by Jay Niblick | Feb 4, 2019 | Blog, Managing Your Consulting Business, Starting Your Consulting Business
When you made your “big leap” as an independent business consultant, there were several defining reasons why you decided to stick your neck out and become a member of one of the world’s greatest professions.
As time passed however, you realized that the practice of consulting was very different from the act of selling your consulting services. You suffered the agony of having to convince prospects that you and your services were better and more effective than anyone else.
Unless you have a natural talent for sales, and most consultants don’t, this is an all too familiar description of the pain that consulting professionals go through from day to day in order to try and make a living from their traditional sales efforts.
The skills and talents required to perform consulting work are very different from the skills and talents required for your typical salesman. And that’s exactly why why you shouldn’t sell!
Selling is counterproductive to the way most consultants prefer to work and detrimental to the long-term success of their business. The only way not to sell to a prospect is to entice the client to come to you through
Multi-Leverage Marketing and solving their problem using the Diagnostic Sales Process.
Since we’re talking about sales in this post, we’ll start with the Diagnostic Sales Process and the 4 steps to a successful and happy client.
Even though I’ve been using the word “sales” to define the process, it’s exactly the opposite. Your objective is to listen to your prospect and ask questions, make a recommendation, provide a verified diagnosis, and lastly, solve their problem.
The 1st step requires a good ear to listen to your prospect in order to discover the problem they’re facing in their business. At this time the well-established 80/20 rule should apply. 80% listening 20% talking.
The 2nd step is where you get to do most of the talking. You need to let the client know that your expertise lies in helping many others just like themselves. This isn’t bragging but reassurance for the client.
In this step you’ll also be trying to identify the root of the problem. Making any reference to sales at this point is useless and a waste of your time. Remember, if you weren’t born to be a salesman then don’t act like one!
The 3rd step is to prove to yourself and to your soon-to-be client that your diagnosis to their initial problem is correct. There are several behavioral and motivational profiles you can use that will help you get the most out of the Diagnostic Sales Process.
The 4th step is to go back to the original pain point that they initially defined for you. Give them an action plan and a reminder of why this is important to do in order to resolve their problem. If the problem is big enough and your solution will remove the roadblock then the client will more than likely hire you.
Remember that you are best suited to educate and to train but NOT to SELL. As a professional consultant, the DSP allows you to work easily, more confidently, and faster throughout your business which increases your profit with each new client.
To read more about how to become a profitable consultant using the Diagnostic Sales Process, Go here.
by Jay Niblick | May 5, 2018 | Blog, Consulting Fees
Time to start deciding what you will charge. The first thing you need to do is to determine your “true hourly base rate.” However, this rate is for your information only, not for your clients. It is the hourly price you will use to calculate what you will charge based on the overall effort you will put in, and the return you would like to get for that effort. It is not the figure you will tell the client you charge per hour. Even though it won’t be used on all types of pricing structures, it’s an important number to understand regardless of the pricing model you use.
To calculate your total base hourly rate, you need to fill in the following variables:
A. Desired annual revenue $____________________________
B. Number of work weeks (annually) ____________________
C. Number of hours worked per week ____________________
D. Working base rate (TBD) ____________________________
E. True hourly base rate (TBD) ________________________
Once you have these figures you want to plug them into the following formula:
In this formula you have:
- A (which is the total desired revenue annually) divided by:
- B X C (which is the sum of total weeks worked in a year multiplied by number of hours worked per week), which gives you:
- D — your working base rate (D).
- The last step, since you will never work 100 percent of your week delivering services for fees (think sales and marketing time, admin-istration, networking, hand holding, project updates, travel, etc.) is to assume that at best you get to spend 50 percent of your week delivering revenue-generating work. So, you multiply “D” (your working base rate) times two (2) to arrive at:
- E — your true hourly base rate.
Here’s a real-life example:
- You want to make $100,000 in a year (A).
- You start with 52 weeks in a year, but subtract 4 for vacation, sick leave, holidays, and so on, so you have 48 weeks of work in that year (B).
- You take an average of 40 hours worked per week (C).
- You multiply 48 times 40 (work weeks X work hours per week) and get total hours worked in a year as 1,920 (B X C).
- You divide annual revenue by total hours worked (100,000 divided by 1,920) to get your working base rate of $52 (D).
- To adjust for true hours worked, you multiply that working base rate X2 to arrive at your final true hourly base rate of $104 per hour (E).
However, you’re still not finished because you will have expenses. Even working from your house you will have Internet bills, cable, phone, supplies, non-reimbursed travel expenses, membership fees, and so on.
You need to add your operating expenses into your true hourly base rate to make sure you cover those costs as well. A good rule of thumb is to use 10 percent of your projected revenue for expenses or the cost of doing business. Obviously this figure can vary widely, but it will work well for now. Once you get your business running you can come back and revisit true expenses if need be.
The fastest way to do this is to simply take 10 percent of your true hourly base rate and add it on. In the example above, my true hourly base rate is $104.00. Ten percent of that is $10.40. Combine them and you arrive at $114.40, but keeping it easy, round it up to $115.00 per hour, and that’s the figure you should use in some of the fee structures we will tackle next.
I’ve created an automated Excel spreadsheet that will help do these calculations for you. Visit www.innermetrix.com and look under the “Consultant Support Library” to download it.
by Jay Niblick | Apr 28, 2018 | Blog, Consulting Fees
In consulting, perhaps one of the most recurrent reasons for poor profits is undercharging. It’s unfortunate, because it has less to do with not understanding what should be charged and more to do with the consultant’s lack of confidence, insecurity, or most commonly desperation.
Let me share the story of a friend of mine named John Butler. John was a seven-figure management consultant in Dublin, Ireland, and he had been a client of mine before he passed away. John attended a conference I was hosting in Germany some years back, and over beers one night we got to talking about this vexing issue, and how so many other consultants we knew suffered from it.
John had indeed built a very profitable practice years earlier, but he had grown tired of working so hard and was considering retiring from the 80-hour-a-week job he’d built for himself. He wanted to pull the throttle back and relax a bit.
He struggled with the thought of having to let clients go, so he figured the best way to avoid that confrontation was to get the clients to voluntarily leave him instead. He decided that if he raised his prices significantly, enough clients would walk away, and if he did keep some small percentage of his clients the addition in fees would cover the losses. Near the end of one year John informed all of his clients that he would be quadrupling his fees!
Thinking that this move would surely thin out his client base, imagine the shock when he found out he had only lost approximately 20 percent of his customers! And thus John’s profits skyrocketed into the seven-figure range.
The moral here is that too many consultants think it’s safer to charge less and get at least some business than charge more and risk not getting any. In reality you’d be surprised at how charging more doesn’t scare off clients as much as you may think. I would argue that it actually only scares away the cheap ones you don’t want anyway, and it creates the impression of superior value in all the ones you do want.
by Jay Niblick | Apr 26, 2018 | Blog, Managing Your Consulting Business
Too many new consultants fail to establish a sound business plan right up front. As important an aspect as having a sound business plan is, however, I will not be diving too deeply into this topic as we could easily get lost. I will, however, recommend an action that will allow you to save time, yet still allow you to create a very well-constructed plan. And that’s the rub, managing to create a very solid business plan that actually delivers value, but not spend months doing it.
Also, a good plan is a process, not a static event. One of the biggest mistakes any business owner makes is to create a strategic business plan in the beginning of their company, then leave it in a drawer forgotten and useless. A good plan is dynamic, meaning it is built to be changed or modified as the business grows. Its structure is one that is flexible, and to me the most important part is that such flexibility is quick and painless, since if it sucks to change it, it usually doesn’t get changed.
For years now I’ve personally benefited from being able to develop a very strong business plan for my own businesses, yet not having to invest countless hours to get it done. I’ve done that by using the “One-Page Business Plan,” based on a book of the same name written by Jim Horan. Since the two most important parts of such a plan are content and speed, this has been my solution of choice.
If you’re an expert in building business plans, and that’s one of the things you will be providing to your consulting clients, then by all means listen to your own expertise. However, if this isn’t something you’re an expert in, I highly recommend you not spend hours research-ing, learning, and inventing your own wheel. Instead just invest $39 and purchase the One-Page Business Plan (Professional Consultant’s Edition) from their website.
That website: www.onepagebusinessplan.com
Once you get a plan—wherever you get it—just be sure to use and follow it, as it is definitely something that will greatly add to your chances of success.
by Jay Niblick | Apr 12, 2018 | Blog, Managing Your Consulting Business
For the purposes of this book I will speak to the United States business market. Every country has its own set of policies and regulations, so I advise you to seek the counsel of a licensed attorney in your own market to make sure you decide on the best business structure for your specific business.
There are really only four types of business structure most consultants choose from. Each has its own unique set of strengths and weaknesses.
- Sole Proprietors (taxed as 1040, Schedule C) are unincorporated businesses. They are also called independent contractors, consul-tants, or freelancers. There are no forms you need to fill out to start this type of business. The only thing you need to do is report your business income and expenses on your Form 1040 Schedule C. This is the easiest form of business to set up, and the easiest to dissolve, but it provides the least protection.
- C Corporations (taxed as 1120) are incorporated businesses. Every form of business besides the sole proprietor is considered a separate entity, and this often provides a measure of legal and financial protection for the shareholders. The shareholders of corporations have limited liability protection, and corporations have full discre-tion over the amount of profits they can distribute or retain. Corporations are presumed to be for-profit entities, and as such they can have an unlimited number of years with losses (ask your accountant why that can be a good thing). Corporations must have at least one shareholder.
- S Corporations (taxed as 1120S) have features similar to a part-nership. An S Corporation must have at least one shareholder. If any shareholder provides services to the business, the S-Corp must pay that shareholder a reasonable salary. This salary is a separate payment from distributions of profits or losses. S Corporations have the same basic advantages and disadvantages of general or close corporations. When a standard corporation makes a profit, it pays a federal corporate income tax on the profit. If the company declares a dividend, the shareholders must report the dividend as personal income and pay more taxes. S Corporations avoid this double taxation (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the shareholders. However, like standard corporations (and unlike some partnerships), the S Corporation shareholders are exempt from personal liability for business debt.
- Limited Liability Partnerships or LLCs (taxed as 1065) are unincorporated businesses. Like corporations, partnerships are sep-arate entities from the shareholders. Unlike corporations, partner-ships must have at lease one General Partner who assumes unlimited liability for the business. Partnerships must also have at least two shareholders. Partnerships distribute all profits and losses to their shareholders without regard for any profits retained by the business for cash flow purposes. Many business professionals believe LLCs present a superior alternative to corporations and partnerships because LLCs combine many of the advantages of both. With an LLC, the owners can have the corporate liability protection for their personal assets from business debt as well as the tax advantages of partnerships or S Corporations.
There are also trusts and non-profit structures, but I’m not aware of any consultants who have ever chosen either of these. If you have any questions about which structure is right for you, it is best to consult with your attorney or accountant. Taxation and liability issues are the two strongest determining factors for deciding to seek their counsel.
Recent Comments