Professional Services
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Industry Overview
Professional services account for a large part of the US economy, generating about $600 billion in annual revenue for 600,000 individual firms. The largest segments are legal services ($130 billion); engineering services ($120 billion); computer-related services ($110 billion); accounting ($60 billion); management consulting ($60 billion); advertising ($50 billion); and scientific research ($25 billion).
Brokerage services, if added to this industry, would add another $200 billion of revenue, including securities brokerage ($80 billion); insurance brokerage ($60 billion); and real estate brokerage ($40 billion).
Most professional firms are small. Only about 5,000 firms have annual revenue over $10 million. The vast majority have a single office.
Competitive Landscape
Demand is driven heavily by the health of the US economy and particularly by corporate profits. While some professional services are necessary for the normal functioning of most companies, some of the most profitable services aren't considered essential and are often postponed when corporate profits are low. The profitability of professional service firms is closely tied to good marketing, because many costs are fixed. Small firms can compete successfully with large firms in their segment if they offer special expertise.
Products, Operations & Technology
Professional firms provide services that require special expertise but are needed only occasionally. Because of this intermittent, or single, use, firms can make their expertise available to many customers and serve several customers at the same time.
The services sold are often expert advice, but routine operations, transactions' processing, design work, and project supervision are also common. Most work is project-oriented, although many legal and accounting services are delivered on a continuing basis.
Professional firms consist mainly of a staff of professionals with various levels of expertise, and support personnel with technical or clerical skills. A typical customer project is supervised by senior staff and executed by a team of junior professionals and support staff. In some cases a project team can include hundreds of individuals and require complex coordination.
Large offices with many professionals have significant economies of scale and usually produce higher annual revenue per person ($150,000) than small offices ($70,000), partly because they're more likely to work on large projects for corporate customers. Despite the advantages of size, the various segments of the industry are highly fragmented. In accounting and scientific research, the largest 20 firms hold 45 percent of the market, and in advertising 40 percent; but engineering, management consulting, and computer services hold only 25 percent, and legal services a mere 6 percent. The fragmentation is due to the high degree of specialization of most firms. There are dozens of areas of legal work firms can specialize in, such as antitrust, arbitration, intellectual property, and litigation.