The gig economy is gaining momentum as more and more Americans figure out that they don’t have to spend their lives working 9 to 5 for someone else.
In fact, some people estimate that by 2020, 43 percent of people will work as a freelancer. And that includes those who start a consulting business.
But before you take the leap, you need to learn about the basics of starting a consulting business.
In other words:
To have the best chance of success, you need to do some research, plan for your business, and start out the right way.
Let’s get started, shall we?
What Is a Consulting Business?
A consulting business is a place people go to get answers to their problems. That’s why many people call consultants problem solvers.
Here’s an example:
A large corporation wants to expand overseas, but its current staff doesn’t have the knowledge to suggest a plan. So the corporation hires a consultant with expertise in overseas expansion.
But don’t worry if you don’t have that kind of experience.
Consultants consult on a wide variety of topics and in a lot of industries.
Here’s another example:
A person wants to lose weight, but can’t figure out the best diet plan for them. So they hire a diet consultant to create a customized plan for them and help them lose weight.
In other words, a consultant is a problem solver in a specific area.
Why start a consulting business?
If you want to start a business, a consulting business is one of the easiest to start because you don’t need a lot of money or equipment to get started.
Here are some of the key reasons why starting a consulting business might be a great move for you.
It’s not complicated
When you start a product-based business, you have to create a prototype of it, find suppliers, or sign up with a drop shipper.
And you may have to create a corporate business structure which can take weeks to finalize.
On the other hand:
When you open a consulting business, you are the product.
And if you want to operate as a sole proprietor, you won’t have to complete any paperwork (or pay any fees!) to get your business off the ground.
In other words, you already have the basics of what you need to start: you.
Did You Know?
The worldwide consultant business is a $133 billion industry. Will you claim your piece of the pie?
A consulting business is a lean startup
You won’t have to spend a lot of money to start your consulting business.
Aside from your number one asset — you — all you need is a computer, a phone, and perhaps some accounting or project management software.
And in the initial stages, you can use freeware to keep your costs to zero.
You can build connections
As a consultant, you will talk to many people in your industry. And as you build relationships with them, you will make connections in the industry.
And who knows?
Maybe one of those connections will turn out to boost your consulting career or launch you on a new path you never imagined.
What Does a Consultant Do?
We’ve talked about the overall job of a consultant: to solve problems for their customers.
But there’s a little more to the role.
Here are some of the tasks you will do when running a consulting business.
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Types of consulting businesses
At this point, your head may be full of ideas about what type of consulting business you can start.
Don’t tax your brain!
Instead, read about these common types of consulting businesses you can start.
Human resources consultants work with companies to provide support for the hiring, training, managing, and firing of employees.
HR consultants also ensure that the companies they work for stay in compliance with all employment and labor laws.
You can work for a large corporation in this role or for the local mom and pop who need someone to help them manage their employment duties.
As a strategy consultant, you work closely with an organization to find a solution to a problem or goal.
For instance, if a company wants to reorganize a department, you would analyze the existing departmental structure and suggest ways to improve or streamline it.
When a company wants to install a new software program or scale their existing platform, a technology consultant works with them to help implement it.
For instance, a company may decide to revamp their current paper trail and use technology to update it.
It would be your job to analyze their current practices and move them to the proper technological solution.
Did You Know?
Half of all freelancers, and that includes independent consultants, say that no amount of money would ever convince them to go back to a 9 to 5 job.
Public relations consultant
A PR consultant creates and then implements the public relations face of a company.
Working in this role, you would interact with the public, partners, investors, and employees to build the brand and shape how people think about the company.
In this type of consulting business, you would act as a legal consultant for an organization or person.
Depending on your specialty, you may advise them about the legalities of employment, banking, finance, corporate, tax, real estate, intellectual property, information technology, or trust.
You need a law degree to operate as a legal consultant.
This role is different than a technology consultant because instead of helping a client implement a program, the IT consultant recommends which program to purchase.
For example, if your client wanted to move a large website to a new server, you would recommend the tools and procedures to best enable them to do it.
Social media consultant
In this role, you will help build the company’s brand with their social media platforms.
You will be responsible for increasing traffic to their website and followers to their social media platforms.
You will need a license to open this type of consulting business.
Financial consultants advise their clients about investments, market trends, taxes, and other economic considerations.
The consultant types we listed above are the most common when it comes to selling consulting services to a business.
But personal consulting is another huge industry with ordinary people paying others to teach them how to do all sorts of things.
For instance, you could offer consulting services for nutrition, pets, small business startups, publishing, and just about anything else you can think of.
Photo by Christina Morillo from Pexels
The Numbers Game
Even though the consulting business is booming, you still need to know what kind of growth and earning potential you can expect.
Here are some facts:
Consulting Business Facts and Figures
What do you need to start a consulting business?
To open a consulting business that specializes in accounting or financial matters, you need a certification or license.
And other forms of consulting may not require certification, but your clients may expect it.
For example, you can open a nutritional consulting business without a degree or certification, but if you have a degree in nutrition, you will have more credibility with future customers.
Pros and Cons of Starting a Consulting Business
As with any type of business venture, a consulting business has its pros and cons.
Here’s what you should know before you hang your proverbial shingle.
Let's start with the positives of starting a consulting business:
You'll have an unlimited client base
As a consultant, you are only limited by how many clients you can reach.
Think about it:
If you’re opening a consulting business for dieters, how many dieters are potential customers?
And that’s true for whatever niche you decide to pursue.
You can work from home
When running a consulting business, you get to decide where you will work from.
Sure, you can rent a fancy downtown office and spend a lot of money, or you can work from home and not only save money but have the luxury of staying close to family.
And just think of the commute.
You'll have minimal startup costs
Because you don’t need a lot of fancy equipment, you can start a consulting business on a shoestring.
You won't have to deal with office politics
You know all those petty office politics you’re so sick of?
When you work for yourself, all of that magically disappears.
You get to help people
Imagine having a job where you get to help people achieve their goals all day.
That’s the life of a consultant!
Opening a consulting business also comes with a few cons.
Here are a few to consider:
It takes a lot to get off the ground
You will have to market your business and work hard to get every client, especially in the beginning.
Eventually, word of mouth will drive business, but in the beginning, it’s all up to you to sell yourself.
Your clients will expect a lot
When starting a consulting business, be honest about your skills and knowledge because the people who hire you will expect a lot.
If you can’t help them or give them bad advice, it could hurt your reputation.
That means you will have to stay on top of your game by keeping up with advancements and developments in your niche.
Your personal life might suffer
When working as a consultant, clients will demand a lot of you.
They may want to schedule conference calls during your family’s dinner or on the weekend. That can result in strained family relationships and a lack of time to do the things you really want to.
Consulting Business Pros and Cons
A Step-by-Step Guide to Starting a Consulting Business
Are you convinced that starting a consulting business is right for you?
If so, you need a plan.
Follow along and learn about the specific steps you need to take to open a consulting business.
Assess your strengths
Remember in the section above how we told you that your clients will expect a lot from you?
And that’s why it’s essential that you do an in-depth assessment of your skills and knowledge before taking the first step.
You will hire yourself out as an expert — and you should have the skills and knowledge to back that up.
For example, if you work in the financial industry during the day as an investment adviser and want to moonlight as an investment consultant, that gives you credibility.
But if you work at an investment firm as the social media manager?
Not so much.
Make sure you have what it takes to back up your claims, or you could have some pretty unhappy clients on your hands.
Ensure your certifications and licenses are in order
If you need a license or certificate to operate your business, now is the time to get it.
And even if you aren’t required to have them, taking some certification classes or getting licensed in the industry you plan to operate in won’t hurt.
But that's not all:
You should also register your business name with the county you live in, and apply for a tax ID number so you can charge and remit taxes to your local authorities.
Create your short-term and long-term goals
Knowing your goals in advance will go a long way in your success as a business or personal consultant.
For example, will you work from home for your entire career, or do you plan to have an office one day?
Once you know your goals, it’s time to write a business plan.
Did You Know?
You can create a one-page business plan, a lean business plan, or go all out and make projections for the next five years. But having a plan is key, so don’t skip this step.
Determine what the market needs
You need to put some deep thought and research into this area because it may make the difference between success and failure.
You already know that a consulting business helps people solve problems, but it’s how you look at it that can make you a success.
Here’s what I mean:
Your clients will be people who either desire something they can’t figure out how to get or don’t want to figure out how to get it.
And that’s where you come in.
As a consultant, it’s your job to get them from their present state to the state they want to be in. That state could look like any of these:
The common theme in all of these examples is that they are at point A and want to get to point B. And it’s your job to convince them that you’re the right person to get them there.
Identify your target audience
Will you work with mainly corporate clients, or will you reach out to consumers and build your business that way?
You need to determine your niche, and then decide how you will approach them.
For instance, if HR consulting is your niche, you can either work with individuals to help them find the right career, or you can work with corporations to help them staff and manage their employees.
Write an elevator pitch
When people ask you what you do, you should be able to explain it to them succinctly and clearly.
It’s called an elevator pitch, and when starting a consulting business, it’s necessary to have one.
Imagine that you meet someone and when talking to them they tell you about a problem they’re having. Turns out, that’s exactly the type of problem you solve in your business.
How will you get that across to them?
You should be able to tell someone exactly what you do in under 30 seconds.
Set up client communication and recruitment tools
When you operate as a consultant, you need to have some tools that will allow you to communicate with your clients.
For instance, you will need a video conferencing platform to conduct those calls on. You can use a free version, or if you feel the need, you can invest in one.
You will also need a way to get the word out about your business.
And aside from the marketing techniques we’ll talk about in a minute, you should take some time to set up your resume and qualifications on sites like Zip Recruiter, UpWork, and LinkedIn, Indeed, and Monster.
Staff up or outsource
You may not need to hire an employee if you plan to work from a home office, but a virtual assistant can save the day.
If you specialize in HR consulting for individuals, you can assign the tedious tasks that take a long time to the assistant and then deal with the client yourself.
Did You Know?
Virtual assistants can perform just about any task and will free up some time for you so you can put your energy into searching for new business and client interactions.
Market your business
In order to build a successful consulting business, you need to sell your services to as many people as you can.
And that means you need to get inventive with how you get new business.
Here are five ways to let people know about your services:
Create a brochure
Sometimes people won’t know that they need your services until you tell them what you do.
And one of the best ways to do that is to create a brochure that highlights all of the important aspects of your consulting business.
Here are some key points to include on your brochures:
Do some cold calling
You want to skip this section, don’t you? Be honest.
But the truth is that is you’re going to become a successful consultant, you will need to make some cold calls until you get your business off the ground.
But it doesn’t have to be that hard.
Here are some tips to make the process easier:
Your first step is to write out a script, and use it until you get comfortable with the process.
Over time, you will become more comfortable telling people about your consulting business and why they should hire you, but in the beginning, it can be a little intimidating.
A written script will help ease your nerves.
Next, you should limit the number of days you do cold calls, so you don’t become overwhelmed with it.
You will face rejection — that’s just a fact. But you will also have some successes.
Concentrate on the successes and consider cold calling days a reward for all the hard work you’ve done all week.
Or you could just do this:
Advertise your business
In order to attract new business, you should plan to run some advertising. How much you run will depend on your budget, so you will have to plan for it carefully.
You can run ads in trade magazines associated with your business, or if you plan to open a personal consulting business, in the local newspaper or on Facebook groups.
Create email lists and newsletters
As a business owner, you should collect email address and use them to communicate with potential clients via a newsletter.
You will have to offer potential subscribers something in exchange for their email address — like a free report or analysis of some kind.
But the key is to build a large email list of people who might be interested in your consulting services and then stay in contact with them.
Engage in public speaking or free classes
Another great way to bring in new clients is to act as the featured speaker at an event that ties into your industry.
Our gardening consultant could give a lecture to beginner gardeners about the importance of planning a garden before planting.
Or the HR consultant could give a speech about how to make the best use of LinkedIn for an audience of small business owners.
Check with your local chamber of commerce or look online for events and then call and ask about speaking.
Another way you can attract this type of customer is to offer free classes about your topic. You can do this in person if you want to attract local clients, or online if your audience is larger.
Ask for referrals
Referral business is the best kind because the customer already trusts you. Chances are that if you get a new client that was referred by another one, it’s because they were so happy with your service that they had to tell someone.
But they don’t always remember to pass along your name.
That’s why you should remind them.
Every time you complete a contract with a client, send them an email asking them to pass along your name. And some consultants even offer to pay a referral fee for new business to encourage the behavior.
Learn to write client proposals
Once you’ve had a conversation with a potential client, and they’ve told you they want to pursue a consulting relationship with you, you need to prepare a client proposal.
Did You Know?
A lot of consultants send a potential client a proposal before they’ve made the sale, and that results in a waste of time for everyone. You should only submit a client proposal once they’ve agreed to work with you.”
Here are some tips to ensure your client proposal is as good as it can be.
Focus on the buyer
You should have already sold the client on your consulting business, so there is no need to rehash all of your accolades.
Instead, the proposal should focus on the client.
Reiterate that you understand the problem, and assure them that you have the skills and knowledge to overcome it.
A good client proposal doesn’t need to be long, but rather a succinct reiteration of their problem and your solution.
Don’t add new information
If you do, and it confuses the buyer, they may not sign it. They may put it aside to get clarification and then get caught up in life.
Just stick to the facts that you discussed when you told them about your business and what you could do for them.
Structure it right
Your client proposal should follow a logical format that is easy to read.
Here is an example outline of a client proposal.
Example Format for a Client Proposal:
Set your pricing
Setting the right price is essential to a consulting business that grows.
If you price your services too low, no one will take you seriously. And if you set them too high, many people will refuse to hire you.
So how do you set your fees to successfully grow your consulting business?
Start by looking at the averages earned by people already in the business. Consulting Success reached out to 25,000 consultants in an effort to understand their pricing structures.
They determined that most consultants billed in one of these five ways:
Did You Know?
In the Consulting Success study, 25.5 percent of consultants say they earn an 80 percent or better profit margin. Can you imagine any other business with that high of a margin?
How do you know which method to use — and how much to ask for?
By following these tips:
1. Check out your competition
Chances are, your competition is already established and has figured out how much the market will bear. It’s a good idea to shop around with your competitors before setting your rates.
Start by visiting their websites and looking for pricing. If they don’t publicize it, you will have to mystery shop to get the rates.
Then compare apples to apples:
Can you offer the same services to clients that they do? Do you offer anything that would increase the value?
Once you know what your competition is charging, you need to set your rate. You can do this on a per-project basis or an hourly one.
Here’s how to figure each one.
Set an hourly rate
To set an hourly rate, you first need to decide what yearly salary you want to earn. For this example, we’ll use an annual salary of $100,000.
Next, divide your desired salary by 52, which is the number of weeks in a year. For our example, that would be $100,000 / 52 = $1,923.08. That’s how much you need to earn a week.
Now divide that by 40 (hours in a work week) $1,923.08 / 40 = $96.15. That’s how much you need to bill per hour in order to meet your goal.
But wait, you’re not done!
You also have expenses and cost of business to include in your calculations.
To do that, you should add 25 to 40 percent to the rate. That means you should charge $134.62 per hour to meet your goal. (96.15 + 40% = $134.62)
To set a per-project rate
If you don’t want to have to track your time, you can charge by the project, but you should be careful when quoting the price.
That’s because project creep can come in and quickly wipe away all of your projects.
If a client hired you to create a healthy eating plan for them, you may have estimated 10 hours, but then they asked you to include a workout plan which added another 5 hours to the project.
Unless you specify in your proposal that you would bill them for additions to the project scope, you would be out some money.
To bill by the project, you need to calculate how many hours you believe it would take to complete the project, and then multiply that times your hourly rate.
Be sure to add 10 to 15 percent on top of that to account for any contingencies you didn’t expect.
To set a retainer rate
You should set your retainer rate the same way you do your per-project fee, but some consultants give clients a discount when they pay a monthly retainer fee.
You should determine whether you want to extend a discount based on your interactions with the client.
Build a reputation and deliver results
Now all that’s left to do is to build your consulting business brand and earn a reputation for always delivering what you promise.
Before long, you won’t have to ask for referral business because your happy clients will tell everyone about the wonderful experience they had working with you.
Tips and Tricks of Successful Consultants
Finally, we want to leave you with a few tips and tricks that you help make your consulting business a success.
What do you need to start a consulting business?
Don’t just play at consulting.
Instead, create a website, make business cards and take it seriously.
It’s possible to build a great income by starting a consulting business, but only if you treat it like the serious endeavor it is.
Embrace your home office
Photo Serpstat from Pexels
In the past, people tried to hide the fact that they worked from a home office, but times have changed.
Now you can tout the fact that you don’t have overhead costs to pass on to the client, and because your office is located at home, it means you’re available when they need you.
Did You Know?
You can land your first client before leaving your current job. If you’re a valued member of your organization, offer your consulting services to your boss. It would be a great way for them to fill the gap you’ll leave behind and give you your first client.
Understand the payment cycle
If you’re working for large corporations, don’t expect to get paid promptly.
Many corporations pay 30 days or more after they receive an invoice, so you will need to plan on waiting to get paid.
Make sure your reserves can cover the wait.
Never over promise
Any time you make a promise to a client, be sure that you over deliver.
There’s nothing worse than missed deadlines, sloppy work, or underperforming on a contract.
That’s the fastest way to get bad reviews and lose your business.
Know when it’s time to call it quits
You will have some clients that are not worth the hassle.
Clients who love to complain for no reason, who likes to call you at 10 pm, or who make unreasonable demands won’t grow your business.
If you find yourself in a situation where the client causes constant problems, think about politely ending your contract with them.
Are You Ready to Start a Consulting Business?
A consulting business is one of the easiest and most profitable businesses you can start, but you will have to work to create a business that brings the kind of income you want.
Use our step-by-step guide to think about your new business, and then take the steps needed to make it a reality.
Have you already started a consulting business? If so, we would love to hear your advice about how others can get in the game in the right way. Please spread your wisdom in the comments below!