How to Start a $420K/Year Consulting Business

  • by Brandon Boushy
  • 1 month ago
  • Blog
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Chef working on kitchen

Are you really good at a specific portion of your industry? Do you want to help other businesses achieve phenomenal results? Then you need to learn how to start a consulting business.

Ryan Gromfin was a chef at a 5-star restaurant when the constant stress got to be a bit challenging. He’d recently had a heart attack and his partnership imploded, but a colleague asked him to consult with their restaurant.

That’s how Restaurant Boss came to be. We’re going to show you how to start a consulting business with advice on how Ryan went from Googling “What does a consultant do?” to making $420K per year.  You’ll be able to do it too.

What Is a Consulting Business?

You might not be wondering, “What is consulting?” but Ryan had to Google, “What does a consultant do?” when he was offered his first consulting gig. He told us:

“I was a Chef. I’d always been a student of Tony Robbins and other consultants, but never had an idea of how I’d do it. When a partnership failed, I got an offer from a colleague to consult, and I said sure. From there, I prepped for the first meeting, did well, and they asked for a bid.”

So, I figured I’d include it for those of you in a similar position.

A consulting business gives expert advice to other businesses. Ryan provides consulting services to restaurants, but there are 203 different reports that include the term consulting in the IBIS database pictured below. The majority fall under NAICS code 54: Professional, Scientific, and Technical Services in the US.

IBIS screenshot

That means there are at least 10 different types of consultants for each industry segment in the NAICS. If you are an expert in something, chances are you can start a consulting business.

Defining Consulting Business Ideas

People often start a consulting business because an opportunity arises. After you successfully complete the first consulting project, take the time to develop a more structured consulting business. During the process, you’ll want to consider:

  • Types of consultants
  • Different business models
  • Industry outlook
  • Major players

Good news! We’re going to share some insights with you about consulting businesses, starting with the different types of consultants.

Types of Consulting Businesses

Fortunately, consulting services operate in almost every industry. Some of the most common include:

  • IT Consultant: Focuses on improving the use of software and hardware so companies can achieve more profitable business goals. (NAICS code 54151)
  • Real Estate Asset Management & Consulting: Helps people and businesses make better decisions involving real estate investments. (NAICS code 53139)
  • Business Management Consulting: Advises businesses to better manage company resources including people, money, and supply chains. Typically broken down into smaller segments. (NAICS code 54161)
  • Human Resource Consulting: Focuses on advising companies regarding hiring, meeting employment law, payroll management, and navigating the job market. (NAICS code 54161b)
  • Marketing Consulting: Focuses on helping people attract clients through marketing campaigns, writing services, social media marketing, and brand consulting.
  • Environmental Consulting: Consults on the environmental impact decisions have. These are especially common in the oil & gas industry, as well as in construction near protected habitats. (NAICS code 54162)
  • Economic Consultant: Advises business owners on the industry outlook and other micro- or macro-economic issues. (NAICS code 54169)
  • Sales Consultant: Helps businesses improve their sales strategy or improve the sales team’s performance.
  • Tax Consultant or Financial Consultant: Helps businesses find ways to improve their financial results through accounting practices. Will normally be a Certified Financial Planner.

This is not a definitive list. There are good consultants in almost every industry. There are even gardening consultants that advise people and businesses on what plants will work best in the environment.

Which Business Model Is Best for a Consulting Business?

There are numerous business models consulting businesses use. As you choose a consulting business model, you’ll need to consider how you want to find clients, what your skills are, how many clients you want, and the revenue you want to achieve. Four of the most common consulting models are:

  1. Solo Consultant Model
  2. Productized Consulting Model
  3. Consulting Firm Model
  4. Hybrid Consulting Model

What is a Solo Consultant?

A solo consultant is commonly referred to as an independent business consultant. These consulting companies are focused on personal relationships with clients. It’s how most small consulting businesses will start, including Ryan. He told us:

“I was a Chef. I’d always been a student of Tony Robbins and other consultants, but never had an idea of how I’d do it. When a partnership failed, I got an offer from a colleague to consult, and I said sure. From there, I prepped for the first meeting, did well, and they asked for a bid.”

Check out the rest of our interview below.

A solo consultant will normally want their consulting services to be focused on:

  1. A small number of clients
  2. High-value clients
  3. Building personal relationships
  4. Clients that need unique solutions

It’s hard to sell these businesses though because they are directly tied to the consultant. You’ll normally want to progress to other types of consulting models as time goes on.

What is a Productized Consulting Model?

A productized consulting model focuses on creating a process that the consulting service can use over and over again to create terrific results. This is common in technology consulting.

Ryan also engages in productized consulting to a significant degree. He told us:

“Many restaurants have difficulty systemizing their operations. We typically systemize these first:

  • Checklist
  • Prep sheet
  • Recipes
  • Build sheet

Then build upon them to help a restaurant start improving margins. We do this because they are easy to understand and can  generate results pretty fast.”

This is basically an evolution of the solo model that makes it more sellable. People who wish to build consulting firms should also use this business model to make their consulting services more consistent across consultants. 

Let’s talk about the consulting firm model next.

What is a Consulting Firm Model?

Team meeting on a table

A consulting firm is a natural progression from a productized model. Consulting firms focus on having a team of consultants that can help clients achieve their goals. You might see this consulting business model in major accounting firms, tech companies, and more mature consulting businesses. 

These firms will be focused on getting as many potential clients as possible. Because they have other consultants to give expert advice, they are not limited by the constraints of a solo consultant.

A business owner who starts a consulting firm will be more focused on managing people than serving clients. Their earnings will be based on how well employees provide results for their clients. 

Have you considered a Hybridized Model?

Most businesses will mix and match the different consulting business models to create a business that works best for them. When you start a consulting business, it makes a lot of sense to include elements of the productized business models to streamline your consulting service.

What Is the Industry Outlook?

The consulting industry has five million businesses that generate a combined $2.4 trillion of revenue in the U.S. IBIS World expects consulting business revenues to grow by 2.5% annually through 2026. The profit margin is expected to stay fairly level at 7.9% of revenue.

Who Are the Major Players in the Consulting Business?

The major players in the consulting industry include:

  • Accenture PLC: Market leader in most types of business consulting
  • IBM: IT Consulting
  • Jacobs Engineering Group: Environmental cleanup and construction
  • Omnicom Group: Marketing and PR
  • Kirkland & Ellis: Law firm

Consulting business chart

Small Players: You don’t have to be a multi-billion dollar corporation to make a great living. We’ve interviewed marketing consulting companies and brand consultants. Check out some of the other consultants with whom we have met:

  • OnStrategy: $6 million annual revenue Strategy Consultant
  • Kristin Cutura: Former Google Employee turned Google Ads Consultant
  • Libby Gill: Brand and Leadership

How to Start a Consulting Business

To start a consulting business you’ll want to focus on:

  1. Writing a plan for your consulting company
  2. Funding your consulting
  3. Naming your consulting practice
  4. Meeting the legal requirements for a consulting business
  5. Market your consulting business
  6. Submit client proposals
  7. Perform business consultation

We created a checklist for you to build your startup consulting company.

Write a Consulting Business Plan

You don’t absolutely need a business plan, but it helps keep your business on track. If you decide you want to create a business plan, consider including:

  • What consulting services you will provide: HR Consultant, Accounting consultant, management consultant, marketing consultant, IT consultant, brand consultant?
  • Target market for your consultant business: What size companies will you target? What industry will they be in?
  • How most consultants in your industry operate: Do they use affiliate links, provide implementation, or just advise?
  • Your Business Model: Will you be solo, productized, firm, or hybrid?
  • A Marketing Plan: How will you market your consulting company?
  • Other Expenses: What other business expenses do you expect and how will you cover them?

Check out our blog How to Write a Business Plan or watch our interview with Mike Andes below. 

Funding Your Consulting Business

Whether you’re a marketing consultant, human resources, or one of the many other types of management consultants, your consulting business will need funds to keep going.

The most common ways of funding a business are through personal funds or loans from family and friends, but there are a variety of other methods available to people with good credit and some assets. 

Many people talk about SBA loans, but they frequently require two years in business and that all other options are exhausted. So, you can apply for them, but it would also help to check out our blog about funding options to find 17 ways to fund a business.

How much profit can a successful consultant make?

According to IBIS data, the most profitable of the top five consultants makes a 23% profit margin, which is nearly a $1.9 billion profit on $8 billion revenue. Not too bad!

The average consulting business makes $466K and has an 8% profit margin. I would attribute this apparently low percentage to consultants paying themselves a salary, benefits, and tax deductions, like home offices. 

If you combine the profit with a wage of $80K to $100K based on the Bureau of Labor Statistics, that means that a new consulting business can make around $140K.

There are a ton of benefits available through starting a Limited Liability Company or S-Corporation that can reduce profit but improve quality of life. Those who are particularly good at operating lean can drive results much higher than the average. In most years, I aim for a 28% percent profit margin.

How much does it cost to start a successful consulting business?

Starting a consulting business can be fairly low in cost. IBIS World found that consultants spend approximately two cents on capital expenses for every $1 spent on wages. That means wages and other expenses should be less than 50% of revenue. This number doesn’t include taxes.

Expect to need the following when starting a consultant company:

  1. Business Formation: Free to $1,000 annually
  2. Internet: $30 to $200 monthly
  3. Website, Domain, Hosting: $100 to $25,000+ monthly for lower end or one-time plus upkeep for higher end
  4. Computer: $600 to $3,000
  5. Software and Other Equipment: $250+ per month
  6. Marketing Budget: 8% of the revenue you want to make

Most of the costs on the list you may already have, which is why starting a consulting business is easy to start without additional funding.

How to start a consulting business with no money?

Like many small business owners, Ryan was successful at starting a consulting business with no experience in consulting. Because his client wanted input from his success as a chef, he didn’t have any expenses before his first business consultancy.

You can start your own consulting business this way too. If you want to find potential clients, try platforms like Upwork or Fiverr. We’ll dig into more ways to find consulting jobs, but both of those sites are useful if you want to know how to start a consulting business on the side.

Naming Your Own Consulting Business

Every business will need a name. You’ll want to make sure it is easy to remember and that it describes what you do. In addition, you’ll want to make sure the name is available on social media and as a website domain. Check on GoDaddy, or similar, to make sure your name is available and then purchase your domain.

If you are struggling to come up with names, try the UpFlip name generator or the business name generator from Shopify.

Get a domain name

Laptop with website screenshot

NameCheap offers domains, sometimes for less than a dollar. You can also find domains from any web builder or:

Get ready to hear about legal requirements for consulting companies.

Meeting the Legal Requirements for Consulting Services

After you’ve come up with your business idea and chosen the name for your management consulting services, it’s a good idea to hire legal representation, which can also help get your business started quickly.

Hiring a professional to help you with the legal requirements frees you to focus on strategy and operations.

Each state has different permits, licenses, and tax forms to start a new business. You can find information on what is needed on the SBA website.

Keep reading for information on different legal structures.

Sole Proprietor

A sole proprietor has unlimited liability, but it is the easiest business structure to create.

If your business gets in a lawsuit, your personal assets are at risk. For most types of consulting, I would avoid a sole proprietorship unless you cannot afford the additional costs of an LLC or a corporation.

Sole proprietors file taxes with a Schedule C. Sole proprietors can also join the American Independent Business Alliance.

Limited Liability Corporation (LLC)

Limited Liability Company LLC is shown in notebook

LLCs are common in the United States because of the liability protection. Each state has different requirements to get an LLC. Find your state’s requirements.

Many business owners will opt to have their LLC file as an S-Corp with the IRS. To learn more check out our blog LLC vs S-Corp

Stay with us for additional business structure styles consultants might use.

Partnerships and Corporations

Partnerships and corporations are common in the consulting industry, especially for accounting consultants, lawyers, and other professionals. You’ll want a partnership agreement filed with your state.

Many of the largest consulting firms are corporations with stock holders. This helps them access alternative means of fundraising. Executives who want to grow their small businesses into marketing consulting firms or HR consulting empires with thousands of  HR consultants might want to start a corporation.

Learn more about the different types of business structures in the industry.

Apply for an EIN

You’ll need to get an employer identification number from the IRS website. The IRS uses this number to match employee taxes to company taxes. We walk you through the process in Step 4 of how to register a business.

Sales Tax Permit

If your state has sales tax (most do), you’ll need to get the sales tax permit or license. Avalara has a guide on Sales Taxes. Check it out.

Tax filing and withholding

Withholding tax showing in text

You’ll need to file taxes and withhold payroll for employees.

The IRS guide for employers provides guidance on payroll. 

Federal employment and labor law posters

You’ll need to get Workplace Posters plus abide by:

  • A state’s New Hire Program
  • Employment Eligibility Verification (Form I-9)
  • Worker’s Compensation Insurance
  • Occupational Safety and Health Administration (OSHA)
  • Disability Insurance—each state is different

Unemployment Insurance

Review the U.S. Chamber of Commerce information on unemployment to comply with UI laws. Federal UI is $420 per employee plus any state expenses.

We’ve covered the legal requirements for consulting businesses. Now, let’s look at how to grow your consulting business through marketing.

Grow through Marketing

You can find potential clients through a variety of methods, but every good consultant will use at least some of the ideas in this section to attract small businesses looking for his or her expertise.

You may want to partake in all of these as you begin marketing:

  • Market research
  • Marketing plan
  • Launch a website
  • Marketing on social media
  • Growing your email list
  • Tapping into and growing your network

Keep reading for more information on marketing.

Market Research

Businessman looking at business concept on wall

Market research is about identifying the demand for your consulting services. This includes:

  • Defining the industries you want to service
  • Identify the size of companies you want to service
  • Establishing the best way to reach these companies
  • Finding common requirements for the industry you’ll provide services.
  • Identifying industry trends
  • Recognizing gaps are in the market

Ryan told us market research is about:

“Who are their ideal guests? Where do they hang out?”

He also advised business owners to recognize whether they are a commodity or unique entity. He told us:

“Your menu is your product.

Products have to be different. If it’s the same as everyone else, you are a commodity and are competing on price.

Unique or Commodity? Recognize what you are…”

Check out our blog about market research to learn more about gathering this data.

Create a marketing plan and use it

Project presentation plan

Marketing plans can be simple or elaborate, but they should be focused on providing your customers something of value. Ryan told us this is basically his marketing plan:

  1. Create meaningful content on my YouTube channel.
  2. Link to a free resource list or a free book to collect emails.
  3. Share new content through emails.
  4. Future clients can reach out for advice on their own business efforts.

“Give away the ‘WHY?’ and sell the ‘HOW?’

That’s the general rule and I cross it all the time. We give away some of the how. Some people might say too much of the how, but I don’t want anyone to go through what I went through.”

In your plan it is important to specify the channels you’ll use, the budget, the expectation, and create a brand guideline to help keep marketing aligned with the brands values, fonts, and colors.

Ryan also advised if you really want to stand out, “Follow the influencers in your industry and do more of that.”

He also reminds business owners not to forget loyalty programs. In consulting, a loyalty program can be anything from a discount after spending a certain amount to a plaque for being a preferred client––something to let them know that you appreciate them.

You may want to include marketing options like the following:

  • Social media marketing
  • Business writing (Blogs and White Papers)
  • Paid ads
  • Working with editorial services
  • Hiring a Public Relations Consultant

Ryan told us the restaurant industry doesn’t have much success with print except for delivery services.

“Door hangers are still highly beneficial and trackable.”

This might not apply to your business, but you have to love free tips for client projects. If you’re in service business consulting, make sure to suggest door hangers too. Check out our blog about how to get cleaning clients with advice from the owner of Queen Bee Cleaning Services. 

Chris has some advice and techniques that could help most industries. He’s been a keynote speaker. You can learn a bit about some improvements that he’s made in our video below.

Build a website

Every consulting business needs a website. You should review competitor websites and then hire a brand consultant with a developer on staff to help build your website. Make sure they have a marketing consultant with SEO credentials to help you rank faster.

If you want to try building your own website as an independent consultant, check out our blog about how to build a webpage.

Marketing with Social Media

With consulting, you might have to get a little creative with how you target small businesses. Many small business owners are on LinkedIn, but is that where they are spending most of their time?

As a B2B consultant, you’ll want to be where you can find people who need your help, which will typically be on the sites where their customers are. Sprout Social has a great blog about time spent on social media by channel and demographics.

Grow Your Email List

laptop with email and mailchimp screenshot

Email lists are some of the most powerful marketing tools to reach potential clients. You can use them to remind people about changes in the industry, promotions, and other information that can help your customers.

I’d suggest following MailChimp’s blog to develop your mailing list.

Tap into Your Network

Networking is an essential part of every consulting agency. The more people you know, the more potential clients you will come across. Make sure to be focused on giving them value. You’ll probably always want to have business cards available to hand out in unexpected places throughout your day. Make sure to keep them in a case to keep them in good condition.

Running Your Consulting Business

Running a business in the consulting field may require:

  • Hiring employees and payroll
  • Submitting client proposals
  • Helping customers
  • Accounting
  • Payroll

Hiring Employees and Payroll

Ryan discussed hiring in some detail. He had some great words of wisdom.

“A great coach is strict, but you can never be mean to your team. If you aren’t getting the results you want, try being nicer but not more lenient.”

Most importantly he emphasized:

“Manage systems, and develop people. People don’t want to be managed. People want to grow; they want to get better.”

 A good consultant will probably need some employees. If you hire, you’ll need to:

  • Post job openings
  • Conduct interviews
  • Decide fair pay
  • Manage tax filings and withholdings
  • Obey labor laws

Follow along for more information on each step.

Job Posting 

Mobile phone with freelancing platform

A good consultant will probably want to hire people and agencies to assist with client projects on a project-by-project basis. This means businesses in the consulting field should find employees on sites like:

Interviews

During interviews, you’ll want to ask about:

  1. Examples of previous work: Understand that many will be protected under a Non-Disclosure Agreement (NDA). Be willing to accept reviews.
  2. Availability: Most professionals will be remote. If you want someone who is available between specific hours specify that in the job post.
  3. Experience with software: You need people who know how to use the tools you use.
  4. Employee values: Every company values specific traits that vary. One might be focused on growth, while another is focused on cost cutting. It doesn’t help to put people who are focused on growth in a company trying to cut costs, they won’t fit.

Ryan told us:

“They have to want to be social. You can train the rest. Look for people who want to have fun doing it, then teach them.”

Compensation

Clients pay consultants based on the project or for an ongoing service. If you are paid by the project, you’ll need to make sure that you can pay people working for you. I normally require a retainer for 20% plus any expected costs for new clients.

Most consultants make between $80K to $100K for full-time work. But there are different ways to compensate for consulting in business. 

Ryan told us:

“The team has to be built and maintained. Figure out the rewards for employees. It doesn’t have to be all monetary.”

Salary

Salary means they get paid the same amount no matter how much they work. Only full-time people who have not engaged in mission-critical aspects of the business really qualify for salary. Paying someone a salary can expose you to overtime liabilities if they are misclassified.

Consulting salaries typically run between $80K and $100K.

Hourly

Hourly contracts make the most sense for many consultants. To convert from a salary to hourly, use the formula:

Salary / (2080) = Hourly

Fixed Price or Commission

Many freelance consultants will charge a fixed price based on the project. This model is also used if a consultant uses affiliate marketing programs to increase their revenue. 

The fixed price model works when it converts to a comparable or higher rate than the billable hour. To make sure you know whether you are billing correctly, you’ll probably want some kind of a time tracker. There are a variety of types based on your needs. 

I’ve personally used the following, and they are listed in the order I prefer them:

  1. Screenshot Monitor: Captures screenshots, time tracking, plus manual entry
  2. Upwork time tracker: Only for billing on Upwork
  3. ClickUp time tracker: Built into ClickUp features (I don’t love it.)

There are plenty of other options, including HR outsourcing companies (Check this out if you are going into human resources consulting. Make sure to join their affiliate programs.) and other software providers.

Submit Client Proposals

One of the most important aspects of how to be a consultant is submitting proposals. You’ll want to have the following ready to create proposals:

  1. A questionnaire to establish what challenges new clients are experiencing.
  2. A proposal that outlines what you will and will not be doing in the process.
  3. Contract templates that should be filled out and sent with the proposal.
  4. Invoicing and payment system for current and new clients to pay for their consulting.

There are plenty of tools that you can use to accomplish all of these, but we suggest Monday.com.

How to Retain Customers for Your Consulting Business

Marketing team working on table

“Reputation! Reputation! Reputation!”

Keeping customers happy is about providing a service that improves their bottom line. That means, with everything you do, you need to consider how it’s going to make their business more profitable.

In human resources consulting there are always ways to improve retention rates, lower the cost of recruiting, and other aspects that industries hire consultants to help develop.

Meanwhile, a consultant in supply chain management might create a career consulting businesses on:

  • Reducing inventory
  • Reducing transportation costs
  • Sourcing locally

There are a ton of other ways where you can build a career in consulting, but you have to generate results to keep booking clients.

Find a far more successful consultant and learn from them. Most of the best consultants will be at industry events or have massive followings. Check out some of the top influencers next.

Top Consulting Influencers

There are a ton of amazing consultants, but here are some of the best:

  • Gary Vaynerchuk takes risks and shows new ways to market a business. He is a one to follow!
  • Tony Robbins has helped ShakeShack, Airbnb, Salesforce, Serena Williams, and Aerosmith improve their brands.
  • McKinsey & Co is considered the most prestigious consulting company by consultants.

Closing

Ryan gave a lot of great input about how to start a consulting business. You just have to decide what your expertise is and go from there.

If you’d like to learn how to start a marketing consulting business, check out our podcasts, youtube, and our blog about Socialistics

You can also check out consulting businesses for sale.

What kind of consulting business would you like to start?

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