The consulting business is one that’s thriving. In 2015, the consulting business is estimated to have made roughly $449 billion, up from $415 billion the previous year.
Clients (both individuals and companies) have a strong motivation to keep the head count low in their businesses. In order to get the same amount of advice and benefits, without actually having to hire someone full-time, these clients head towards various consultants.
Try our online invoicing software for free
Accept online payments with ease
Keep track of who's paid you
Start sending invoices
Consultants generally work in a few ways:
- to help solve problems and make decisions
- to provide essential services to clients
- to provide instruction and staff training
- to be the change vehicle (do the “dirty work”)
In any case, they have a lot of responsibility and they provide significant value by helping a business in its operations and processes.
Typical features of consultants
Consultants come in a wide variety of flavor. In fact, there are perhaps too many different types of consultants to list. However, they all have a few things in common.
Consultants are individuals considered experts in their field who provide professional counseling to clients. Consultants therefore are knowledge-sharers, and they analyze the client’s situation and determine the best ways to move forward.
The most important part of a consultant’s work is to provide their clients with clearly visible added value.
The reason for hiring a consultant is usually that the client wouldn’t feasibly be able to find, hire and train in-house experts for a particular problem. Usually consultants work on short- to medium-term goals with the client.
Furthermore, as it is on a per-month or per-project basis, it is much more efficient. Consultants generally can analyze the individual’s or company’s needs, its resources, and help determine the best strategies.
Often, consultants are also brought in to provide training or to undertake special change-actions.
With all that being said, consulting is a fantastic job. Not only do you get to create change in your client’s business, you’ll also stand to make great rates. Average hourly consultant fees range from $80 to thousands of dollars.
While the upper range is quite rare, it’s still possible depending on what type of consulting you do.
As you can see, there’s no reason to believe the consulting business will slow down at all. With that, now would be the best time for you to start your own consulting business.
Today, we’ll look at the most important ways for you to start and grow a successful consulting business. This guide will cover the following topics:
I. The Advantages & Disadvantages of Consulting
In order to properly prepare yourself for what will come with your new business, let’s look at the most important advantages and disadvantages.
The advantages of consulting
There are many advantages that come with the consulting business. Let’s quickly overview them to get our bearings straight.
This is a truth for all self-employed workers. When you become self-employed, all the power and responsibility for your life goes back to your hands. You have the capabilities to decide who you’ll work with, when, and how often. You are the only boss now, and you are in total control of your schedule.
Low startup costs
Although the job can bring in lots of money, there really aren’t high costs associated with it. Of course, what I mean here is any additional funds needed for the job. Technically, your education and training were all very valuable, but becoming a consultant doesn’t require a great amount of extra investment. Most of it is word-of-mouth and basic equipment you already have.
High income potential
As I mentioned above, the earning potential for consultants is huge. There are wildly varying hourly rates for consultants floating around. However, all of them are constantly increasing.
Working with your passion
Because consulting is the act of providing knowledge and training to clients that need it, you can focus only on the things you know really well.
And even better, you can focus on those things that you are passionate about. It could be marketing, business, HR, accounting, IT or anything else. You’ll be working for your passion, and in many ways that’s not work at all.
The disadvantages of consulting
Of course, as for everything in life, there’s a flipside to consulting. In order to be fully prepared for what you’ll be getting into, let’s look at some of the downsides of consulting.
Stress and responsibility
Becoming self-employed is great, and it’s independent, but it’s also quite stressful. You no longer have a steady income, one that is practically promised to you at the beginning or end of the month. Now, you have to work for every single penny that you earn, and this can be quite hard sometimes, especially at the beginning.
Because consulting work is based on experts providing consultations, you’ll have to elbow your way into the field. In order to make yourself visible, you’ll have to hustle a lot and you’ll find there are lots of competitors out there. However, with great services and referrals, you’ll be able to get a piece of the market just for yourself.
One of the major disadvantages of self-employment is that for a good while in the beginning you’ll have unstable income. One month will be great, and the next will be crickets, and you’ll need to hustle harder than ever to find clients. However, this is only a feature of newer consultants, and with time you will stabilize.
II. Your Business Fundamentals
Now that we’ve looked at the biggest advantages and disadvantages of starting a consulting business, we need to focus on getting a good business fundamental set up.
This means creating your strategic business plan and deciding on the tools you’ll need to succeed.
1. Your strategic business plan
Starting in any business requires that you have a roadmap of where you hope your business is heading.
Although many small business owners or self-employed people don’t think business plans are necessary, they are wrong. Business plans are plans for your business—it’s as simple as that.
The business plan can serve as a reminder down the line for you as to what your main goals are and what the mission of your business is. What do you hope to accomplish in 1 year? 5 years? 10 years?
It’s also important that you regularly go back to your business plan and update it. Businesses are always in a sort of flux, and it would be impractical for your business goals to be the same on the first day as on the 12th month.
Your business plan should contain the following sections (although the length is up to you):
- The executive summary – here you’ll discuss the strengths of your business plan, although it’s best to do this one last
- The business description – go over the most important parts of your business
- The industry and competition – discuss the industry, its trends, potential for growth, the competitors and your business benefits and disadvantages
- The operations and management plan – go over how your business will operate in order to reach its goals
- The product or service description – discuss what benefits and innovation your service provides
- The marketing strategy – how will you put your service in the market, at what price, and how will you promote it?
- The financial projections – the most famous part of the business plan, this one nails down what your financial situation is and if you’ll need financial support
We’ve written up a comprehensive, full guide on helping you create your perfect business plan. Read our full, 8,000-word guide here.
2. The tools you need
In 2017, it goes without saying that every job on the planet can be helped by the appropriate software or apps. Consultancy is no different.
For your business, you’ll need to be organized with your time. Let’s look at some of the best software and apps for your consultancy business.
This project management and collaboration tool will help you to work on your projects smoothly and easily with your clients. Trello is free and uses a billboard method with lists organized based on whatever workflow you have in place.
You can use it to track your client projects as well as invoice those clients to join your board. This way they can see the progress in action.
Your business is more than your consultancy. It’s also finance and accounting, and for the everyday invoicing and expense tracking needs, you can use InvoiceBerry’s online invoicing software.
The software even allows you to make and send your invoices in under 60 seconds.
This is a very simple, straight-forward to-do list. There are no pictures, no other places to click, no social media—no distractions whatsoever.
Write down your tasks one-by-one, and then each time you finish it, you can click on “Done.”
This is one of the most popular and useful apps for increasing productivity and mange workflows. It’s an app with a simple purpose (take notes wherever you are, easily), but it will help you jot down and communicate your thoughts very well.
III. The Insurance, Licenses and Skills You Need
These are the most important things you need to know, as they will help you decide what are the insurance and skill requirements for your business.
1. The insurance you need
As a self-employed or independent contractor, you’ve probably already looked at getting your basic insurance coverage, such as health insurance. There are two other types of insurance consultants need to have as well.
General liability insurance
Any business, no matter the type, needs to have general liability insurance. This generally deals with bodily injury or death, or any kind of damage to physical property.
General liability covers what’s known as “slip and fall” claims and lawsuits, quite common in the US. This insurance usually apples to others, not the insured person, although general liability insurance for small businesses is often packaged with other insurance to cover the insured person’s business property.
Professional Liability Insurance
However, there is another type of insurance you’ll also need. That is professional liability insurance, which will help protect you in case a client sues you for not fulfilling professional obligations or for doing it badly.
This type of insurance is also known as errors and omissions (E&O) insurance, and it’s necessary in addition to your general liability insurance.
These different types of liability insurance are good for two reasons:
- You don’t have the type of financial support as bigger companies to handle claims if something bad happens
- Many businesses won’t hire your services unless you have the appropriate liability insurance
Getting yourself covered in these situations will then be not just good for your work, but actually necessary for its success.
Whether a business requires a business license depends on the county, city or state in which the business operates.
The type of licenses required also depends on the field in which the consultant will work. Fields that generally require licenses are:
- financial planning
- real estate
and other related fields. These license requirements may be or legal reasons, for competition, or for both.
The Common Myth
There is a common myth that, because consultants may be exclusively working on-site at a client’s business site, they can operate their business without a license.
However, the act of exclusively providing on-site service to your clients may be in violation of US federal guidelines on the distinctions between independent contractors and employees. Having a consultant working steadily at a location may murky the distinction between independent contractor and employee.
If it is disputable, there may be fines and other types of problems for the client.
There are benefits to getting a business license than simply taxes. Consultants with business licenses are able to qualify for business credit, open business bank accounts, and have a myriad of other professional benefits.
Many professional, bigger clients will also require consultants to have appropriate country and state licenses in order to do their end-of-year tax reports.
3. Knowledge & skills
There are many degrees or courses consultants can take in order to excel at their profession. This of course all depends on the type of consulting you’ll be doing.
However it is important to always keep up to date. Continued professional development should be a goal for every specialist. This can be done for consultants by enrolling in courses, attending conferences, getting accreditation, certificates, and in general being on top of the trends and developments in the industry.
As far as skills, it’s important that consultants have the appropriate personality to be good at their work. This includes:
- interpersonal skills
- critical thinking
- intellectual drive
You can find out more by looking at the graphic below:
IV. Determining Your Price List
Because of the many different types of consultants that there are out there, it is difficult to whittle down specific rates you should be setting.
Generally, however, there are three basic ways consultants set their prices.
1. By time
Perhaps the most popular way for any self-employed person to charge their clients, time-based pricing allows you to invoice your client by the hour. This is perhaps the easiest to manage (although not foresee).
The way to determine how you’ll set your daily rate is by adding a third, doubling, or even tripling what you received in your previous work. The reason you add to your day rate is because now you’ll have to do the sales and marketing, customer service, and all other functions you didn’t need to do previously.
One way is to calculate the working days in a year, about 250. Take away 20 days from that to account for sick days, vacation, etc.
If you made $60,000 at your previous job, and you add a third, it comes to $80,000. Divide that by 220 days, and you’ll get a day rate of $363. This is how much you should charge for 8 hours of working. After that, add in the appropriate taxes (7% for state, etc., or 20% VAT in the UK).
2. By project
This pricing strategy is based on how accurately you can estimate the time and resources it will take to complete a project.
One of the bigger complaints of hourly or daily pricing strategies is that the client has some doubts whether you are working only for pay. Charging by the project helps alleviate that worry.
Because there is a fixed cost with the project, your client won’t be worried if the scope of the project gets larger than it first was estimated as.
You also have strong motivation to complete the project as best as you can, knowing that any unnecessary delays is money that you are not receiving from your next project.
Another benefit is that you won’t have to worry about tracking your hours. However, it usually takes some time and experience before you can more accurately come up with a good price for projects.
Of course, there is a very important rule to remember here: always under-commit and over-deliver.
3. By perceived value
This last pricing strategy is a bit less specific, but it is based on how much value the consultant’s help will bring to the client.
In order to properly price this added value, you have to know some things about your client’s business, such as:
- their business operations
- their different costs
- the alternatives they have available to them
For example, imagine a client wants you to create processes that will help them cut costs by $150,000. In that situation, it wouldn’t be outlandish to charge them $15,000 or $20,000 based on the added value of your services.
However, the downside may be just in convincing the client that the fee is justifiable, as the price they are willing to pay may fluctuate based on many factors. Secondly, you also need quite a lot of experience and fantastic reputation in your industry to use this strategy consistently.
V. Getting Your Consulting Business Clients
Having laid all the groundwork for what you need to start your consulting business, we now need to look at how to get your clients and make it grow.
We’ll go over some important ways on how you can not just find your first client, but also secure your second, third and so on.
One of the most important jobs for a consultant when it comes to advertising their services is to convince the potential clients that they even need the service. Most of them won’t realize it, and it’s the job of the consultant to be persuasive.
Let’s look at three ways to get your customers: using traditional marketing, social media, and inbound marketing.
1. Traditional marketing methods
Although traditional marketing has lost favor in the 21st century, there are still many strong points to consider about it. There are a few different traditional marketing methods you can use to get word out about your business.
The success of this depends on how well you target your audience. If you do get a great prospect list, you can send them a brochure, flier, sales letter or many other things.
Make sure that your message is personalized, compelling, and that it emphasizes the benefits of your service. It should also include all the important information, such as your phone number, email, website and social media accounts.
Although this may often be overlooked, it’s important that you get positive referrals from past or present clients. This is a wonderful marketing tool (right next to word-of-mouth) and provides a human connection to your brand.
Instead of asking for a referral face-to-face, send a friendly email or put it in a thank you letter. Then ask for other colleagues, friends, family or associates that may be in need of your consulting services.
Here you’ll have to be careful with your money. Traditional advertising can be more expensive than online.
However, depending on what type of consulting you do, you may consider putting your ads in trade journals, magazines, or other materials that your target audience may use.
Cold calling has a tricky reputation because, well, it is often uncomfortable for both the caller and the receiver, and secondly it’s mostly a failure, depending on how you look at it.
For example, in order to get one yes, you will probably have to face up to 30 or 40 nos. However, this may not be a failure. If you cold call 40 people a day, then that means you could get one prospective client per day on average.
2. Social Media
Social media is the new king of the marketing world. It helps spread the word about you and your brand in new ways with often lower costs. Let’s look at some ways to use social media to get and grow your consulting business.
Set up your Facebook page
The most important thing to do before you even try any social media marketing is to optimize your social media page.
Your page should have your one-sentence pitch, all your contact information, as well as what your niche and services are. You should also not worry about being too professional—it is social media after all. Add in one or two pictures of the family or friends to humanize yourself.
All in all, within a few minutes of visiting your page, the client should have a good idea of who you are and what you do.
Social media is—you guess it—all about being social. It is important to remember that on social media the aim (at least the first aim) should always be to establish a relationship of some sort. Just as you wouldn’t pitch your business at a party to someone you’ve never met before right off the bat, so you shouldn’t just pitch someone immediately on social media.
Interact with prospective clients on Twitter and Facebook. This takes time, but people are always willing to engage in real conversations online. And, once you’ve established even a light relationship, it will be easier to do your pitch.
On Facebook and LinkedIn, even Google+, there are many groups dedicated to virtually any niche. You should find one related to yours and join in on the discussions going on in those groups.
Of course, as you have experience and knowledge in your field, you will be able to communicate effectively and provide useful advice. Likewise, you’ll receive the same. Even better, you’ll begin to form a digital network of consultants and prospective clients.
Browse through Facebook events
With Facebook’s search function, it’s really easy to find niche conferences in your area. If you are a marketer, just type in “marketing conference” and you’ll be able to see upcoming events in your area.
This a great opportunity to find the best conferences to go to. Even better, you can see who the attendees will be, so you can do some research and jot down the names of some potential clients.
Use Facebook ads
Facebook ads are a really cheap way to get your name out there. It has great targeting tools and it is quite cheap, depending on some factors. There are ways to get clicks on your ads for less than $0.10 and some even for less than a penny.
Facebook ads are also a great way to do research before you go for the bigger and more expensive Google ads. With Facebook, you can run multiple ads simultaneously, and you won’t pay unless someone clicks on it.
For even more in-depth information on how you can use social media to boost your business, get our free ebook The Ultimate Guide to Social Media for Small Businesses & Freelancers.
3. Inbound marketing
One of the more emerging marketing trends in the last few years is inbound marketing. The methods we discussed above are examples of outbound marketing—sending messages out to your intended audience.
Inbound marketing is based on creating content so that your audiences come into your space.
Get a blog
For this, you’ll need to set up a blog. This can be as “complex” as purchasing a domain and setting up a WordPress site, or even using free sites. However, using yoursitename.blogspot.com isn’t particularly professional-looking. One great free option nowadays, which is also professional and trendy, is to set up a (rather loose) blog on Medium.com.
However you do it, you should be creating content that your audience would find attractive, or that answers a question they have. This can come from your knowledge, experience, or many discussions with other consultants and clients.
Use guest posting to increase your reach
Beyond that, you’ll also do well by creating guest posting opportunities. This will help you to extend your reach by hi-jacking the reach and audience of another more established figure.
You simply provide free content for that person’s site, and in return you get not just more traffic and backlinks to your own site, but also an increase in your influencer status.
VI. To sum up:
The consulting industry is growing at a great pace and has a great forecast. The advantages include:
- greater independence by working for yourself
- low startup costs
- high income potential
- the ability to work with your passion
However, it’s important to be mindful of the disadvantages:
- the stress and responsibility of working for yourself
- high competition from other consultants in your niche
- unstable income, especially in the beginning
To get your consulting business off the ground, you should:
- create a strategic business plan
- identify the software you need
You’ll also need to determine what your legal and knowledge requirements are, such as:
- whether you’ll need professional liability on top of general liability insurance
- the business license, which you’ll most likely need
- the knowledge and skills required for the job
In order to create a competitive and profitable price list, you’ll need to decide whether to use:
- time-based pricing
- project-based pricing or
- value-based pricing
Lastly, it’s most important that you get and grow your customer base by:
- utilizing traditional marketing methods (direct mail, cold calling, etc.)
- getting on social media (Facebook ads, LinkedIn groups, etc.)
- creating inbound marketing (relevant blog posts and guest posting)
With these tips, you’ll be well on your way to getting your new consulting business off the ground and on the road to success!