As the Consulting Field Expands, Nonprofits Face a Wealth of Options

It happened fast. Groups like the Center for Nonprofit Management, in Nashville, were among the first to see the consulting business crash in late 2008.

By April of 2009, the center, which pairs up consultants with charities, saw its revenues fall by more than 40 percent in a year. Lisa Pote, director of consulting, gave her boss the bottom line.

“I don’t think you can afford to keep me,” she said.

Her boss suggested a little patience. That turned out to be wise counsel: Just a few months after her business hit bottom, Ms. Pote says, she was busy again.

“In early 2010, S.O.S. calls started coming in from charity leaders needing quick help finding more money and managing smaller staffs,” she says. Government funds were being cut and demand for charities’ services were exploding.

Groups needed expert help, says Ms. Pote. They needed assistance in improving financial health, building teams, and alleviating stress the recession was causing for employees. They weren’t looking for the kind of traditional consulting that involved long-range planning and three-day retreats, she says: “They wanted specialists.”

In spite of the economic swoon of 2008-9, the consultants who serve charities and foundations have seen a huge boom in demand for their services over the past decade, in part because of the accompanying boom in new nonprofit organizations—and increasing pressure from donors, government, and the public to show results in exchange for support.

The consulting field is evolving as well as growing, with more specialists and more independent operators presenting a wealth of new options and challenges to nonprofit leaders looking for affordable outside help.

“All these layers of consultants can pose a challenge to clients to figure out whether the quality and sophistication are really there,” says Phil Buchanan, president of the Center for Effective Philanthropy, in Cambridge, Mass.

Seeking Bargains

The sheer number of U.S. nonprofit organizations increased to 1.2 million charities and foundations by 2009, spurring a remarkable expansion of clients for consulting groups. All told, organizations classified under Section 501(c)(3) of the federal tax code rose by nearly 90 percent since 1996, when the Internal Revenue Service counted 654,186 of them.

Nonprofit groups have “grown dramatically faster than professional services to support them,” says Thomas J. Tierney, co-founder of Bridgespan, a nonprofit consulting firm with offices in Boston, New York, and San Francisco that serves nonprofit clients.

But the growth of those professional services has also moved fast. Many organizations now prominent in the consulting field didn’t exist 15 years ago, Mr. Tierney points out, including Bridgespan, started in 2000 with early support from Bain & Company, a strategic-management firm.

And that growth is expected to accelerate. A U.S. Bureau of Labor Statistics report from last year says that management consultants serving all fields will increase 83 percent from 2008 to 2018. Those figures represent a projected increase from 3621,000 consultants in 2008 to 668,000 1.8 million in 2018.

Calling for Help

It’s definitely a good climate for charities seeking bargains, say other consultants. “I am not seeing a lot of undercutting between consultants, but I’m seeing consultants bend over backwards to make it affordable,” says Mary Ellen Jackson, executive director of the New Hampshire Center for Nonprofits, in Concord. The center works with 80 to 100 consultants, placing about 20 a month with nonprofit clients. “Some will throw in some free hours or lower their fees slightly.”

But such choices mean it takes charities longer to select a consultant than it once did, notes Jeanne Bell, chief executive officer of CompassPoint Nonprofit Services, in San Francisco.

Yet, not all charities have that time to spare. Much of consultants’ rebound from 2009 came from nonprofits needing immediate help.

“After the recession hit hard in 2009, we had board leaders calling us for the first time, and now it is constant,” says Ms. Jackson. “We get 10 to 12 requests a week, often from organizations that have relied on state money and suddenly need their boards to help them fund raise,” she says. “Get me a good consultant, they say.”

Consultants say that demand for specific services, such as an 18-month financial plan or an emergency fund-raising campaign, is high. Guidance to help charities gain and maintain a presence on social networks like Facebook and Twitter is also hot, as is help in using volunteers creatively.

To meet this demand, more consultants are becoming specialists, says Ms. Bell. “To compete today, you can’t be a generalist,” she says.

Cost of Expertise

Consultants can be a major expense for charities.

The average consulting contract for groups like CompassPoint ranges from $10,000 to $40,000 $20,000 to $50,000, according to Ms. Bell, and is higher for some of the for-profit corporate-management firms.

Newer, hungrier consultants may be willing to underbid experienced ones. But the research needed to vet the bidders adds to the already lengthy selection process, say charities.

For example, Goodwill Easter Seals Miami Valley, in Dayton, Ohio, took five months to hire a fund-raising consultant. The charity’s leaders felt that all five finalists, from far-flung states, were qualified to do the job, but were surprised by the disparity of the projected consultant fees.

“The monthly rates varied by several thousand dollars,” says Kathy Rearick, the group’s director of development.

The charity ultimately hired the least expensive consultant, a small group whose fees included travel expenses. But they were prepared to bargain with the runners-up, she says.

Despite the boom in the demand among charities for outside expertise, Ms. Rearick notes, “There’s still more consultants than consulting jobs.”

Hiring a Consultant: Questions to Ask

• How long have you been a consultant?
• What other nonprofit groups have you worked for?
• Have you worked on similar projects, and what were the results?
• What do you offer that would be particularly helpful on this project?
• Would you be the one doing the work, or would other people from your organization be involved?
• If other people will be involved, can we meet them before agreeing to hire you?
• Would you be working directly with only the executive director or also the board and staff?
• Can you explain your fees in detail?