When I asked my friend:

“Do you know the business you’re in?”

He paused, then said, “I’m a data scientist. Why should I worry about that?”

That’s when I realised: most people working in consulting don’t actually understand the business model they’re part of. They’re brilliant in their domains—data, design, software, delivery—but they operate without context on how their company earns revenue or why layoffs really happen.

I told him this isn’t some secret MBA-level knowledge. In fact, my own interest in business models started about ten years ago, when I picked up the book Lean Analytics.

That book outlined six start-up business models and showed which metrics mattered for each.

I used the 4. Media business model and it's metrics to successfully lead a team of Web Developers and Designers to launch a popular magazine public-facing website that beat the metric expectations of the magazine's chief online editor by a long margin. It was my first project delivery and that too on-time and within-budget!

Ever since then, having moved to a consulting company, I’ve been fascinated by how consulting companies work—what drives growth, what creates risk, and what leads to decisions like redundancy. It’s not random. It’s mechanical. And more people deserve to understand it.

This post is the first in a 3-part series to explain the consulting business model in a way anyone can understand—so you're not left in the dark when tough calls are made.

Later, I’ll also publish a companion 3-part series on product business models, aimed at helping product company employees understand how business strategy shapes engineering, design, and delivery decisions.

The Basics of Consulting Revenue

Consulting companies don’t sell products—they sell people’s time.

In most models, this means charging clients a daily or hourly rate for each consultant working on their project. But not every employee is "billable" all the time.

Here are the core concepts:

1. Staff Utilisation Rate

This is the percentage of billable hours worked versus total available hours.

• If you work 160 hours in a month and 120 are billed to clients, your utilisation is 75%.
• High utilisation = revenue.
• Low utilisation = cost without income.

2. COGS: The Billable Subset

Most employees assume all headcount is equal—but from a finance perspective, only billable employees (those who directly bring in revenue) are considered Cost of Goods Sold (COGS).

The rest—HR, marketing, pre-sales, even bench employees—are indirect costs.

This distinction is critical: when revenue slows and non-COGS headcount is too high, the business starts to bleed profit.

3. Revenue vs. Profit

Revenue is what clients pay. Profit is what remains after paying salaries, tools, rent, taxes, etc.

A consultancy can show strong revenue but still run at a loss if:

• Staff utilisation drops
• Too many people are non-billable
• Fixed costs remain high while client projects end

The Growth Trap: When More People = Less Profit

It’s easy to assume growth = success. But in consulting, uncontrolled growth is dangerous.

Imagine a company that goes from 50 to 150 people in a year. Unless sales grow in parallel and new projects are lined up fast, utilisation drops, leaving dozens on the bench. Even if those people are skilled, they’re not earning—only costing.

This is called the growth trap: hiring aggressively in anticipation of demand that doesn’t materialise—or materialises too slowly.

What happens next?

• Bench size grows
• Utilisation drops
• Profitability vanishes
• Panic sets in
• Redundancies follow

The people affected often feel blindsided. But this isn't about them. It’s about misalignment between revenue and headcount.

How Companies Try to Handle the Problem

When utilisation drops and the business feels the squeeze, leadership may adopt short-term tactics to mask the situation rather than solving it. These measures often delay layoffs—but don’t prevent them.

Here are some common mitigations:

1. Spinning Up New Business Models

To “absorb” idle staff, companies may create:

• Internal product teams
• Innovation labs
• Tools-as-a-service platforms

These are rarely backed by actual revenue and often serve as temporary parking lots for the bench.

"Let’s build our own platform" may really mean "Let’s avoid layoffs by keeping people busy—even if no one's buying it."

2. Internal Transfers and Role Rebadging

Sudden transitions into roles like “evangelist,” “trainer,” or “platform owner” often indicate attempts to pad utilisation metrics. The intent might be good, but the revenue impact is usually delayed or unclear.

3. Internal Chargebacks

Some companies charge internal departments for services delivered by idle staff. This inflates internal utilisation but doesn’t bring in external cash.

4. Extended Bench Learning

Upskilling is essential—but if half the company is in training for months, it may reflect a lack of client demand, not a surge in learning culture.

Learning without earning leads to burning.

5. Proposal Theatre and Hackathons

A sudden surge in RFPs, demos, and innovation showcases may not be a growth signal—it might be a desperate attempt to win work with underutilised staff.

These mitigations are not inherently bad—but they become dangerous when used to avoid facing the core problem: misalignment between client demand and headcount.

So, Why Are You Being Made Redundant?

You're not being punished. You're caught in a system under stress:

• You weren’t billable
• The company over-hired
• Revenue didn’t keep pace
• Short-term fixes didn’t convert into real income
• Eventually, the numbers force a reset

What You Can Do

Start with awareness. Ask respectful, clear questions like:

• What’s our current staff utilisation rate?
• What % of our people are currently billable?
• Are internal projects generating revenue, or just keeping people occupied?
• What’s our sales pipeline really like?
• Are we thinking short-term, or making strategic moves to build runway?

You don’t need to be a CFO to understand the basics. Once you do, you’ll:

• Choose your employers more wisely
• Spot warning signs earlier
• Make career decisions based on data, not emotion

Coming Up in Part 2:

We’ll explore how a hybrid offshore-onsite delivery model can extend your company's runway, improve margins, and prevent knee-jerk layoffs—when implemented with foresight.