Have you reached a crossroads at the prospects of consulting vs contracting?
If that’s a yes, you’re not the only one.
This happens to many professionals.
While both roles pose various benefits, consulting and contracting hold crucial differences.
The global consulting industry was valued at $ 296,441 million in 2023, making it a lucrative option for anyone to consider.
Whereas the lure of the work life balance associated with a contractor role can also sway you to the opposite side.But, to make an informed decision, you’ve got to go beyond these minor insights.
Dive in with us to know their scope, responsibilities, autonomy, client expectations and benefits.
What’s the difference between consulting and contracting?
Let’s cut to the chase, with the differences. In short, a consultant helps assess their client’s needs and, in return, provides them with specialist advice on the scope of work that needs to be performed by the team or the company. Whereas a contractor performs the work themself.
Consultant= Advisor
Contractor= Contracted worker (for a specific period), not a permanent employee.
But that’s in basic terms. There’s a lot more to these roles than meets the eye.
What is consulting?
It’s likely you’ve heard of the term consulting being used interchangeably in various industries. Consulting is a role that practically exists in every industry.
And it’s highly unlikely to be replaced by AI anytime soon.
Those who are consultants are often self-employed performing an unbiased advisory role, solving and thinking critically for a company. When a business has an issue that they don’t have the capacity or time to resolve, they’ll hire professionals with specialist expertise in that niche to help.
These specialists:
Hold high expertise
Members of professional bodies
Abide by strict confidentiality standards
Provide highly customized solutions and support
Offer first-class services
The professional they hire for this is a consultant who assesses the area of interest or business as a whole and formulates a personalized solution for them to implement.
Examples: Cost cutting, growing a client base, entering a new market, streamlining operations, and many more.
Their charges?
Often, they are hired on a fixed fee for the duration of the project. They’re hired on a short-term basis
What is contracting?
A professional contractor is hired to perform a specific task or service to their clients. Many companies hire contractors with experience in:
IT maintenance and support
Recruitment
Marketing
Gardening
Constriction
Healthcare
Logistics
Real estate
Contractors can also hire subcontractors to do some or all of the work, but that’s a whole different article. Just like consultants, they’re self-employed professionals working independently from the company.
They’re usually paid for a fixed period, and their job role involves completing a specific set of tasks requested by the employer. Before hiring they’ll receive a written contract outlining their role, responsibilities, deliverables and payment terms.
A contractor can often work remotely or onsite, collaborating with employees on specific tasks, but they’re not part of the company hierarchy.
Scope of work
While both roles can slightly overlap in the same industry, the scope of work for consulting and contracting is completely different. To know this, let’s look into the breadth of work involved in each role.
Nature and breadth of work in consulting
No consultant will undergo the same task or activity as another consultant. As consultants hold different experiences in various sectors and are requested to solve different problems, their scope can vary slightly.
If you choose to delve into a consultant role, the flow of your work may typically look like:
1. Work with stakeholders
Consultants first meet with the stakeholders, familiarizing themselves with their requirements, problems, and short-term and long-term goals. This clarifies the consultant's role and deliverables and allows them to become familiar with their expectations.
2. Familiarizing with processes and systems
They'll then familiarize themselves with the operations, processes, and systems. They'll take time to have a thorough understanding to make things run smoother, which will help them tailor their advice and provide solutions on how the company works.
3. Carry out an analysis and diagnose issues
A major part of being a consultant is independently conducting an analysis and diagnosing problems. Consultants gather information from interviews and surveys, run focus groups, and look at existing analytics. Think of them as a business doctor.
Example: If a company wants to grow its customer base, a consultant might review its online analytics, look at its purchase record, and send out questionnaires to its existing customers.
They’ll look at the systems currently in place and see if they’re impacting their business. At this point, a consultant will tap into the knowledge, beginning to think about what new method would work to help achieve the company’s goal.
4. Present the data
Once all the data has been analyzed, the consultant will condense the data and recommendations into a plan that can be implemented. Often, this data is presented in a report consisting of their learnings and recommendations.
5. Communicate the findings to stakeholders
Next, consultants will present their findings in a stakeholder meeting. They’ll hone their expertise to explain complex information in an easy-to-understand way, to help educate stakeholders, and to show them the steps that need to be implemented. They’ll answer stakeholder questions and schedule check-ins to track progress and results.
6. Track progress
Once a plan is in place, consultants will track the progress to see if the results are aligned with the goals the stakeholders desire. If not, they’ll amend the plan and notify them to ensure it helps achieve the necessary results.
Nature and breadth of work in contracting
The role of a contractor is usually fixed. The responsibilities and workload are decided upon upon agreement of the contract. Every contractor's role in work is different. However, they will usually have fixed deliverables, manage their tax, and work for a specific duration of employment.
Project-based vs. task-specific engagements
Consultants and contracts often have slightly different approaches to billing when working with an organization. They're usually project-based or task-specific, to understand it let's look at this table below:
What expertise does each role require?
The main difference of a consultant vs contractor, is that consultants pose an extensive range of expertise and experience in their niche. Consultants use their specialist knowledge, intuition, and insights to provide significant value to the project or organization.
As the role of a consultant is broad and is used in many industries, there’s no fixed requirement for expertise. However, they must be able to think critically and practically demonstrate their expertise on the job.
Pro Tip: If you’re interested in becoming a consultant, research your industry first and look at existing profiles to give you an idea of the type of expertise required. For example, if you’re interested in becoming a Management Consultant, you might check out job descriptions or websites like TopMBA, which outline the expertise for that specific role.
On the contrary, contractors don’t require specific expertise.
Client Relationships
Consulting and contracting have slight differences when it comes to client involvement. Consultants' relationships are often more hands-on, as they need to work closely, engage with different stakeholders, understand their goals, and gain feedback. Their role requires a lot of client input.
Whereas contracting roles do offer some level of collaboration in the initial onboarding, project definition, and reviewing of deliverables. However, it tends to be less when the task is being performed. The level of client input depends on the industry their contract is in.
Long term vs short term commitments
Commitments and responsibilities play a significant role in consulting and contracting. To understand these better, let’s break down the general obligations according to each profession.
Autonomy and Decision-Making
There’s a slight difference between the autonomy and decision making involved in a consulting and a contracting role, such as:
Consulting
Consultants have a higher level of autonomy, authority, and decisions as they're called on externally for their expertise and specialist knowledge. The amount of autonomy they have can depend on the problem they're called to fix and the method of collaboration.
However, they're only accountable for delivering specific goals and outcomes for a project. Consultants tend to work without requiring direct supervision from their clients.
Contracting
In contrast, contracting roles involve direct control and supervision under the employer. Contracting roles often involve working directly underneath the employer according to a framework that aligns with the company's policy and procedures.
The work hours of a contractor's role are often fixed. They often have specific roles and responsibilities, reporting and communication methods to follow according to the company's rules.
Compensation and Benefits
Concerning compensation and benefits for each role, there are key differences. To help understand these, let’s split them up under remuneration, taxes, and benefits/legal protections.
Remuneration
Consulting: Remuneration for a consulting role is linked to consultants' services. The payment structures for their work depend on the work type and goals. Often, they can range from fixed fees, project-based compensation, hourly rates, or several of these structures.
Contracting: Whereas contacting roles involve remuneration associated with a specific wage or set salary according to a certain position, experience, or company policy. Their terms for payment will be outlined in their initial contract.
Taxes
Consulting: Consultants must manage their own taxes, insurance, and business expenses.
Contracting: Contractors also have to manage their taxes as they’re classed as self-employed.
Benefits
Consulting: As consultants are self-employed, they tend not to receive specific benefits like an employee would. In other words, they don’t receive retirement plans, health insurance, paid vacations, or sick leave. They have full responsibility for their protections and benefits.
Contracting: If contractors are to receive any benefits, they’re often stated in the contract terms. Sometimes, they can receive medical coverage, types of leave, retirement plans, and more; however, it depends on the initial agreement. However, if they’re self-employed, they are also fully responsible for their legal protection and benefits.
Choosing Between Consulting and Contracting
Consulting and contracting offer various benefits for both professionals and businesses. To know which is best for your career or organization, let’s explore them deeper.
Factors to consider
If you’re a professional interested in both roles, here are some important factors to consider to help support your decision:
Skills
If you’re considering becoming a consultant, consider what specialist skills you can offer. More than degrees and certificates, consultants need to be able to provide they can apply their practical knowledge. For instance, you should be able to think about:
Being able to assess client problems
Designing an action plan
Growing
Change a management plan
Help navigate change
Deliver results according to the project goals
If you don’t have the time to learn new skills, then you might want to consider a contracting role. The skills are similar to what you would need if you were a full-time employee to perform a specific job, so often, there’s a lower learning curve involved in a contractor role.
Similarly, if you don’t have enough skills to become a consultant, working as a contractor can be a good starting point to generate income and skills before moving into higher-paid roles.
Market opportunities
As consultant roles are quite broad, the marketplace opportunities can be quite competitive. Because of this, if you're interested in becoming a consultant, you have to be specific and niche down. On the contrary, contractors may have more opportunities in industries such as construction and tech, where project-based work is normal.
Pay
Contractors tend to be paid less than consultants are, mainly paid hourly, and are heavily negotiable. Hiring managers often decide their pay by comparing what they'd pay a full-time employee without factoring in benefits. Contractors are often paid lower if they're hired; parts of their pay are also deducted to pay for recruiter or marketplace fees due to the extra costs covered by the organization.
Whereas consultants can charge according to the value of the results they can help their clients reap. Also, because they're viewed as experts, they can charge a premium for their services.
Time
Often, with contractor roles, it's difficult to take time off as income is directly linked to a set amount of hours per week. If time needs to be taken, it's often unpaid.
Whereas consultants' work isn't linked to a fixed amount of time, they just have to perform and help the business meet the specific goals they've hired. The flexibility of a consultant role allows them to take more time off weekly, monthly, or yearly without worrying about money.
Professional fulfillment
Consultants are more free to select and choose the type of projects they want. Due to having higher control over their engagements, they're likely to have a higher level of fulfillment with their work.
Revenue streams
Consultants can gain additional income by bringing in subcontractors or their own employees to do the job. If a flexible delivery model is agreed upon with the client like this, it can help generate further revenue.
Business considerations for hiring consultants vs. contractors
Do you run an organization? Are you confused about which role to hire? Here are some essential considerations to think about:
Skills
Are you looking for specific skills to be performed for a role? If a specialized skill gap needs to be filled that you don't have in your company, you'll need to hire a consultant. The constant should be able to bring expertise and practical skills you can't find in-house.
Commitment
If you're seeking someone to fulfill a specific task or role to the best of their ability, then you may need a contractor. Consultants often have several clients and may not be as committed or devoted to the company as a full-time contractor.
Budget
Though consultants may be more pricier to hire, there are other benefits you need to factor in. The main advantage is you don't have to think about hiring a recruiter to find a contractor and only pay them for the services required compared to a full-time contractor.
Scope of work
Think about the goals that need to be achieved. If the goals require specialist expertise, flexible hours, or are only temporary, then it's likely you'll need to hire a consultant.
Which is better Consulting vs contracting?
Overall, there are significant differences in both contracting and consulting. Consulting roles offer higher pay, more autonomy, and fulfillment than contractor roles. However, if you’re thinking about becoming a consultant, you must be able to have specialist skills, prove you can demonstrate them, and think critically to help businesses achieve their goals.
Although contractor roles require fewer skills and are paid less, they’re a great starting point to build up your experience and skill set. They can be used as examples in a portfolio to help you make that step towards becoming a consultant at a later date.
When deciding which role is more suitable to fulfill a business demand or a professional avenue, always factor in the cost, flexibility, skills required, and scope of work before making a decision. Once you know all these, then you can decide if consulting or contracting is best for you.