What is the size of the Consulting Industry?

Key Takeaways

Consulting is a dynamic $250B market growing globally at 6% and expected to break $300B shortly. It presents an unusual distribution profile with a high number of large consulting firms and small consulting firms and a limited number of mid-sized companies linked to the intense M&A activity (U-shape).

Transcript

Hello and welcome to the first episode of our podcast: Smart Consulting Sourcing, THE podcast about Consulting Procurement.

My name is Hélène, and I’ll be your host today.

Each week I’ll give you the keys to better use, manage and source consulting services. In this first episode, I’ll talk about the size of the Consulting industry.

So what is the size of the consulting industry?

The consulting industry is larger than you think. People often ask, “What is the size of the consulting market?” It is a tricky question. You will find various estimations available on the market sizing, depending on the exact definition of management you apply (for example, whether you include financial or IT consulting).

Yet, to give an order of magnitude to the management consulting market, let’s settle on roughly $250 billion worldwide. No matter how you look at the market, it is surprisingly huge, twice the size of a booming industry such as video games or a mature industry such as motorbikes and three times the size of the fast-growing SaaS Global Market.

The consulting industry shows a growth rate of 6%, outpacing GDP in most countries. At this pace, the industry is expected to break the $300 billion mark by 2020.

If you look at the last ten years, the development of the consulting industry follows the ups and downs of the economy closely.

A market that follows the Economy

From the 1970s to the 1990s the global consulting market grew every single year, cruising through two recession periods, fueled by a high demand for strategic services and operational management.

The first significant contraction was observed in 2002 after the Internet bubble burst. The industry then faced an even more massive downturn with the 2008 global financial crisis. Since then the industry has more than recovered and is now growing at a steady pace.

Another good way to approach the complexity of the consulting market is to look at the size of the consulting providers. We can then appreciate the counter-intuitive nature of the distribution. There are many different types of management consultants. As a general rule, large firms offer a broad range of services, while small firms tend to specialize in a narrower domain.

Many small firms and a few giants

The bulk of the consulting providers is small boutiques with fewer than ten employees. In the United States, they represent 87% of all consulting firms. In comparison, the proportion of small companies across all industries in the United States is 76% according to the US Census Bureau.

Even more counter-intuitive, the remaining 13% of consulting firms have more than ten employees yet more than 90% of the total revenues in the consulting industry. You will note the same phenomenon when you examine where the employees work.

More than 60% of consultants work in firms of fewer than ten employees, often as sole practitioners. Moreover, large consulting firms employ 33% of all consultants worldwide and capture more than half of all management consultancy revenues. As a result, the revenues per consultant for large firms are double those for small and mid-sized firms.

An industry active on the M&A front

Every year since 2006, we’ve observed roughly 500 acquisitions or mergers of management consulting firms of all sizes with larger players in the consulting industry. The reasons behind these moves can be to access a new client base, to venture in a new capability or a new industry, or to strengthen an existing practice. The consulting landscape reflects that continuous M&A activity.

Compared to the average, the consulting industry has 60% fewer small firms with 10 and 50 employees, and almost three times more firms with over 500 employees. The consulting industry is obviously a large market with robust growth. So why does it have such an unsavory reputation? The consultants must be bringing something to the table. Value, maybe?

That’s the question I will discuss next week. What value do consulting firms bring to their clients? So stay tuned.

In the meantime, if you have any questions, or want to learn more about what we do at consulting quest, just send me an email at helene.laffitte@consultingquest.com

Bye and see you next week! Au revoir!

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