David A. Fields Consulting Group There are five common bottlenecks that constrain a consulting firm’s profits. Fortunately, that means there are also five, straightforward keys to increasing your consulting firm’s bottom line.
Consulting is a simple business. You win projects and deliver them profitably. While eating chocolate. That’s the consulting cycle. Support that cycle with some infrastructure, wrap a strategy around it and you have yourself a consulting firm.
The consulting cycle holds the keys to your consulting firm’s growth.
Small firms have a low-power consulting cycle. A small amount of revenue won and delivered profitably.
Larger firms spin a larger cycle with more revenue won and profitably delivered.
Five Keys to a More Profitable Consulting Firm
Winning Engagements (Keys 1-3)
The financial output from Winning Engagements is the product of a three-part equation:
Revenue = Number of Clients × Average Projects per Client × Average Fee per Project.
Think of that equation as your consulting firm’s Revenue Truth.
Key #1: More Clients
A boutique consulting firm with annual revenue up to $25M should have at least ten, sizeable clients. Even the smallest consulting firms, including solo consultants, should have at least five clients.
Diagnostic question:
Do you have a broad enough client base or is (the bulk of) your revenue coming from one or two or three clients?
(By the way, how to win more clients is very well explored in The Irresistible Consultants Guide to Winning Clients.)
Key #2: More Projects Per Client
Follow-on work is the easiest work to win. Studies suggest it’s eight times easier to win business from an existing customer than from a new customer. If your consulting firm’s work is good (and it is good, right?) you’ve undoubtedly found follow-on business to be your easiest sale.
Diagnostic questions:
Is your repeat rate high? Is your repeat rate high?*
Are most of your clients signing up for additional projects?
Key #3: Higher Fees Per Project
If your average project size increases from mid five figures to mid six figures or seven figures, your revenue goes up by an order or two of magnitude. (Astounding math courtesy of my Carnegie Mellon education.)
Diagnostic questions:
Are you maximizing the size of every project?
Are you optimizing the fees and margins on every assignment?
Profitably Creating Value (Keys 4-5)
The financial impact of the Profitably Create Value side of the consulting cycle is also captured in a simple equation:
Value Delivered = Capacity × Productivity
The equation above is your consulting firm’s Delivery Truth
Key #4: Higher Productivity from Resources
Productivity is your consulting firm’s ability to create profit with the resources you have available.
The most typical, traditional view is that time is a consulting firm’s resource. In this view, a consulting hour or consulting day is the basic unit of consulting. I don’t agree with that view; however, that’s a debate for a different article.
Diagnostic questions:
How productive are all the resources your consulting firm uses to generate value, including time (or labor), energy, IP and capital?
Is your entire team working at full capacity and generating their maximum profitable revenue?
Are you maximizing the leverage of each of your resources?
Key #5: More (Productive) Resources
Capacity is the amount of productive resource available to your consulting firm. Again, this is most traditionally thought of as labor hours; however, your firm has other resources that produce profit for you.
You can add resources (for instance, hire more people), and you can also increase the capacity of current resources.
Diagnostic questions:
What percentage of your staff’s hours are productive?
Are administrative tasks consuming large chunks of consulting time, or are your most valuable human resources focused on winning business, delighting clients and comparing cacao products?
Could new, more efficient resources (e.g., AI) create more capacity from current resources?
Which of the five keys hold the greatest opportunity for you and your consulting firm?
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