97
Chapter 5
The Business Behind
Consulting
◾ What is your level of business financial knowledge?
◾ Which factors in your business are limiting cash flow and profits?
◾ How do you price your service and solutions to reward your talent?
Financial Intelligence
In a nutshell, financial intelligence is the ability to generate sufficient cash
flow and profit to meet your business and life goals. It is all about ensuring
that every cost is managed, investing profits wisely, and not losing sight of
the key metrics that drive the health of your business.
Despite the critical nature of this financial arena, it is one that consultants
all too frequently ignore. The core reality is that the ultimate barometer of
the success of your consulting business is profitability. Every activity within
that business must contribute to a specific profit amount, directly or indi-
rectly. Your primary aim is to generate profits to achieve the greatest pos-
sible return on your time, energy, and invested capital.
Ask yourself this question, If I am not working on and generating profit
in my business, how am I qualified to talk about profitability of the client’s
business?
In this chapter, we look at ways of assessing the metrics that govern
profit and examine fee setting and the primacy of results-based consulting.
98 ◾ Odyssey—The Business of Consulting
Critically, we demonstrate how to shift your thinking to generate higher fees
and drive greater profitability.
The Odyssey Profit Drivers
A profit driver is a specific focus point where you exert direct action to
achieve a profit advantage. Profit drivers have a multiplier effect on profit;
they punch way above their weight (Figure 5.1). A small change to a profit
driver can dramatically improve your chances in a competitive situation.
There are six profit drivers:
◾ Staff
◾ Personal
◾ Client
◾ Sales and marketing
◾ Solutions
◾ Market
1. Staff
profitability
4. Sales and
marketing
profitability
3. Client
profitability
5. Portfolio of
solutions
profitability
2. Personal
profitability
6. Niche
market
profitability
e business
of consulting
Figure 5.1 The Odyssey profit drivers.
The Business Behind Consulting ◾ 99
Together, these drivers form a chain, and as with any chain, one weak
link can damage or even destroy your entire consulting business. However,
the converse is also true. Eliminating one profit-limiting factor creates a
ripple effect across your practice, improving all other processes and systems
in your business.
Most consultants do not know how to look for the weak links in their
practice. In this chapter, we discuss ways to review and assess your practice
to zero in on critical weaknesses in your business and financial systems. You
will find that strengthening the weakest profit link will be among the most
significant financial interventions you will make in your business this year.
You may also want to seek the advice of your accounting and finance con-
sultant to review your financial model and systems.
Staff Profitability
Payroll is always the largest expense in any consulting practice. When cal-
culating payroll costs, many independent consultants pay themselves either
poorly or last and justify this by telling themselves that the big payoff will
come later. This is simplistic thinking.
Put yourself in the business owner category rather than in the self-
employed category. All staff, including you, must yield an acceptable rate of
return. Better still, each staff member should contribute a maximum return
on investment (ROI).
In the professional services industry, the “one third, one third, one third”
rule tends to apply to allocation. One third of revenues goes towards profit,
one third applies to the delivery of your services, and one third covers
administration costs. Let the following questions guide your thinking in rela-
tion to staff profitability:
◾ Who is not paying for themselves?
◾ What will you do about this?
◾ What can you do with staff who are not producing optimum returns?
◾ What is your process for hiring staff?
◾ How do you pay yourself?
High staff costs can be reduced by hiring on short term contracts, work-
ing with a virtual assistant and sharing staff resources with other small
organizations.
100 ◾ Odyssey—The Business of Consulting
A Consultant Danger Zone
Consultants in early start-up mode tend towards creating partnerships pre-
maturely. Partnering is often a result of the need for “consulting comfort”
and the “thought euphoria” associated with one’s newfound freedom to
sell expertise and services. If not structured appropriately, however, these
partnerships can become time consuming, unproductive, and costly for all
involved. Your time may be better deployed by focusing your energy on
looking for clients and creating your brand of leadership. A more reward-
ing support strategy may be to contract expertise as required. Productive
partnerships evolve when you have an established practice identity, which
attracts those with like mind, ethics, and heart.
Personal Profitability
Your personal rate of return is the single most important contributor to your
overall success. Your ability to consistently earn an above average income is
your most valuable asset. Time is the critical resource. How you use the 168
hours available to you every week will determine your revenues and profits.
A good question to make a habit of asking yourself regularly is, what am
I doing at this moment that is contributing value to my business? You should
be able to quantify your answer using cash flow and profitability variables.
The time will come when summer will ask, “What have you been doing all
winter?” Or winter will ask, “What have you been doing all summer?”
The only time an Odyssey consultant should think about an hourly rate
is when calculating costs on how much time to allocate to key productiv-
ity, performance, and administration tasks on a project/proposal basis.
This exercise is for your own internal use to establish a preliminary project
profit/loss analysis to determine the overall project fee to be submitted to
the client in the Recommendation (REC).
Value Basics
Let us say you work 2,000 hours per year. Now, divide that figure into your
annual net income and you get your hourly rate. Let us say you pay yourself
$100,000 per year. Divide by 2,000, and you arrive at an hourly rate of $50.
Once you have established that critical figure, you must take action. Stop
doing administrative low-value tasks that can be completed by someone else
The Business Behind Consulting ◾ 101
for less than $50 per hour. You must outsource, delegate, or eliminate any
tasks that do not give you the maximum return on your time.
Doing the wrong thing well is the height of folly. By continuing to carry
out tasks that can be done less expensively by someone else, your business
is incurring an opportunity cost, thereby damaging your revenues and your
overall profitability. Level 1 and 2 consultants often unconsciously fall into
the habits of being a Jack or a Jill of all tasks and a master of none.
One of our graduates told me recently, “I suddenly realized how much
unproductive time I was spending on social media, thinking it was going
to generate business. I was deceiving myself. It was event management
at its worst. What I needed to do was to get busy working on a pow-
erful Executive Briefing that I could deliver in my immediate business
community.”
Consider how much time you spend on the critical success factors (CSFs)
of a profitable consulting practice.
◾ What is the one thing you need to stop doing in terms of personal
productivity?
◾ What do you need to start doing immediately in terms of personal
productivity?
◾ What are your CSFs? How much time are you spending on them?
◾ What are the critical number of CSF’s you need to focus on all the time?
◾ How can you save 15% of your costs for the next 60 days?
Client Profitability
Client profitability is the relationship between the fees you charge and the
time you spend on the assignment. Some clients may be very profit-
able; others may actually be costing you money. The 80/20 rule frequently
applies: 20% of your clients contribute 80% of your profits.
The question then becomes as follows: What do you do with your least
profitable clients, who still absorb your time and your talent? Creating the
time to find your Ideal Client is often the most neglected priority for a con-
sultant. Do not fall into the trap of confusing being busy with doing good
business.
◾ Which clients do you need to let go?
◾ Identify two Ideal Clients you will work to get on board in the next six
months.
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.