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Can You Avoid the Billing Layers and Go Directly to an SAP Customer?

One of the most frustrating things about being an SAP consultant is having to go through "layers" to get to an end client project, and each layer takes a healthy piece of your margin. This leads SAP consultants to ask the question a reader asked me recently: "how can I get a better rate and reduce the amount of layers between me and the SAP customer?"

Well, this is easier said than done. In truth, the SAP contracting market is still very inefficient. By inefficient, I mean that there are often "go betweens" that charge a great deal more for the privilege of going through them than they deserve. This is a frustrating experience for a consultant, who can find their rate severely impacted.

  SAP Consultants on H-1 work visas have the toughest time with this, though now that it’s easier to transfer an H-1 from one company to another, there’s a bit more flexibility when it comes to moving around from company to company in search of a better deal.

The consultant who wrote me this particular question was hoping I could recommend a company that only takes a small percentage, say $10 an hour, and passes the rest on to the consultant. The reality is that there are very few firms that will charge so little. Why is that? Why hasn’t price pressure forced firms to take very small margins, just as the Internet has forced real estate agents and "perm placement recruiters" to take smaller commissions?

Well, the answer again is that the contracting market is very inefficient and chaotic, making it hard to apply across-the-board rate pressures and achieve reforms. Think about it this way: there are thousands of companies running on SAP. Each of these companies has their own way of handling outside consultants, but most of them refer all their work through a handful of vendors. Typically, you have to go through these vendors to get to the end client.

In the heyday of SAP in the ’90s, it used to be more common for an independent SAP consultant to set up their own firm and go to a client directly, cutting out all middle layers. But increasingly, companies are limiting their vendor list and requiring those vendors to carry expensive liability insurance that can be hard for a small shop to afford. Because each company has its own preferred vendors, it’s very hard to apply pressure to the industry as a whole. Firms who have a strong relationship with the end client charge a consultant for the privilege.

Now, it should be said, some of these firms really are fair about what they do, and are honest about the margins they are taking. They provide support to consultants even after they are on the project, and thus they provide a "value" that is justified in the rates they take. But some firms are greedy in their markups and really tend to take advantage of their special vendor status.

Another thing that has made it trickier to cut out layers is that many SAP projects are dominated by larger Tier One consultancies, such as Accenture or IBM. SAP itself picks up a large share of consulting business. These firms do staff their projects internally, but they also have a network of preferred staffing partners they turn to. So, to get onto such a project, you often can’t deal with a firm like Accenture directly — you find yourself going through one of the Tier One firm’s vendors, and taking a rate hit accordingly.

To add to the complexity, sometimes it’s not a matter of how many layers you have but the agendas of the firms you deal with. I have seen some nice "pass through" firms that pass your resume along and take $5 an hour for the trouble. Five bucks an hour doesn’t necessarily hurt your rate all that much, and if these kinds of firms can get you access to openings you might not have known about any other way, it seems fair that they would get a piece of the action, and the extra layer didn’t hurt you that much.

So with all these factors in mind, what is the best way for an independent SAP consultant to secure a high rate with the least possible layers?

- If you’re determined to have fewer layers between you and the SAP end user, then form your own small consulting company. Incorporate that company and apply directly to mid-size SAP customers who may have more flexibility on vendor status than the larger SAP customers. As a rule, smaller SAP shops are more likely to be willing to contract with you directly.

- As you apply to SAP openings, before you send in your resume, or during your first talk with the recruiter or agent in question, ask them about the end client and how many layers are involved. Prioritize working with firms that deal directly with the end client. Remember, however, that to get good SAP contracts, you usually can’t just narrow it down to one or two firms that you’re working with. Having your resume considered by multiple companies generally means going through multiple firms, and each of them will have their own policies on what kind of margins they add to the bill. Most firms tend to take $30 - $40 an hour of the bill rate. Whether they deserve that amount really varies from firm to firm.

- Finally, worry less about layers and more about getting the best rate possible. In other words, try to obtain multiple job offers, and then you have the option of taking the SAP project with the highest hourly rate. Who cares if it’s the one with the fewest layers? If it pays better than the other offers, then it pays better. Layers don’t make the ultimate difference in that case.

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