What Is a Good Gross Margin for a Consultancy? Benchmarks by Size and Delivery Model
Gross margin is the line in the board pack that everyone reads and surprisingly few people define the same way, which is why the question of what counts as a good gross margin for a consultancy so often produces an answer that is confidently wrong. Before you compare your number with anyone else's, you need to know what went into it, what kind of firm you are comparing yourself with, and where you sit on the growth curve, because a 45% margin can be healthy in one business and a warning sign in another.
This article sets out working ranges by delivery model and size, explains why margin tends to compress somewhere between 20 and 60 people, and shows how to calculate the figure consistently so that the comparison you put in front of your board is an honest one.
Calculate gross margin consistently before you compare it
Gross margin is revenue minus the direct cost of delivering that revenue, expressed as a percentage of revenue. The arithmetic is simple, and the argument is entirely about what you count as direct cost, which is where most apparent differences between firms actually come from.
For a services business, a defensible definition of cost of delivery includes the following:
- Fully loaded salary costs of fee-earning staff, including employer's National Insurance, pension contributions and benefits, not just base pay.
- Contractors and freelancers engaged on client work, including any agency markup you pay.
- Third-party costs you pass through or absorb on projects, such as licences, hosting or specialist subcontractors.
- Delivery management time, meaning project and delivery managers whose role exists because client work exists.
What you leave out matters as much. Sales, marketing, finance, the founder's time on business development and general office costs belong below the gross margin line. The common distortion is the reverse: firms that leave delivery managers or bench time in overheads report a flattering gross margin and a puzzling net figure, and the board spends a quarter wondering where the money went.
Rule of thumb: if a cost would disappear when client work disappeared, it belongs in cost of delivery, and that includes the people sitting on the bench waiting for the next project.
Whatever definition you choose, write it down and hold it steady across periods, because a margin that improves only because the definition moved is not an improvement that will survive due diligence.
Working benchmark ranges by delivery model
The ranges below reflect what experienced operators and finance leaders in UK services businesses would generally regard as normal, calculated on the fully loaded basis above. They are working ranges rather than survey data, and they are most useful for telling you whether your number is in the right neighbourhood rather than whether it is precisely right.
| Delivery model | Typical gross margin | What drives it |
|---|---|---|
| Advisory and strategy consultancy | 50% to 70% | Senior-led, value-priced work with little pass-through cost |
| Management and implementation consultancy | 40% to 55% | Larger teams, more time-and-materials work, some bench |
| Digital and creative agency | 40% to 55% | Project mix, scope control and freelancer reliance |
| IT services and software delivery | 30% to 45% | Rate pressure, contractor-heavy delivery, fixed-price risk |
| Managed services (MSP, recurring support) | 40% to 60% on managed contracts | Automation, standardisation and ticket volume per engineer |
| Staff augmentation and resale | 15% to 30% | Margin on someone else's day rate or product |
Most firms are a blend, so the honest comparison is to split revenue by model and benchmark each stream separately, which frequently reveals that one profitable line is quietly subsidising another.
How firm size shapes a good gross margin for a consultancy
Under about 20 people
Small firms often report strong margins, partly because the founder and a few senior people do much of the delivery and partly because the founder's time is rarely costed properly. The margin is real in cash terms, but it is borrowed from the founder's evenings and is not a number a buyer will pay for.
Between roughly 20 and 60 people
This is where margin compression tends to arrive, and it arrives for reasons that are structural rather than a sign that anyone is doing their job badly. The founder steps back from delivery and is replaced by salaried seniors who cost more than the founder was charging for, delivery managers appear because nobody else can hold the projects together, one lumpy quarter creates a bench that sits in cost of delivery for months, and larger clients bring procurement teams that push rates down while asking for more governance. A fall of several points through this band is common, and it is what we call the middle squeeze: the firm is too big to run on the founder's energy and not yet big enough to run on a proper pyramid.
Above about 60 to 100 people
Firms that come through the squeeze usually recover margin as leverage improves, pricing becomes more deliberate and utilisation is managed rather than hoped for. Firms that do not tend to plateau a few points below where they started, which is one of the patterns investors look for when they test whether a business will scale.
A margin that only holds while the founder is in the room is a lifestyle, not a benchmark.
Placing your own business against the ranges
Once your number is calculated consistently and split by model, ask a small set of questions that explain most of the gap between you and the range:
- What is billable utilisation across fee-earners, and how much of the shortfall is bench versus unbilled overrun?
- How much of your fixed-price work finishes over budget, and does anyone record the write-off rather than absorb it?
- What is your leverage, meaning the ratio of junior and mid-level delivery staff to seniors on a typical engagement?
- When did you last raise rates, and do your newest contracts carry better terms than your oldest?
- How dependent is delivery on contractors, and at what markup?
The levers most likely to move your margin
In most founder-led firms in the 20 to 60 band, the answer is not a 40-point improvement programme but one or two levers that, if they are fixed and held, move margin materially. The two that most often matter are scope control on fixed-price work, where unrecorded overruns erode margin long before anyone sees it in the accounts, and resourcing discipline, where better forecasting of the pipeline against people reduces bench and cuts emergency contractor spend. Pricing comes a close third, particularly for firms still charging rates set when they were half the size.
We have covered the practical mechanics of each in how to improve delivery margins in a professional services business, which is the natural next step once you know which lever is yours.
Worked example: a 40-person implementation consultancy reporting 38% finds, once delivery managers and bench are costed properly, that it is actually nearer 33%, with the gap concentrated in fixed-price projects. The fix is change control, not headcount cuts.
Where Vitori fits
Many firms can do this diagnosis themselves with a capable finance director and an honest afternoon, and if that is you, the steps above are enough to get started, whether with Vitori or anyone else. Where margin compression is really a symptom of an operating model that has not kept pace with growth, the fix usually sits across pricing, resourcing and delivery governance at once, which is why our Operational Scale Framework assesses Growth, Delivery and Operations together rather than treating margin as a finance problem alone. Through the Operator model we embed and implement the changes directly, staying accountable until they hold, with the aim of leaving you with a margin that belongs to the business and a business that runs, and scales, without the founder in every decision.