I've heard the promises so many times:
Start a consulting business and you can easily earn a million a year!
I mean, you can earn a million a year consulting, for sure.
You can probably find ways to earn a million a year doing most things. But one thing you'll need in most every scenario is a team.
So how much should you expect to earn running your one-person consulting business?
I'll tell you. Or at least, I'll show you how to work it out for yourself.
But before I do, let's get some facts straight.
What does it mean to 'earn a million'?
That's a good question! To most individuals, a million US Dollars, or Great British pounds, is a lot of money. To most businesses it is not!
It's relatively easy for a business to earn a million in revenue. It's a lot harder for the individual.
For a business you can simply focus on the revenue generated i.e. the total value of all sales made in the year. You don't even need to consider the receipt of that money. Of course, there's many expenses to be deducted from that revenue, but it doesn't sound so sexy boasting about how you can make a million after earnings before interest, tax, depreciation and amortisation (EBITDA).
For the solopreneur running a consulting business, from your revenue figure you need to deduct all of your expenses, of which there can be many. The remainder you can take as salary and dividends.
Of course, you'll be taxed on that money - to the tune of 30%-50% in the UK.
So you could theoretically make a million, but you'd certainly not have a million to spend!
What is a consultant?
The next thing I want to clear up is what is a consultant.
Really? It's obvious isn't it?
Well, since the advent of internet businesses and online courses, the term 'Consultant' has become well and truly confused with the term 'Coach'. This is why you frequently hear people offering their services to "coaches and consultants" as if they're the same thing.
For the avoidance of doubt, They Are Not!
A B2B consultant delivers services to his or her clients. And their clients engage them to deliver those services. They don't engage them to be taught how to deliver those services for themselves.
And there's the rub. There's a lot of people out there offering courses to become a "consultant" who are in fact teaching you how to become an online trainer and coach.
They sell the promise of working from home - or worse, the beach! (can you imagine getting sand in your Mac keyboard!)
They tell you about leverage. About selling to groups rather than individuals.
But that's coaching and training. It is not consulting.
Training and coaching is what these so called consulting experts know. And that's what they're showing you how to do.
If I consider my own consulting career, I've frequently helped large corporates to do things such as:
- complex technology procurement;
- data centre strategy;
- IT strategy;
- and project management
I can't think of a single example in my more than 20 years of consulting where a client wanted me to train them. Most of the time they were busy enough as it was without the challenge of having to learn new, and quite difficult consulting skills.
So now we've cleared up just what a consultant is let's take a look at how to earn a million a year.
(If you're still not sure, it's a subject matter expert, or expert business, that is hired by a client to help them overcome a specific challenge by mostly doing it for them)
Let's do the numbers
Most new consulting businesses sell to people they already know. Maybe they're past clients or contacts, but typically there's already an established trust - you are known and liked. So the first thing you do is get on with the delivery of your consulting projects.
The trouble is, that's only one aspect of what it takes to run a successful consulting business.
In my coaching course I focus consulting business owners on the 4 core pillars to a successful business. This means they need to focus on:
- Project delivery
- Business operations
Unsurprisingly, most people start a consulting business to do the project delivery bit. Few have much experience in marketing and business operations, and most have maybe supported the sales process, but have never fully owned it.
Even if they're a marketing or sales consultant, their focus is on delivering for their clients not themselves.
So why does this matter?
Quite simply - Time.
There's only so much of it.
Running your own consulting business doesn't magically provide you with more time. In all likelihood it will require you to sacrifice more of what you already have!
Here's a rough rule of thumb as to how your time is utilised when running your own consulting business, based on 5 working days a week:
1.0 day marketing
0.5 days selling
0.5 days managing business operations
The mathematicians amongst you will have already worked out that this only leaves you 3 days per week to do project delivery!
But it gets even more challenging....
Your available working days in the year
Many people start their consulting businesses for the freedom that it affords them. So let's assume, with all that newfound freedom, you decide to take 30 days holiday each year. Doesn't sound too extravagant - two and half days off a month! It's certainly not the 6 months that many 'gurus' promise!
Now on top of those holidays there's also public holidays (although when you run your own business they're mostly a moot point!).
In the UK there are 8 days of public holiday a year.
Now what about unplanned absence?
I haven't taken a day off in years
I hear you say.
But do you know that in European countries there's up to a 24% chance of having at least one day off sick each year (for the UK it's 11.7%)!
Still, we'll be optimistic and say you'll only have two days unplanned absence each year.
So let's see where we're at now:
52 weeks of the year x 5 = 260 working days
30 days holiday + 8 days public holiday + 2 days unplanned absence = 40 days not working
260 - 40 = 220 available working days
220 / 5 = 44 working weeks
If you recall earlier, we determined that you only have on average 3 billable days available each working week. So:
44 weeks x 3 days = 132 days
That's right, there's only 132 days available for you to earn your consulting fees!
What's your target day rate?
So, you say you want to earn a million a year in revenue?
Well, let's do the maths (or math if you're American):
1,000,000 / 132 = 7,575
At this point it doesn't really matter if you're talking USD or GBP, either way that's a pretty hefty day rate.
It doesn't mean it's not possible, although I'm yet to meet a consulting business owner with day rates so high.
Of course, we shouldn't be selling by day rate, or T&M (Time & Materials), but should instead be selling on value. But even selling on value, you'd need to be delivering some pretty stellar results to your clients to have an average effective day rate of over seven grand!
What to do next?
Here's what I recommend you do:
- Work out your numbers using the example above
- Determine your target revenue and therefore your target day rate
- Be clear on the problems that you're solving for your clients
- Define the products and services that you offer to help resolve your client's problem
- Evaluate whether the problem that you're solving for your client is big enough that they can justify investing in your services
If you're just starting out, or you've been going for a while but you're in need of some client work fast, read my previous article on 5 Ways to Get Consulting Clients Now!