There Are Two Ways to Run a Consulting Firm. One Drains Profitability.

This article was last updated on 30 May 2025.

Most consulting firms don’t fail because of market conditions. They fail because they create their underperformance, one step at a time.

Over the past years, we have worked with a few dozen such consulting firms. This self-sabotage comes in different forms:

• Consultancy owners and leaders are not aligned around the same vision for business growth, so everyone is doing what they think is best.
  
  
• A consultancy is in constant 'pivot' mode, launching new services without the patience or resources to mature a single one (an exercise that takes, on average, around two years).
  
  
• Project execution does not have defined methodologies, which means a consultancy’s deliverables and processes vary widely depending on who leads the engagement.
  
  
• Ad-hoc marketing and business development efforts typically result in campaigns launched sporadically without a long-term plan and inconsistent returns.

And at the foundation of all these problems is their approach to selling their consulting services.

They sell 'what they do': "We do strategy, research, org design, digital roadmaps, workshops, process redesign" (to name a few). In short, they are selling capabilities: "We do X".

At some point, the firm becomes a machine that sells more and more of that capability, regardless of whether clients need it.

The result? Broad targeting. Bloated proposals. Custom everything. An operations nightmare. Profit erodes while headcount balloons.

This is the capabilities-selling mode of running a consulting firm, and it almost always guarantees underperformance – at least, that's what we have experienced. 

Capability Selling vs. Proposition Selling

The real difference is this:

• Capabilities-selling consulting firms emphasise "We do" and "We offer," presenting proposals like menus. Their profitability relies on selling more hours and selling one-off projects, leaving clients to discern the usefulness of those capabilities.

• Proposition selling consulting firms focus on selling solutions to clearly defined problems: "We solve for X". They offer transformative results. They clearly identify the problem and outline the potential outcomes of a successful transformation. They develop a structured approach to achieve these outcomes and inspire potential clients by educating them on the value and impact of these transformations. 

And that changes everything, from how you price to scale to how clients perceive your transformative value.

Why Capabilities Selling Is a Silent Profit Killer for Consulting Firms

Sure, positioning a consultancy as 'experts in [something]' seems logical, but without being specific and offering a laser-sharp value proposition (issue-led and outcome-focused), a consulting firm is forced to chase revenue in a broad target market, often attracts misaligned clients, and accepts a variety of projects.

This expands complexity, not profitability.

The more a consultancy grows this way, the more complex scaling becomes. Headcount increases, operational strain rises, and margins shrink. The firm is constantly running but never truly progressing.

This opportunism-driven strategy is a profit-eater in consulting firms:

• Broad targeting → chasing revenue: Without a clear value proposition, consulting firms accept whatever comes their way. Marketing is scattered, client fit is poor, and price competition erodes margins.
  
  
• Constant variance → increasing complexity: Projects differ wildly, making it hard to develop repeatable methods. The result? Higher delivery costs, heavy reliance on individuals, and low scalability.
  
  
• Growth tied to headcount → no scalability: More projects means more hires but not more profit. Consulting firms end up growing headcount and overhead faster than margins.
  
  
• Operational strain → lower margins: Inefficiencies pile up. Every custom engagement adds friction, hurting client attraction, delivery, and profitability.
  

Selling capabilities is challenging for a consulting firm and creates a self-imposed ceiling on growth and profitability.

Recommended reading: Consulting Growth Is Stalling – How Can You Respond?

Selling Capabilities Is the Shortest Path to Commoditisation in Consulting

In our experience, selling capabilities almost inevitably leads to commoditisation.

Think of how most firms introduce themselves:

• “We do digital transformation.”
• “We are experts in change management.”
• “We help with strategy and execution.”

These are not propositions. They are not. They don’t answer the essential question: “To what end and for whom?”

And when buyers can’t tell the difference, they default to price. This is how even highly skilled consulting firms find themselves caught in what we call the capability-commoditisation trap:

• Clients pick on price, because they have endless alternatives that sound identical: other firms, contractors, freelancers, even AI.
• Projects vary wildly and start from scratch, since there’s no repeatable, structured journey from problem to outcome.
• Delivery becomes people-dependent and hard to scale.
• Growth becomes synonymous with hiring, not with increased profitability.

Consulting Growth Based on Proposition Selling

Here are just a few examples of the types of considerations that high-performing firms make in their strategy development:

• They define a differentiated, outcome-specific value proposition. They solve a well-defined business issue with precision. They don’t sell capabilities; they sell value, outcomes, and transformational results. This approach attracts the right clients, allows them to command premium pricing, and builds a reputation as the go-to consulting firm in their expertise domain.
  
  
• They narrow their targeting: They don't care about reaching as many prospects as possible. They only care about reaching the right ones. High-performing consultancies focus on attracting their ideal clients, allowing them to reduce complexity and increase efficiency.
  
  
• They standardise and refine processes: Developing proprietary methodologies and frameworks means setting up clearly defined processes, tech, and other resources. This increases efficiency, reduces delivery variability, and keeps clients happy, resulting in repeat business. Their repeatable processes allow them to lower costs and improve quality.
  
  
• They scale strategically: Growth in high-performing consulting firms is repeatable and efficient, and it’s not tied to headcount growth. New services are not launched out of desperation. Instead, they are launched to deepen the value offered to existing clients. 

Recommended reading: Building a Winning Consulting Value Proposition

An Example of a Change From "We Do X" to "We Solve for X"

I always get questions when talking or writing about capability selling: "What does it mean?" Here's a real-life example of a consulting firm we worked with.

• The old capability-selling approach was: “We are experts in change management.” (Shouting into the void: “Who needs change management?”)
  
  
• The new, proposition-led approach is: “We help large enterprise companies (>500M) in [country name] reduce post-merger integration time by 40-50% while aligning leadership and culture.”

Change management ('the capability') is no longer mentioned. Instead, the business impact they can achieve for a specific audience in a well-defined context (post-merger challenges) is clearly defined.

This example is just a glimpse into an extensive refinement process we've undertaken. Beyond redefining the overarching value proposition, we also redesigned the underlying service offering architecture, the client success journey, the signature methodology, the thought leadership pillars, and the new business development approach (to name the principal components of their transformation). 

Each change is a step towards transforming into a high-performing consulting firm.

The Ultimate Comparison: Capability vs Proposition Selling  

This table provides a comprehensive overview of the key dimensions that differentiate these two approaches.

By examining these characteristics, we can better understand how proposition selling leads to superior performance and sustainable growth, while capabilities selling often results in inefficiencies, underperformance, and, ultimately, commoditisation.

Final thoughts: Underperformance Is a Choice!

In our experience, consulting firms often attribute their struggles to external pressures: market conditions, competition, changing client expectations, and so on. But the reality is different. More often than not, their biggest obstacle is internal.

There are two ways to run a consulting firm. Which path are you setting your consultancy on?

If your consulting firm still leads with “We do X,” it’s time to pause and ask: To what end? And for whom?

Without a crystal-clear, specific, outcome-led answer, you may already be caught in the capability trap. This approach is quietly eroding your margins, weakening your positioning, and making growth unsustainable.

The only way out is to reframe your proposition around the business issue you solve, who you solve it for, and how your firm is uniquely equipped to deliver that high-impact transformation.

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