This is a continuation of a series. The previous articles were:
Part 1 - Establishing yourself as a "Subject Matter Expert"
Part 2 - Consulting as Business (Welcome to Entrepreneurialism)
Written by Ron Bettin
You already know the value you can add to a client's business, but how do you get them to pay you for your expertise. Establishing your reputation and getting your first clients is very important as it may determine how effective you are as an independent consultant.
1) Establishing a Reputation
The work you do for your first clients becomes your "marketing material" for future work. Word-of-mouth is the best thing way to get more business, so establishing your reputation is extremely important. Some important considerations:
Add Value
You are hired based on your experience to provide advice or do a specific job to improve the organization and deliver results. It is imperative that you are adding value, or there is no reason for you to be there.
Be Positive
Avoid being negative; no one enjoys working with a miserable person. You may be asked to provide constructive criticism, but that does not mean you have to be negative.
Build Relationships
As a consultant, you could be hired by anyone in the future, including other managers, employees, or consultants. Make an effort to build trust and meaningful relationships throughout your consulting career. You never know when someone may remember you and want to hire you.
As for Testimonials
If you do a good job, people will be happy to give you a testimonial, but only if you ask! After you have completed any project successfully, do not be afraid to ask for a testimonial for LinkedIn or your website. Also equally important is for you to offer testimonials and references as well.
2) Your Clients - The People that Pay your Bills!
The ideal first client is a customer who will already know you and understand what value you can add to their company. Don't hesitate to go work for a familiar organization to get yourself established; this will allow you to work out the "mechanics" of being a consultant in a relatively safe environment. That said, there is a risk when you depend on one client, so always be building your consulting practice with the expectation that you could lose your primary client at any time.
Most of your clients will likely come from word-of-mouth. You will have to be strategic in finding your first clients and demonstrate that you are the "Subject Matter Expert" and use this for future marketing and references. A few things to consider about clients:
Is the Client a Good Fit?
Identify clients where you know that you can add value to their business, strategy, or culture. If you have spent your entire career working in government, it will be difficult to consult in a start-up company as the dynamics and pace may be too drastically different for you to succeed. Likewise, many people who have spent most of their life in a small business may not be able to navigate the complexities of a large company. Most management consultants have found a way to pivot from their career experience, but not by doing a 180-degree change. In time, you will find your exposure to many organizations will broaden your ability to provide value in almost any business.
Not Every Client is a Good Client
When you are just starting as a management consultant, it can be challenging to say "no" to a potential client. Many companies will take advantage of you and could cause you financial and reputational damage if you are not careful. A few red-flags to watch out for:
The company has a bad reputation: Companies will often sugar-coat how good their company is when they are an awful company with a bad reputation. Do your research and be upfront about any concerns before you take on a contract. Perhaps you may be the consultant who can help solve their problems, but it is not likely if the management and organization have not changed.
They avoid discussing your compensation or setting up a contract: When you hear, "Don't worry about the pay, we need you to start right away, and we'll worry about the contract later." Yikes! Unless you have worked for this company before, this could be a case where they do not have the money to pay you or have no intention to pay you what you expect. Start-ups may also "hope" to have the revenue by the time they need to pay you. Any legitimate company will talk about a contract and compensation honestly upfront. If there are concerns, they need to be transparent with you, and you can decide if you want to take the risk.
The non-compete and penalties are too extreme: Read the fine print in a contract. Even the best consulting job is not worth taking if it prevents or penalizes you from working for other clients, especially if there is a legacy period after the contract ends. The more restrictions placed on you as a consultant, the higher your rates need to be.
They cannot describe the problem you are required to solve: This could be a case where they are not honest with you, and you may be set-up for failure. Take the time to understand and define what is expected of you before you start. The worst-case will be where you end up being held liable for results that you did not agree to.
You are asked to keep secrets without explanation: There are legitimate reasons you could be hired to work on a confidential project, but if your client asks you to keep secrets within an organization (particularly from Senior Management), then beware. You may have been hired to work on a project that is not sanctioned in an organization or could be subversive in nature, and your reputation and fees are at stake
They are disrespectful of other consultants: If you keep hearing how bad all the other consultants or employees are, then watch-out; you are about to be hired as the next "bad consultant"!
3) How much to Bill – The Consultant Dilemma.
"Your consulting rate should never be less than you are worth, but you are only worth what your client will pay."
Setting your rates can be the hardest thing for any consultant to determine. If you charge too high, you may only get a few hours of work, or no work at all. If you charge too little, you are being taken advantage of and leaving income on the table
Setting Your Rate
General guidance is that a consulting rate should be 2 to 3 times per hour what an employee would be paid for the same work. This higher rate is to compensate for the fact that a consultant is responsible for operating expenses, insurance, benefits, vacation time, etc. In reality, rates can vary dramatically for independent consultants depending on their individual business circumstances. Large firms have significant overhead costs for their organizations, so their consultant's rates can be quite high.
It turns out that a "formula" to determine consulting rates will probably only work if you have no competition, and in that case, you can charge whatever you want. In real life, your rates will be determined by the market. You will need to research factors such as the industry, market conditions, field of expertise, experience, and how much competition there is for your services to determine the competitive rate you should be charging. Some places to find competitive rates can be through professional organizations that you belong to, LinkedIn, job posting websites, and by talking to your peers in the industry.
Ultimately, your final rate discussion will be with your client, so this "negotiation" may allow you to explore some billing options that work best for you. The better you can define the scope of work, the more options you can consider including:
Hourly Rates: Best option for flexibility with limited definition of scope of work and deliverables.
Daily Rates: A good option if you are required to travel to a site and put in the same amount of hours each day.
Project Lump Sum Rate: An option if you have an agreed-upon scope and deliverables that you are comfortable that you can achieve without risk of unknown issues or changes.
Performance Fee: If you feel that you have a unique offering that will result in a measurable improvement, you can negotiate a fee that reflects your performance to achieve results. A Performance Fee is a higher risk/reward option and must be documented in detail.
Retainer Fee: If a client does not know exactly what their needs are but wants to have you available each month for support, consider a monthly retainer. Retainers allow a fixed budget for and commitment for both you and the client.
"Introductory" Rate?
As a new consultant, it may be tough to establish yourself. You may find that you must lower your rates to "get-in-the-door." This can be a tricky situation as it creates a rate that you may be stuck with for longer than you wish, and ultimately devalues your role as a consultant.
Some ways to get yourself into a company is to come up with a specific service or project at a lump sum that provides value to your client but does not lock you into an unwanted rate. Some examples might be to "review a specific process workflow and deliver an optimization report," or "provide a competitive analysis on a software system." If you research your target companies ahead of time, you might be able to propose a very timely and topical proposal that will help them address an issue that they do not have time to look at. It also gives you a chance to learn about their company from the inside so that you are an obvious candidate to help solve any problems that you uncover. For any subsequent work, you can now charge a reasonable and competitive rate.
If you are having a tough time establishing yourself, you may want to work with friends and supporters to exchange consulting work for marketing references. This quid pro quo work would be done with a pre-agreed arrangement for your "client" to offer a testimonial that you can use in any of your marketing material and be called upon for a reference. These projects should be short and clearly defined, with an understanding that any paid consulting work will take precedence.
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Ron Bettin is a Canadian executive with more than 25 years of leadership and entrepreneurial experience. He is the co-founder of several companies, including ReSourceYYC, and provides management consulting to both large and small corporations. Ron has a strong understanding of the importance of building value and creating success. He is a graduate of the Southern Alberta Institute of Technology and has an MBA from Queen's School of Business.