Consulting

ESTABLISHING A CONSULTING BUSINESS

Start-Up

An entrepreneur starting up a consulting business must go through many of the same processes as those starting other types of businesses. The first step should be completing an honest assessment of skills. The aspiring consultant should identify both content skills—the technical expertise that clients will be willing to pay for—and process skills—the qualities that would enable someone to run a successful consulting business. Some of the more important process skills include communication, problem-solving, and interpersonal skills. In addition, independent consultants must have the ability to manage, market, and grow their own businesses. A good starting point is to make a list of all one's relevant skills and qualities, and then work from that list to create a short mission statement to guide the consulting business.

Like other entrepreneurs, consultants also must determine the most appropriate structure, location, and name for their businesses. The form or structure of the business depends upon the new consultant's tax situation, willingness to assume liability, and interest in taking on partners. A consultant who operates as a sole proprietorship, for example, is taxed as an individual and holds all personal and business liability. In a partnership of two or more consultants, each partner is taxed as an individual and shares in the liability. A consultant who organizes as a corporation enjoys limited liability, and the business is taxed as a separate entity. Preparing a detailed business plan can help aspiring consultants to think about how their business should be financed, where it should be positioned in relation to its competition, and what its most effective forms of marketing might be.

Setting Fees

However interesting or fulfilling it may be, most consultants ultimately view their work as a moneymaking venture. To avoid confusion, each service the consultant performs should have a clearly defined fee. But deciding how much to charge for various services can be a challenge for a new consultant. The first step should be examining the costs relating to the consulting business itself. In addition to direct costs—expenses that can be directly attributed to a specific project and thus billed to the client in question—the consultant must also consider indirect costs—overhead expenses associated with running the business. Some common indirect costs include rent, utilities, insurance, office supplies and equipment, marketing costs, postage, automobile expenses, accounting or legal fees, dues to professional associations, and entertainment. The next step in developing a fee structure is to determine the cost of the consultant's labor. Some new consultants might use their previous salary as a starting point, or the salary of a comparable position. The most important factor to consider is whether the figure reflects the market value of the consultant's skills and experience.

Finally, the estimates of indirect costs and labor should be converted to daily values, taking any expected non-working days into consideration (including vacations, administrative time, business development time, and downtime). For example, a consultant hoping to earn $100,000 over the course of a year, expecting to pay $30,000 in indirect costs, and planning to perform 200 days of billable work would have a daily rate of $100,000 + $30,000 / 200, or $650 per day. This does not take a profit margin into account, which can range from 10 to 30 percent of daily expenses. A consultant's daily rate only provides a starting point for determining his or her fees for various types of services. The fee also depends on the kind of assignment, the prevailing rate in the industry or marketplace, the client's budget, and whether the consultant may need to establish a relationship with a new client or develop a reputation in a new industry. In addition, a consultant's fees may be structured in a number of ways. Some consultants charge by the hour, for example, while others charge a fixed price for specific services, receive a monthly retainer, or are paid on a contingency basis.

Marketing

Potential clients cannot take advantage of a consultant's services if they are unaware of them. Therefore, in order to remain in business, new consultants must be able to market their services effectively. Analysts recommend that consultants use a variety of direct and indirect marketing techniques to gain clients and grow their businesses. One possible direct marketing technique is telemarketing, which involves calling potential clients on the telephone. Telemarketing is most effective if the consultant making the call is armed with knowledge about the company ahead of time, uses a prepared script, describes the benefits he or she offers, and mentions successful projects with other clients.

In some cases, telemarketing can be augmented with a direct mail marketing campaign. Although direct mail can be expensive, it is flexible and allows responses to be tracked. Experts suggest increasing the success rate of direct mail campaigns by making them specific, easy to read and understand, and aesthetically pleasing, and by including testimonials and business reply cards. Other possible direct marketing methods for consulting businesses include magazine and newspaper advertisements, association directories, networking, and referrals from other clients.

Indirect marketing techniques, while less likely to lead to immediate client relationships, are invaluable in helping new consultants increase their name recognition and credibility over the long term. Giving seminars, speaking before groups, joining professional associations, and writing articles or books are all good ways for consultants to build their reputations as sought-after experts in a given field. Another important means of publicizing a new business is through news releases, which can be sent to local media or trade journals to announce client relationships, successful projects, upcoming seminars, or other important happenings related to the business.

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