Tax and tech demand push US consulting revenue over $63 billion

Leading consulting firms raked in more than $63 billion in revenues from advisory services in 2017, a new record. Client spending on advisory shot up by 8.1%, bolstered by federal tax reform and demand for digital transformation services.

The Big Four and technology consulting firms were the most notable beneficiaries as US client spending on consultants hit a new record of $63.2 billion in 2017. Spending on digital transformation services shot up by 10.6% to $17.3 billion, while the Big Four’s consulting revenue rose 9.4% to $23.2 billion.

Figures come courtesy of Source Global Research. The UK-based research outfit’s latest report focuses exclusively on major consultancies that offer their services to clients with revenues exceeding $500 million. Total consulting revenue in the US is likely substantially higher once the thousands of smaller and independent firms are taken into account. ALM Intelligence has previously floated a figure as high as $93 billion.

Together, revenue from the consulting arms of the Big Four professional services firms – Deloitte, KPMG, EY, and PwC – and from digital/technology consulting by other firms, accounts for $40.5 billion. This equates to roughly two thirds of the total US market, which itself amounts to almost half of global consulting revenue.

A spike in consulting revenues collected by the Big Four was due in part to an overhaul of the federal tax system, said Fiona Czerniawska, director of Source Global Research. Signed by Donald Trump in December, the bill slashed the corporate tax rate from 35% to 21% and led to a flurry of client queries about how they could take advantage of the new regime.

“It was one of the key drivers in 2017, but given that some of the tax changes were only announced late in the year, the actual impact in numbers was relatively small, but it has potential to grow much more in the future,” said Czerniawska. “Tax regimes around the world are diverging, so suddenly it’s a lot more complicated to be a multinational firm,” she added.

Not all of the Big Four’s increased consulting revenue was due to tax reform. The firms are also heavily involved in digital transformation and other technology consulting services. Revenue in this sector saw the greatest increase and the Source Global Research report indicates that the majority of strategy consulting now digital or technology related.

“Digital transformation is also one of the big drivers of growth across the market as a whole, and the Big Four are benefiting from a strong client interest in cybersecurity and risk more generally,” said Czerniawska.

Also embedded in the report is another story – that of the increasing competition between Big Four firms and technology consultancies over the lucrative digital transformation market. Geoff Vickrey, a performance improvement leader at EY, said “We’re competing against some strategy boutiques”, adding that “they’re trying to move into our space.”

Eclipsing $63 billion in revenues is virgin territory for the US consulting market. The $50 billion milestone was reached in 2014. Technology has been the fastest growing service line since 2015, and is closely interlinked with the booming trade in analytics consulting. The biggest spending clients continue to be found in the financial services and manufacturing sectors.