by Kerri Boddy, The EI Group (email@example.com / www.ei1.com)
Why do prices vary so much in the environmental site assessment business? Is it a “you get what you pay for” business? Does a huge price tag mean greatly superior quality?
Generally, the price difference is due to over overhead. To explain I provide the following examples.
Company A: Company A is a one-man shop owned by a person we shall call Joe. Joe started his company 10 years ago. First, let me explain one-man shops. One-man shops typically do not consist of entry-level consultants but usually consist of professionals that are seasoned and have been in the industry for 10, 15, or more years. These are generally experienced professionals who have worked for other companies, such as Company B (see below) for many years, if not decades. After many years, Joe decides he wants to be his own boss, make his own hours, and reap more monetary rewards for all the hours he works. So Joe leaves Company B and starts Company A, which he operates out of his home. As a client, hiring Joe is not a bad idea, as Joe now has 20 or 30 years of experience overall. However, there are some scenarios where hiring Company A can be less advantageous than hiring Company B. For one thing, even seasoned professionals don’t know everything. At Company B, professionals have coworkers to bounce ideas off of and get second or third opinions for complicated situations. Secondly, since Joe is a one-man shop, there are no senior reviews conducted on his reports before he submits them to the client, which allows for a greater margin of errors. Thirdly, if Joe retires or goes out of business for other reasons, a client cannot go back to Company A for an update to the report, a reliance letter, a copy of the report, clarification on anything, etc. Fourthly, since Joe is a one-man shop, he does not have the ability to conduct large portfolio jobs in a timely manner or the ability to conduct many jobs spread across various areas of the U.S.
But getting back to my original explanation…Company A has very minimal overhead. So Joe charges $60.00 per hour for professional services; a lower rate than a seasoned professional with 30 years experience at a larger firm. Joe spends 16 hours on the report, spends $400 on the regulatory database and historical data, and has only $75 in miscellaneous expenses. This brings the total to $1,435.
Company B: Company B is a large corporation with many offices throughout the U.S. The company has entry-level professionals, mid-level professionals, and senior-level professionals with a broad range of experience and capabilities. As a client, yes, hiring Company B is more expensive (see below). However, for many reasons, including the four above, Company B offers a broader range of capabilities, experience, and ability to get various jobs done in a timely manner across the U.S. Company B also has been in business for 35 years, and it is highly unlikely the company will close its doors anytime in the near future.
So Company B’s costs are higher. The costs could be as follows: Tom is a mid-level professional and conducts the Phase I at $85.00 per hour. Tom has 15 years experience and is billing at a reasonable rate. Tom spends 16 hours on the report, as did Joe. Tom’s administrative staff spends two hours setting up the job, invoicing, and finalizing the report at $25.00 per hour. The regulatory database and historical data costs Company B $300. Company B gets a better price from the database company due to the volume they order. However, Company B marks up all vendor invoices 15% for overhead; making the total for that service $345. Tom has Jane conduct a senior review of his report. Jane is a senior-level professional billing $110.00 per hour. Jane spends two hours reviewing Tom’s report for a total of $220. Miscellaneous expenses are $200, as Tom’s office was not as close to the site as Company A’s office and Tom had to travel farther. This brings the total to $2,175 before additional overhead costs that Company A must allocate to their corporate office.
So, while Joe and Tom provide an equally high quality report, the costs vary greatly. Essentially, the client will need to decide what factors are most important regarding particular transactions. This may include total cost, the need for a company that can conduct a variety of projects if the Phase I leads to the need for additional work, the need to utilize a company that can handle higher volumes of work, or the need to utilize a larger company that will likely be in business for years to come.