A Mini Series on Profitability in Consulting
The overall goal for the majority of business owners when starting in business is to become profitable. This is also true in the business of consulting. The goal is to create a consulting business that is successful for years and decades to come. For this reason, profitability is essential.
Profitability, or the ability to make enough profit to sustain your business over time, is a significant longevity component. It looks beyond the absolute dollar amount you are earning above expenses (profit). It assesses how well your business is doing at handling the revenue it receives. The desire is to achieve healthy profitability, which is impacted by many factors.
What are the important factors impacting profitability in consulting?
When you think about what impacts profitability, you have to consider what influences the money you are bringing in, maintaining, and losing. I like to think of profitability as somewhat of a balancing act. However, in this analogy, the goal is not for it to be 50/50 because that would mean that profitability is not achieved. Instead, we must understand the need to counterbalance that which is lost through decisions necessary to operate our consulting practice.
In the world of consulting, there are what I like to call four umbrellas of profitability.
- Client attraction and retention
- Hard and soft skills
- Client satisfaction and perceived value
- Productivity and efficiency
Umbrella 1. Client attraction and retention
This is all about who you are bringing in as a client and who is choosing to stay or return to work with you again. It is the obvious way to increase profitability… bring in and keep more clients, which results in increased revenue. That is why client attraction is the primary focus of marketing strategy. To have a successful consulting business, you must work with clients willing to pay for your services.
Umbrella 2. Hard and soft skills
Consulting is commonly called the “business of expertise.” Your expertise represents your hard skills. This is the knowledge, experience, and training you possess that allows you to serve as an expert in your field. It means your proficiency in a given area and what you are most often hired to do. Your soft skills are the interpersonal skills (i.e., ability to communicate effectively, manage your time, lead others, problem solve) that complement your hard skills. It is typically what helps to attract and retain the clients you serve. Both your hard and soft skills are vital for your success as a consultant.
Umbrella 3. Client satisfaction and perceived value
It may seem like common sense that client satisfaction and perceived value would matter, especially if client attraction and retention are integral to building a profitable business. However, what many people overlook is the fact that this does not happen by chance. Client satisfaction and perceived value must be pursued intentionally. Each interaction that you have with a client, no matter how small or seemingly insignificant, shapes their perception of value and helps to determine their level of overall satisfaction with the service you provide. It can make the difference between creating raving superfans that spread the news of your consulting practice like wildfire leading to referrals and more clients coming your way or serving as a devastating review that negatively impacts your business for years to come.
Umbrella 4. Productivity and efficiency
So far, much of our conversation has centered around how to draw more clients and projects into your consulting business. However, you also must consider how you will increase your work capacity to manage the influx of clients or additional work that you desire. This is in addition to minimizing expenses and operational costs, which can eat into your profit margin. Doing so requires that you become more productive and operate in an effective and efficient manner. You must focus on things beyond getting the client in the door. This is critical to achieving longevity in the industry. Not prioritizing this upfront will inevitably lead to overwhelm, burnout, and profit loss.
Why is it important to understand the complexity of profitability in consulting?
It is important to think beyond the cash you can bring into your business and understand what is pulling the levers in your business model. When you have a global perspective of what it takes to achieve profitability in consulting, it helps you determine what to prioritize and focus on from day to day. Suppose you are a solo consultant or working in a small firm or agency. In that case, understanding the complexity of what it takes to create a profitable consulting business becomes critical because your resources are often limited. The ability to adjust for these factors can help you maximize your profitability, leverage, and scale your business to generate growth over time.
Do you want to learn more about the four umbrellas of profitability and how you can use them to shape your practice? Stay tuned for Part 2 of this mini series.