How to Start a Consulting Business
Consultants are often viewed as an expense that only the biggest, most lucrative firms can afford, and that comes with a certain level of prestige. In reality, hiring a consultant is not just a wise business decision for businesses of all sizes, but money well spent.
Consulting has become popular over the past few decades as industries have become more branched and varied. With the rapid growth of online-only businesses, consulting has never been more necessary.
Becoming a consultant might be an area you’re considering, which makes sense. If you are already an expert, why not turn that into a lucrative business by selling your advice and recommendations? You can help businesses avoid losses and forecast for the future while making a healthy income.
Before trying your hand at consulting, there are a few things to consider. We’re here to help you with that.
What is consulting, and why is it so lucrative?
If you play your cards right, consulting can be a very lucrative business. Through their expertise, consultants provide a wealth of information to their clients and offer them sound advice to help them improve their business. This can be anything from operations and human resources to profitability and management, to structure and strategy.
What types of consulting services are available?
The one thing that consultants have in common is their ability to look at a problem or a need and find a solution.
However, not all consultants are the same. There are a plethora of different types of consultants. Here are just a few.
A marketing consultant analyzes a client’s current marketing strategy and comes up with ways to improve or break into a new marketing platform (such as social media). This includes looking at the target audience, branding, and the client’s current leverage in the market.
Strategic consultants are some of the highest-paid professionals in the consulting industry. A strategic consultant offers expert advice on high-level and risky decisions. They offer unbiased opinions based on expert industry knowledge, and they usually advise at the highest levels of the company. They can do so across a wide range of sectors, from public to private.
Operations consultants analyze the operations of the company and make recommendations regarding the value of those operations, with the goal of optimizing the business processes.
Financial advisory consultant
A financial advisory consultant can provide consulting services across a broad range of financial aspects. They can offer consulting services based on risk management, transactions, taxes and real estate, and compliance and litigation.
Financial advisory consultants usually have a strong background in finances and risk management.
IT and software consultant
A software consultant will help design software systems that are customized to their clients’ needs. They will also provide technical support after the software has been installed. This second portion of the job will most likely involve a retainer agreement.
While not exactly the same, IT and software consultants do have some overlap. This could mean broadening your services.
An IT consultant evaluates a company’s existing IT process and determines where improvements need to be made. IT consultants often work on retainer.
Brand and social media consultant
This is a resource clients will pay a pretty penny for. A social media consultant will often work closely with a brand consultant (or they may be the same person) to be the voice of the company across social media platforms. They offer expert advice and solutions on how to raise brand awareness, improve website traffic, and increase sales and exposure.
Top of mind for brand and social media consultants is always the image of the company. Like IT and software consultants, brand and social media consultants often work on retainer.
Outsourcing is more cost-effective than in-house
While still junior, start-up consultants can charge a fairly substantial fee. Not only are they an expert in their fields, but hiring a consultant rather than an in-house employee is more cost-effective for business owners as they don’t have to pay benefits and once the job is completed, the contract is fulfilled.
As a consultant, you have the freedom to take on as much work as you can manage. As an independent contractor, you can have multiple clients at one time and even start to subcontract some of that work out. This is a business model that a lot of successful consultants use as they grow into a consulting firm rather than a solo freelancer.
The possibility of a retainer contract
A retainer contract is a contract drawn up for a defined period of time where the client pays you either upfront or in increments for access to your services. This is an ideal situation for a variety of reasons:
1. Steady income
A retainer contract is a secure, steady income that you can count on. You don’t need to be networking for more work, and it allows you to focus on that one client.
2. Possibility of senior position
A retainer contract can sometimes turn into a senior position in that company. This can be either on a contract basis or as a full-time employee. So depending on your goals, a retainer contract could be an excellent stepping stone.
3. Retainer contracts can lead to new work
As businesses grow, they branch and diversify. As a consultant on retainer, your job will be to help the company grow, and when they do, they will probably want your services for that new branch. This can be an entirely new contract depending on the business structure, while still maintaining the retainer for the umbrella company.
Things to consider before becoming a consultant
That all sounds pretty exciting, doesn’t it? Before you go starting your consulting business, there are a few things to consider. Consulting isn’t for everyone. In fact, it can take some reflection. Here are a few things to think about:
1. High stress
Consulting is high stress, to say the least. Business owners are relying on you to help them keep their business healthy, and in some cases, to help them save their company. That means people’s livelihoods tangentially rely on your expertise. There is zero room for failure, and you may be working with clients who are already under an undue amount of stress.
2. Long hours
It seems reasonable that with high-stress jobs come long hours. Consulting is no different, especially if you’re starting out. Deadlines can be tight, and if you’re working solo, there may be more work than one full-time job requires.
To add to this, not all of your clients will be in the same timezone as you. Some who are looking to break into new markets may even be halfway across the world. And with social media marketing, there are fewer borders when it comes to customers. This requires expertise, and clients will be looking for the best, no matter what timezone that is. But working with clients in different timezones can create unsteady work schedules that can hamper your mental and physical health.
3. Self-discipline and self-direction like a pro
It goes without saying that any entrepreneur needs to be self-disciplined and self-directed, but this is even more important with consultants.
As a consultant, your clients will present you with their goal or problem and expect you to go from there. There will be little direction, and in a lot of cases, your client won’t even know what the real problem is. That’s your job to identify. This means you have to take the reins on your own.
4. Be prepared to upgrade your education
In some consulting industries, you might need to upgrade your education. This doesn’t mean applying for a Ph.D., but picking up a continuing education course or two will help sharpen your skills and keep your knowledge relevant. A lot of universities and colleges offer online continuing education certificates and diplomas, such as the University of Toronto, Ryerson, and UBC.
In fact, this is probably something you’re going to have to do numerous times throughout your consulting career. Business evolves, markets evolve. So should you.
5. Become a researcher
As a consultant, research will become a mandatory part of your work. From researching potential clients to researching business and market trends, you will have to become a highly attuned and effective researcher. This also means having knowledge of what information is valid and what is suspect.
Remember, it’s your expertise, knowledge, and advice that your client is relying on. While you are an expert, there will always be new challenges that require researching.
How to start a consulting business in 9 steps
Think you’re ready to give consulting a go and start a consulting business? Excellent! Here’s a guide to help you get started.
Step 1: Assess your strengths and skills
This step is pretty much applicable to all entrepreneurs. How can you become successful if you don’t know what your strengths and skills are? You can’t.
Harvard Business Review gives a really great step-wise tool for assessing your own business skillset:
Pull out a pen and paper
List what you think your strengths are. Be honest. If you’re really good at organization, list that. If you’re amazing at interpersonal skills, list that. If you are a proud gaming geek, list that too. Everything can be used when assessing your skills, and everything is transferable into the business world.
Check in with your friends and colleagues
There is no better mirror than friends and colleagues. They know both your interpersonal skills and your professional skills. Your friends particularly will know your values and deeper personal attributes. Maybe you’re an amazing diplomat. Friends will probably know a bit about this. Your colleagues will have a good sense of your knowledge. Make sure you check in with them, too, before you start a consulting business.
Take their input and check it against your list. Are there any consistencies? Follow that.
Write down, “why me?”
Why would you hire yourself? Don’t just answer, “because I’m good at what I do.” Make it specific and highlight what you would bring to the table.
Revisit your list and start to narrow down
Now you’ve got a decent list of strengths and skills. Start to narrow down specific skills. Being a problem solver isn’t specific enough to work with, but the ability to assess a situation and identify the major players that are creating the problem.
Bonus if you can provide a solution.
Step 2: Conduct research on your chosen specialty and consultant type
Here we go with research again!
Now that you have your specific strengths and skillset, you should be able to identify a specialty and consultant type.
A smart strategy when researching your chosen specialty and consultant type is researching what your potential new clients would be looking for. What are their needs? What social media platforms do they use? How do they increase visibility? You can also check out Glassdoor, Indeed, and other employment websites to see what their human resources needs might be like.
Alternatively, sole proprietors and freelancers like you might be looking to hire a contract consultant. Platforms like Upwork and Freelancer.com will give you a sense of what these entrepreneurs are looking for in a consultant.
A good tip to note is that you don’t necessarily need to look within your own region. Many consultants have clients all over the world, many of whom are in the United States. Go broad.
Step 3: Define your consulting services
Ever heard of the phrase, Jack of all trades, master of none?
Being pegged as a generalist is not necessarily the best move. It will keep you stagnant, and you can’t become an expert in your field. Experts can charge a premium fee and hourly rate, and eventually, businesses end up coming to them organically through referrals.
Step 4: Draft a business plan
As with any entrepreneurship, a business plan can save you a lot of problems. A business plan sets you off on the right course.
In a 2016 study, it was found that entrepreneurs who wrote a business plan were 16 percent more likely to succeed than those who didn’t. That figure may not seem like a lot, but writing a business plan is in your control, so wouldn’t you want to be one of those 16 percent?
A business plan gives you goals and can keep you motivated. Starting a new successful consulting business can be intimidating. Breaking down your goals into manageable tasks makes life a lot easier. For more about why you should write a business plan, check out this handy article.
Step 5: Practice your pitch
Here’s where you need to put on your sales hat. But don’t think sales means that you have to be someone you’re not. Being an effective salesperson means being yourself. You already know why you’d hire yourself. Now show your potential clients the same thing.
MBO Partners gives a comprehensive guide to creating a consultant sales pitch.
Here’s a few things that go into a sales pitch that you’ll want to consider when you’re practicing your own pitch.
Research potential clients
This should go without saying: research, research, research! Make sure you gather all the information you can on your potential clients. Find out their needs, but also find out what their culture is like. If it turns out that you might not be the best fit for them, that’s something to listen to as well.
Talk with the one in charge
There’s no point in doing all this work and then propose it to the wrong person. If you’re not sure who the decision-maker is, ask.
Keep in mind that when you speak with the decision-maker, you’re not trying to sell them your services. You’re there to inquire about what their needs are and how you can help them address their concerns. This is also the time when you’ll be able to identify if you can or can’t help them. There’s always the possibility that you can’t, and that’s okay.
Assess their needs
This one comes up often. Your potential client has needs Otherwise they wouldn’t be in need of a consultant. Whether that’s branching into a new market, taking charge of marketing, or building a brand image, there’s always a need. This is the time to ask probing questions, and the person to answer them is your potential client.
Step 6: Write client proposals
A client proposal isn’t a template document. While there should be standard aspects set out, each proposal should be carefully thought out and tailored to your potential client.
Basically, a consulting proposal outlines how you will handle the project, your responsibilities, and the client’s responsibilities (such as providing information upon request within a reasonable timeframe, should this be required).
A proposal will also outline your qualifications, the terms of the contract, and your consulting fees and hourly rate.
Nothing on a client proposal should come as a surprise to the potential client. The details will have already been discussed during the initial meeting. This document just sets out all the parameters, fees, deliverables, and responsibilities of each party.
Step 7: Set your pricing
Of all the steps, setting your pricing can be the most challenging part. Most new consultants undercharge or lower their rates without question because they’re afraid of either losing business or of coming off unprofessional. Here’s where you need to know your worth.
Determine your hourly rate
How much are you worth? That’s a hard question for new consultants, and oftentimes, people undervalue themselves. But think of it this way: what would your yearly salary be if your client hired you as a full-time employee? Or better yet, if you’ve got traditional employment experience in the field, what was your salary previously?
Once you’ve got that figured out, simply divide that number by 52 work weeks, then five days in a week, then into seven work hours per day. There you have it!
Well, not yet. If you were a full-time employee, you’d also be receiving health benefits and vacation, and possibly even a bonus. This is when you add extra value to your hourly rate. The rule of thumb is to not go higher than 25 per cent.
This is the rate you will work with for every client who hires you. It can increase per year based on the cost of living, but always make sure you’re checking your rate against industry standards.
Project-based fees work differently than retainer fees. For a project-based fee, your fee will cover until the completion of the project, job, or services.
This might be a challenging task if you’re just starting out, and again, another place where new consultants undersell themselves.
Estimating the number of hours it will take to complete a project will depend on a few factors:
- The amount of data-gathering and analysis necessary
- Any research required
- Meetings or interviews required
- The amount and depth of reports and proposals
- Any travel required
- Are there additional costs
Once you have the hour estimate, just apply your hourly fee to that. Don’t forget to add on the taxes.
You can propose a project-based fee with one of two fee models: a flat project fee or an hourly rate. Oftentimes, clients prefer a flat project fee over hourly rates.
A retainer agreement is a bit different and is long-term. It’s a contract between you and your client that states you will provide your consulting services for a set period of time. This means you’ll be taking on work as they assign it to you, and you will invoice them, usually on a monthly basis.
When the retainer agreement is signed, all the details are set out as to hourly fee, invoicing frequency and payment terms, and the period at which the retainer will be reevaluated.
Sometimes a retainer includes a fee regardless of the work assigned by the client. An agreement like this states that the client will pay you, the consultant, X dollars per month (or whatever time frame you mutually agreed upon) to retain your services, regardless of the work assigned. This means that when they have work, you’ll be there to do it—sort of like being on call.
Retainer agreements can sometimes come with a non-compete clause. A non-compete clause states that you cannot be retained by any competitors during the duration of your contact with your client.
If your potential client is asking for a non-compete clause, factor any business loss that you may have into the fees. After all, if they want to keep your services for themselves, they know your fee will go up.
Step 8: Accounting, finances, and bookkeeping
This goes for any entrepreneur and business consultant. Know the difference between accounting, finances, and bookkeeping, and make them your best friend, both for your clients and yourself.
We’ll start with bookkeeping and accounting. Both are an integral part of finances, but bookkeeping and accounting are different tasks. Bookkeeping is the process of keeping track of all the financial transactions from payroll to expenses to taxes. It is simply recording these transactions, hence the term “bookkeeping.”
Bookkeepers track cash flow and make tax time much easier.
Accounting is more involved and takes the bookkeeping product (once upon a time, it was the “books” or “ledgers”) and makes sense of it. An accountant will take the work a bookkeeper does and interpret it into profits, losses,and forecasts and advise you on your finances. (Hint: this can also be a consulting business if you have the skills)
This is also where your business plan can help you. Once you have all the financial details sorted in your business plan, you can start budgeting in your accounting system. From there, you can keep track of your income and expenses.
Don’t forget to reevaluate your finances on a monthly basis.
Step 9: Stay organized and deliver results
This may seem obvious, but staying organized is the best way to deliver results and run a successful consulting business. To do this, you’ll need some tools.
There are some great apps and software programs that are geared specifically for entrepreneurs like consultants. Here are a few of them:
Notion: This is a great app that takes apps like Trello, To-Do, and any calendar organization and rolls it into one app. With it, you can create boards, tables, calendars, and task lists. It allows screenshots and embedding directly in the app. It is also seamless across all platforms and it has collaboration capabilities.
Trello: Trello is a tried, tested, and true app. It is great for product management because it helps to break down larger projects into manageable tasks while keeping you on deadline. Like Notion, Trello allows collaboration.
Google Docs: Google Docs has been around for a while, and there’s a reason for that. It’s a cloud document management system that allows you to access documents anywhere and share and collaborate. There’s also an entire Google Suite that comes with Drive, Spreadsheets, and Slides.
Zoom: A lot of freelance work is done remotely, and don’t be surprised if your clients are international. You’ll need a video conferencing system that is easy to use and helps keep you organized. Zoom allows you to schedule meetings, keep a private meeting room, and have the option of breakout rooms, but this feature is not part of the free subscription.
Slack: Slack is a communication system that helps keep teams organized. It is both a downloadable program and an app, and you can be logged into multiple Slack groups at once. In a single Slack group, you can create private or locked channels, allowing different team members to collaborate on different projects.
Whatever tools you use to keep organized, you’ll need an excellent calendar system. Calendar blocking (also known as time blocking) is a great strategy to realistically schedule tasks so you don’t end up promising on deliveries you can’t do.
Once you’ve got all that set up, try new strategies. See what works for you and drop what doesn’t. After all, this is your business!
Ready to start your business? Ownr has helped over 35,000+ entrepreneurs hit the ground running quickly – and affordably. If you have questions about how to register or incorporate your business, email us at firstname.lastname@example.org
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.