Producer Price Indexes

New Producer Price Indexes for Management Consulting Services—NAICS 541610

As part of its ongoing effort to expand service sector coverage in the Producer Price Index (PPI), the Bureau of Labor Statistics (BLS) introduced new price indexes for Management Consulting Services—North American Industry Classification System (NAICS) 541610—in January 2007. Data for this index, which date back to June 2006, appear in table 5 of the PPI Detailed Report and are available online through the BLS website.

While virtually all other PPI industry indexes are published at the 6-digit NAICS code level, the PPI for Management Consulting Services corresponds to the 5-digit NAICS code 54161. In order to be consistent with PPI systems, code 54161 has been re-coded in BLS publications and databases with the PPI-constructed code 541610. The five 6-digit NAICS industries that comprise 54161 are included as product line detail under code 54160. These lines include:

Most consulting transactions are measured and tracked in the PPI with model prices. For each responding firm, a group of specific contracts are selected during the initiation period. These contracts specify the detailed services provided and establish benchmarks for weighting the rates of the different types of consultants that work on the projects. Respondents provide the rates for each of the professionals who bill for their time on each of these projects. A total charge is calculated by multiplying the hours that consultants work on the selected project by their rates.

Whenever possible, this total price is then adjusted by the firm’s realization rate for the specific project. The realization rate is calculated by comparing the total amount of revenue actually received for the project to the amount that would have been received for the project if all consultants had billed for all of their time at non-discounted rates. This is done because firms frequently provide discounts of varying amounts to different clients. The respondent estimates the realization rate they would earn if they were to work on the same contract that was selected in the initiation period during the current month.

In subsequent months, for each specific service selected, the respondent updates the hourly rate for each professional, the realization rate, and the estimated cost of all billed travel and business expenses. Since the services provided in the model are held constant over time, the number of hours worked by each professional will remain unchanged, unless the number of hours required to provide the service changes. If the number of hours required to provide the service changes, the number of hours in the model will be updated and the resulting change is shown as a price change.

In some instances, a contingency or success fee may be charged in addition to the project hourly rates. Contracts that include these fees call for a payment to be made if a project is determined to have achieved a pre-established benchmark (for example, achieving a certain level of cost savings). In these cases, respondents are asked to approximate the dollar value of the contingency fees that they would earn if they were to achieve the stated benchmark on the given contract during each pricing period.

The exception to this model of pricing for management consulting services is in the executive search segment of Human Resources and Executive Search Consulting Services. Virtually all executive search consulting transactions are priced as a percentage of the total first year compensation of the placed executive. This percentage fee is frequently called a retainer. The collected price for these transactions is established based on actual contracts selected during the initiation period. In subsequent months, respondents are asked to estimate the value of the total compensation that the placed executives would earn if they were to be hired for similar roles by similar companies during the current month, and the percentage fee that the firm would charge for conducting the service. The price is calculated by multiplying these two figures together.

Last Modified Date: February 16, 2007

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