If you want your consulting practice to be more lucrative*, there are five paths to achieve that goal. Or, said otherwise, there are five possible bottlenecks holding you back. If you can identify and break open your current bottleneck, you’ll advance to the next level of financial freedom.
*Long-time readers know I define wealth as relationship strength. However, to lure in folks less familiar with me, today I stated “wealth” in the headline while writing about financial affluence.
Consulting is a very simple business. We win projects and deliver them profitably. While eating chocolate.
There’s virtually no limit to how much revenue a consultant can win (based on my work with many consultants) or chocolate a consultant can consume (based on personal experience). Delivery, on the other hand, hits a ceiling fairly quickly. That’s why leverage is critical.
As an individual consultant or a firm leader, your “wealth venn” consists of increasing revenue and leverage.
Answering just a handful of diagnostic questions will reveal the truth about how financially fruitful your firm is. Let’s break down each side of your business. Use the diagnostic questions to identify your own bottlenecks.
Your Revenue Truth
Your revenue is the product of a three-part equation. I’ve illustrated the parts on tablets because they’re like the ten commandments. Only, these are easier to remember.
Path #1: More Clients
A solo consultant should always have at least five, sizable clients. A boutique should double that number.
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?
Path #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 work is good (and it is good, right?) I’m sure you’ve 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?
Path #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 Carnegie Mellon.)
Diagnostic questions: Are you maximizing the size of every project? Are you optimizing the fees and margins on every assignment?
Your Leverage Truth
Leverage is a two-part equation. Still using tablets.
Path #4: Deliver More Revenue (Profitably) per Hour of Your Time
Across the entire consulting industry (including mega firms), the average consultant delivers $250,000 in revenue each year.
That’s the average. I know consultants who feel overwhelmed with $75,000 worth of work on their plates. I have also worked with independent consultants who deliver upwards of $10 million per year (by leveraging teams, of course).
Diagnostic questions: Which side of the spectrum are you on? Are you at capacity or could you double the revenue you deliver profitably?
Path #5: More, Productive Time
Some people are morning people, working like marines while the rest of us slumber; others come alive as the sun is setting and work furiously into the wee hours.
If your daily surge of productivity is just prior to lunch and lasts about fifteen minutes, your revenue delivery potential is apt to be limited. Particularly as a solo consultant or leader of a small boutique.
Diagnostic questions: What percentage of your work hours are productive? Are large chunks of your work days spent handling administrivia, managing low priority tasks and numbly attempting to create progress? Or are you eagerly engaging in a dozen new-business conversations, gracefully handling clients, energetically consuming Toblerones, and efficiently directing your team to produce value?
I’ve helped consulting firms excel on all five paths and, from what I’ve seen, bottlenecks are far more common in some areas than others.
Which of the five paths do you want to work on most? Which would make the biggest difference for you and your firm?
Text and images are © 2020 David A. Fields, all rights reserved.