, a considerable amount of management consulting growth was driven by higher rates charged for fee earners in response to inflationary pressures.

The average billable revenue per individual management consultant ended the year at $212,000 per year (compared to $207,000 across professional services), with rates at premium and tier-one consultancies notably higher.

Some consultancies turned to acquisitions to secure growth – the report suggests that the average single deal increases the revenue base of acquirers by close to 8%. “Closing mergers and acquisitions are increasingly seen as one of the fastest ways to augment growth and to expand into hot new service and technology segments,” states the report.

2024: Slower growth and a rebound?

Early signs in 2024 indicate that professional growth has slowed this year due to market pressures and tightening discretionary spending by buyers. This has seen several major consulting firms already take action to resize their consulting teams and scale back on hiring and acquisitions. Several listed consultancies have also revisited their growth outlook for the year ahead.

Revenue of management consultancies grows and prospects for 2024

SPI’s research acknowledged several signals that growth could be slowing globally, with key performance indicators (KPIs) such as deal pipeline and average chargeability down slightly. The latter even dipped to under 70% for the first time in over five years, demonstrating the need for firms to work harder to win projects and staff their talent on paid engagements.

Project-related metrics are also under pressure, with on-time delivery down to just under 76% from around 80% in the previous two years, impacting project margin and billable hour leakage overall.

Despite the challenges ahead, SPI’s researchers expect the professional services market, including management consultancies, to rebound sometime this year. “As major economies rebound and interest rates continue to go down slowly, the future will brighten for the sector. Like last year, digital transformation headlined by AI is expected to also lead growth opportunities in 2024.”

While the course of the year remains uncertain, signs point to the professional services industry’s annual revenue growth returning to the 10% to 12% band – the rate it historically has achieved over the past two decades.

A spotlight on Europe

To shed more light on the results for European firms, Eric McAdam from Deltek recently interviewed the founder of SPI Research, Dave Hofferberth (the live webinar can be accessed here).

McAdam: “The report has thrown up several trends for the year ahead. And there were several cases which bucked these trends. For example, in the European consulting sector, average revenue growth was 10.3%, compared to North America growing at 7.1%, which is encouraging considering an overall ‘lean’ year for global consulting.”

“What’s more, high visibility, boosted by implementing a project-based ERP system, catapulted the top 20% of performers in Europe firms forward and reduced hiring needs. I’ll be interested to see how the use of technology, especially AI, develops this year.”