I've heard the promises so many times:
Start a consulting business and you can easily earn a million a year!
Well, maybe.
I mean, you can earn a million a year by 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 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 really 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 generate a million in revenue. It's a lot harder for an individual or a start-up consultancy.
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 are many expenses to be deducted from that revenue.
For the solopreneur or micro fledgling 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 in the UK. 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 in your pocket!
What is a consultant?
The next thing I want to clear up is what is a consultant.
Sounds obvious, but it isn't!
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're not!
A B2B consultant provides a service to his or her client. The client engages you to deliver those services as they typically don't have the skills, expertise, time, desire, business case, or even interest in developing those services themselves. What they rarely to is engage you to teach them how to deliver those services internally.
And there's the rub. There are 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/or a coach.
They sell the promise of working from home - or worse, the beach!
They talk you about leverage. About selling to groups rather than individuals. But that's mostly coaching and training. It's not really consultancy.
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;
- Project management and change 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 often challenging 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.
Is there enough time to earn a million a year?
Most new consulting businesses initially sell to people they already know. Maybe they're past clients or contacts, but typically there's already existing 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, delivering consulting engagements is one aspect of what it takes to run a successful consulting business.
There are in fact 4 core pillars of activity required to successfully run a consulting business, and they each require sustained focus. They include:
- Marketing
- Sales
- Engagement delivery
- Business operations
Unsurprisingly, most people start a consulting business to do the engagement delivery bit. Few have sufficient experience in marketing and business operations, whilst most have typically had at least some involvement in the sales process.
Even if they specialise in marketing or sales consultancy, their focus is still typically on delivering for their clients not for their own business.
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 the precious time that 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....
How many days can you bill each year?
Many people start their consulting businesses for the freedom that it affords them. So let's assume that 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! About the same as what you'd get if you worked for the average corporate for a few years.
Now on top of those holidays there's also public holidays - although when you run your own business public holidays mostly a moot point as you use those days to catch up on admin!
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%).
(source: National Centre for Biotechnology information)
Still, let's 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, you've only got 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.
That doesn't mean it's not possible, although I'm personally yet to meet a consulting business owner with day rates quite that high.
Of course, in an ideal world we wouldn't be selling on day rates anyway. Instead you should aim to sell 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 more than seven G's!
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 solve for your clients, and the value to your clients of having those problems solved
- 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
At this point you should have an idea of how many projects that you need to sell, and at what value, in order to meet your revenue targets. All you need to now is get marketing!
