Models to Choose from When Starting a Consulting Business

Models to Choose From When Starting a Consulting Business

There are several models to choose from when starting a consulting business.

Hopefully, you are already fully convinced of the efficacy and the benefits of consulting. It is resilient, leverageable, profitable, and requires less in terms of startup costs to get going. What’s not to love! 

But inside of the “Consulting” business model, you have several difficult options to choose from. I say difficult because they each bring their own pros and cons. When I was getting started in my career, I ended up rotating through several of these sub-models accidentally, and it took a long time to really get clear on what I wanted and why. 

My goal is to shortcut that for you in this article. To do that, let’s take it back to college. Class is in session. First topic: economics.

Cash Is Queen

Your first responsibility as a consultant, if you want to enjoy longevity and surplus, is to GET PAID. One of the benefits you get from me teaching you is I am also a practitioner. Many get paid simply to “teach.” In fact, this is why I am an advocate of apprenticeship instead of going to a class and listening to a teacher drone on. More than likely, the professors teaching most classes today – haven’t DONE what they’re talking about! 

I will never forget one night in Memphis, TN. I was sitting in a small nook at our cheap apartment taking an online class. The class was “Entrepreneurship In Business,” and it was being taught by a career professor. It hit me, while listening to him ramble on about nothing – that he wasn’t an entrepreneur. I finished the semester, but I didn’t go back to school after that. 

In fact, to this day, I only need 10 hours or so to finish out my bachelor’s degree in business. I will never go back, though. Why would I? The fact is you are getting to learn right now from a DOER, who learns from being on the ground and in the trenches. I am teaching you out of my own personal wins and losses, rather than theory and conjecture. 

The truth is, I do not make much money from articles like this. I am a real life consultant, actively participating in my chosen craft. There is no way I can make as much money teaching this thing as I can (or am) doing this thing! But I digress … this isn’t about my income, it’s about yours. 

Back on target: I’ve seen many talented people with a TON of potential end up failing… they sputter out and ultimately miss out on the income, freedom and longevity they deserve to have because they cannot figure out this first part: getting paid! 

GETTING PAID WITH CONSULTING

All business comes down to this central question: how will this make me more money? Said another way, “how will I get paid from this?” It’s one of the most important questions you need to answer. For the next few paragraphs, we are going to dive into the economics of consulting and how you are going to make money with this consulting business. I go way deeper on this and more in my book “The Consultant Next Door.“

But for now, I want to show you some good, old fashioned “economics” of a GOOD consulting business. The first question people ask (and the question you’re likely either already asking or about to ask): 

“WHAT SHOULD I CHARGE?”

To which my answer is: It depends! There are three main models of consulting that Chris and I have participated in. I will explain (briefly) all three, and then I will tell you my preference. 

1. Contingency (profit-based)

2. Earned Equity (fee + equity)

3. Fee (up-front, or split payment)

Contingency consulting

Contingency consulting means that you “getting” paid depends upon you doing what you promised. Another way to say it (and hence the name), your payment is contingent upon the results or the delivery. 

An example of a contingency arrangement would be the following: 

You can help your prospect earn $100,000… but instead of charging $5k or $20k… you are going to make the payment contingent on them earning $100k, and then you’re going to collect 50% of it. Contingency consulting allows you to (in most cases) earn far more per client, because you are truly absorbing all of the risk as a consultant. 

They do not have to pay you if you do not hit your ‘contingency’ target… but if you DO hit the target, they are going to pay you a lot more. It is a higher earning-per-client model because it is a higher risk-per-client model… to be honest, I’m not a fan of this model of consulting. 

If I’m going to invest effort, I want to get paid. And in most cases, you just don’t have the sufficient level of control over what the client does or does not do, to justify the higher risk. This is just my opinion, but it’s a strong one. Imagine setting up a contingency deal, you invest the normal amount of time and effort – and then the client doesn’t take it seriously. After all, they didn’t have to pay anything! Then your reward for your investment of time, effort, and bandwidth is a big fat $0. 

I’d rather have either total control over the outcome or deploy better protection for my time. 

Next up: earned equity.

I am a fan of this model, but not to start out with. This model of consulting occurs when you can solve a problem, and you’re willing to take a smaller fee in exchange for equity based on hitting certain targets. An example would be the following: 

You can help your prospect earn $1,000,000 and they’re currently earning $50,000… but instead of charging $10k or $20k… you are going to charge $3k — but everything over $50,000 you are going to take 10% of… and once the business hits $1,000,000 you get 15% of equity in the business. 

One of my favorite models of consulting, though, especially as you’re getting started, is simply the “fee-based consulting” model. It’s simple: I provide you a solution, you pay me for the solution up front, OR – a portion up front and a portion upon delivery. This model works for starting out because it is easy; easy to track, easy to sell, and easy to get paid.

Read my other article 3 Keys to Creating the Perfect Offer, where I dive into specifics about setting up the offer. That article is especially helpful if you’re asking, “But Taylor – HOW specifically do I set up some sort of value that people want to pay me for?” 

This article however, is about MONEY and models. I’ve covered the models part so now let’s go over the economics of building a cash flush, highly profitable consulting business (regardless of which model you choose). 

ECONOMICS & ENGINEERING IN BUSINESS

As discussed earlier, a consulting business isn’t really a business unless it’s earning you money; and it’s not a good business unless you are getting to keep a portion of that money (via profits). But how does this whole thing actually work? 

A big trap I see many clients fall into is not running their business the same way they run their personal checkbooks. You likely have a “budget” for your income, right? Well, you should run your business the exact same way… because at some point, you’re going to want protection from the ups and downs that are inherent with any sort of business. 

One of the biggest fears I had when starting my business was this issue of having different income every month. In fact, my wife and I talked about it because as an entrepreneur, her income was different every month, too. What we ended up doing is, we paid ourselves the same amount every month, whether the business did well or poorly. And it made me feel like I had a consistent paycheck. We budgeted the income that the business made to keep our ups and downs consistent. And we teach people how to do that, too.

Let’s start with the diagram, outlining my viewpoint for how a successful consulting system should work (economically speaking). From there, we’ll get into the math and the numbers. Remember – don’t get too far into “But what do I actually sell them” yet. Let’s build the goals and the required clientele to get to those goals first, then we’ll put all the pieces together. 

Let’s state first and foremost, you should not limit the amount of money you can make through this business by how much you want to make right now. When I started, my goal was to pull in six figures. A few years went by and I was pulling in a couple of 7 figures… then a few more years, a couple of 8 figures. It’s because I never stopped growing. I never limited myself with the constraints of what I thought was “possible.” 

What’s possible is actually limitless… what we think is possible, that’s where the limits are enforced. 

As you can tell from this diagram, we are going to treat your new (or existing) consulting business as just that: a business! The revenues you generate from this business are not going to be deposited into your personal checking account. We aren’t going to just free-for-all spend money based on “how much money is available.” We are going to create constraints. We are going to create a SYSTEM around where your money goes, which is going to produce consistency for you. 

A huge fear people have when either leaving a job or starting a new venture on their own is inconsistency. Some months you make a lot of money, some months you don’t make any. We’re going to completely eliminate that risk with this system. 

Here are the rules:

• I will pay myself a reasonable salary every month no matter what I generate

• That salary will not be 100% of what I “generate”

• I will invest the surplus into growing my business’ topline 

• I will invest what remains into missions and causes I am passionate about

Now, one by one… 

Chris and I have been asked a lot if we’ve read the book “Profit First.” The honest answer is, no, but I have recommended it to many people on the basis of the feedback I’ve received when teaching the lesson I am teaching you now. It’s worth perusing to pick up some extra goodies, if you feel that you are not absolutely clear on how this works – so, yes definitely pick up a copy!

The moral of my consulting model is that you will have expenses. It’s possible that you will have lots of them! Especially as your business grows, you have to be extra careful that you are not spending every bit of topline that enters your business. 

Here are some examples of things you’ll want to pay for out of the surplus of your business:

• Education and coaching (by far, the #1 thing I’ve spent money on has been coaching, mentorship, and guidance from people who KNOW how to get the things I’ve wanted and could help me accelerate my growth drastically)
• Equipment or software (as you grow, you’ll want more software to manage everything)
• People (assistants, employees, and contractors)
• Taxes (you’ll want to set aside enough funds to pay taxes from the business; assume 30%)
• RESERVES (very important: you want to have enough reserves to no longer “worry” about how many clients you need – this sets you up for true freedom; the goal with reserves is to build a 3 month war-chest within 12 months of starting)

The reason I’m covering these things is because I hear people who earn decent money in a corporate gig saying, “If I can just replace my income, I will be alright.” But that isn’t really 100% true. If you’re reading this article, you will make way more money if you adopt my philosophy on money, particularly around the economics of income, expenses and profits. 

The “making” or “earning” of the money is just 25% – I know many consultants who earn a significant amount of money who have no freedom, no reserves, and frankly hate what they do because they’re essentially just working a job. Me and Chris got lucky, as we both came from the real estate industry. Things like “capital allocation” and “cash flow” and “cost segregation” and “tax depreciation” were normal terms that we dealt with quite frequently. 

Compared up against your normal “how to get clients and make money consulting” course, this article is handing you the complete roadmap to set yourself up for BULLETPROOF, lifelong, impenetrable abundance and security. If you can’t tell, I’m passionate about it! So, let’s keep going. 

TRUE NEEDED INCOME

The first thing I want to do when building up a new consulting business is focus on TRUE NEEDED INCOME. This is an important figure because if you want to earn, let’s just say, $250k per year — that is actually not your target.

Revisiting the model above, you’re going to have business expenses, taxes, and savings/missions goals to shoot for in addition to “take home” goals. If we round $250k into monthly targets, you get $21,000 per month of income. The first two things we need to add to this are 1) reserves and 2) taxes. 

TAXES

You’re going to need to assume a 30% cut right off the top of everything you earn. Are there ways to lower this? Absolutely, and we’ll cover a few of them lightly at the end of the article, but in my opinion — from training several thousand consultants from zero to 6, 7 and 8 figures — I don’t think you should be worrying about tax reduction until you’re generating multiple six figures a year in revenues. 

Here’s the math: 

• $21,000 per month income
• Divided by .7 (to accommodate for a 30% tax bill)
• = $30,000 in topline 

Follow how this works… 

If I want to take home $21,000 per month and be able to spend it — I need to actually “generate” MORE than $21,000 so that I have enough to A) spend the $21,000 and B) still have my taxes paid…. 

No matter what your goal is, just divide by .7 and you’ll get the figure (i.e. $10,000/month is your goal? No problem, $10,000 divided by .7 = a topline goal of $14,285 per month). 

Next up: reserves!

RESERVES 

A reasonable goal to shoot for is this: “Retain 3 months of reserves over the next 12 months.” Reserves provide security. Reserves provide certainty. Reserves create the feeling of freedom you are after… when we get into the next article and begin breaking down “WHAT” you are going to be including in your package — you want to make those decisions based on your passions and your expertise. 

You do not want to be caught in a position where you are doing things because you “have” to because you “need” the money. 

Back to the goal of $21,000 per month income; three months of reserves would equal $63,000 saved. I’m going to release an article later to teach you my philosophy on “wealth” building and how to take your reserves and grow them passively without risking them… it’ll be eye opening. 

I set out to create a “manual,” a “playbook” that you can revisit again and again. That’s what good articles are — they are adaptable, and that’s what this article is. So, $63,000 in reserves, and the target is to set this up within 12 months. 

When we build reserves, we don’t factor “taxes” into them. What I mean by that is we just say $63,000 in reserves based on $21,000 in monthly spending… so to nail $63,000 in reserves within 12 months is going to require $5,250 per month added to your business accounts — unspent. 

If you are doing the math as you go along, you should have a new figure now for your monthly topline revenue generation: $35,250 per month. This will provide enough income for you to spend $21,000 every month — while storing up $9,000/month for taxes and $5,250/month for reserves. Again – don’t let this scare you! We are just building CLARITY on what you actually need to earn to hit your targets. 

So many people want something, but then are unclear on what is required to get it… and they end up becoming discouraged and burned out because they were never clear on the roadmap to take them to their goals. If you’re saying, “Taylor, I only need $10,000 per month to be happy and have all my bills paid,” great! 

• $10,000 divided by .7 = $14,285
• Reserves of $30,000 within 12 months = $2,500
• Total topline needs to be $16,785 

So when you begin putting your program together, we’ll know exactly what the target needs to be and you can set your prices based on how many clients you can handle AND, how much you need to earn for your time to hit the targets you are setting up right now. Read how to do that in my book, The Consultant Next Door.

These are the most important items that sneak up on people. Building reserves, and factoring in taxes. As you scale up, your toplines will very quickly exceed your goals for take home, which is where it gets fun! We have never “spent” a dime on paid traffic for Traffic and Funnels — even though, over the last several years we’ve put several million dollars into Facebook ads! 

How is this possible? What do I mean ?

Simply that — the business created its own advertising money. Advertising was never an expense for us… we earned $10k and put $2k of it back into the business. We earned $25k then put $4,500 back into the business. So forth and so on to the point where today, we routinely put $3-500k every month into ads to keep growing. 

You don’t have to get there overnight… this article is designed to get you there safely though, without risking your sanity or your peace of mind to do it. It’s about helping you with the business models to choose from when starting a consulting business. I cover all the key steps of starting a consulting business in my book “The Consultant Next Door.”

HOW MUCH SHOULD I CHARGE – PER CLIENT?

So… our targets are set. They’re written down. We are CLEAR on them, yes? 

Don’t just read through this aimlessly – get your targets clear and put down on paper somewhere. We are going to go back to the $21,000 per month, or $250k per year, targets… 

The real topline, as we just figured out, is $35,250 per month. In order to make this happen, we need to dive into the math of what to charge per client. 

There are two key ways to flex your earning power when you are just starting out: 

• Your price per client

• How MANY clients you take at once 

To hit $35,250 per month, for instance, you could take: 

• 2 clients @ $18k each 

• 5 clients @ $7,500 each 

• 10 clients @ $3,600 each 

“Taylor this is just simple math, when are you gonna teach us the calculus level consulting magic?”

That’s the problem — building business is actually quite simple. And, some would say, boring. 

It’s all math. Understanding the OPTIONS you have at your disposal makes creating a plan easy. But more than likely, what you’re thinking right now is more along the lines of “WHO would pay $4k or $18k for consulting???” Trust me, if you’re asking that – you are missing the requisite experience in knowing what people will actually pay for! 

As long as your offer tackles a big need or a big desire, a certain percentage of people will pay literally anything for it. We have clients right now who pay us over $100k per year just to tell them how we think about their problems in their business. We also have people who pay $7/month for newsletters and people like you who read our articles for free. 

There are always people who want to buy from you — if your offer is good and you have the expertise required to actually help them. The key here is to REALLY understand (and believe) that the RIGHT people will ultimately pay you A LOT if you are solving something IMPORTANT to them. 

[emphasis on to them is important]

I also really want you to grasp that if you're like most of our clients, your goals are probably too small. I’m not saying you should have a goal to be a billionaire next year. There is obviously wisdom in setting realistic targets that you can see yourself hitting… but it’s very likely that you are undervaluing yourself because your skill set is “normal” to you — but it is far from normal to other people. 

Let me use this story as an example… 

About a year ago, we had a client come into our highest level consulting program. It’s a one year commitment and, on paper, it is very “expensive.” When you do the math of what our consulting clients earn as a byproduct of being clients of ours, it’s negligible… basically us handing them money. 

Anyways – he got on a call with me and asked, “I had this idea to be a consultant to people who wanted to buy houses… investors, like yourself. And as a banker I have discovered so many ways to save sometimes 3%, sometimes 4%, sometimes 1-2% on the INTEREST people have to pay for loans and mortgages… most of it is simply knowing the right people and knowing what to actually ask for.”

He asked me if I thought people would be willing to “pay” him a percentage point if he could save them 3% percentage points on interest… I said “Are you crazy? Yes… and matter of fact I’ll be your first client!”

Let’s do the math: 

• $300,000 house
• Interest set at 6%
• 3% saved (through his banking knowledge and expertise) 
• PITCH: “If I save you $9,000, will you give me $3,000 of it?”

Um. YES. 

Because if he saves me $9,000 and I pay him $3,000 I am still coming out $6,000 richer — and I didn’t have to do anything. This is easy! He will have some clients making purchases much higher than that, so his fees will be higher. This client has a multiple 6-figure business on his hands now and all he is doing is showing people how to do something that he knows how to do.

Now you don’t have to be in the “save money” or “make money” space — this works just as well in other industries. 

Helping women executives get the recognition, RESPECT, and leadership they deserve? Hard to attach an ROI to this, so you can’t exactly use “profitability” as a threshold for pricing… but – in a world where you may have felt marginalized and taken advantage of — to finally get the respect you have EARNED… very valuable. We have clientele who have done this and done it very well!

Helping someone lose weight and get healthy? Not profitable. But getting an extra 20 years added to your life, because you got healthy… seeing your grandchildren get married. Surviving long enough for great grandchildren… valuable? YES. 

And revisiting Tasha – one of my all time favorite clients (helping mothers who have had difficulty getting pregnant). I mean, come on! Having a child is the most valuable thing you could ever hope for. Monetarily profitable? No (actually, the opposite! Haha)… but the ROI is larger than any of the business work I do.

My point is this: so many people discount what they can do and, unfortunately, they don’t believe people are smart enough to pay them for their expertise… so they don’t even try. 

I have a friend in Vegas who sells a $1M consulting package. Guess what? He has several clients who pay him $80k per month to get on unlimited consulting calls with him. Now I wouldn’t want to do that personally — because I don’t want to be on that many calls every day… but the point is clear: a certain percentage of people will pay whatever you ask them to pay if you can truly fix a problem or deliver a result for them.

EFFECTIVE HOURLY “RATE OF RETURN”

So a quick recap: if you can handle 5 clients at one time, in any given month… and your target is to earn $35,000 per month. You’ll want to set your pricing structure up so that you are charging $7,000 per client. It’s doable, and actually easier than you think (will get into more during the next article).

But another way to look at this is hourly rate of effort. Your hourly rate will help you as you scale, and its main goal is to prevent the old trap of feeling like you’re earning more but working too hard to earn it. 

Actually, I was just speaking with a client who lives in Austin, TX this morning about this. I told him that there are consultants who earn $1,000,000 per year and only work 10-15 hours a week… and there are consultants who earn $5,000,000 per year and work like dogs (50, 60, 80 hours per week). You have to decide what you actually want your life to look like, IN ADDITION to how much money you want to make. 

The question you should ask yourself is this:

“how much time will it take for me to deliver the results of my program?”

If each client takes around 10 hours of work for you, personally… and your revenue target is $35,000 per month, we can also do the “pricing math” this way: 

• 40 hours per week of effort
• x4 weeks = 160 hours per month
• $35,000 divided by 160 hours = $218/hour

So you need to earn at least $218 for each hour you invest in your business. However, this is the beauty of our style of consulting: you don’t need to charge hourly. And I would NOT recommend it.

If you wanted to, you could say, “I only want to work 20 hours per week and the rest of my time I want to spend with my kids…”

No problem, here’s the math: 

• 20 hours per week of effort
• x4 weeks = 80 hours per month
• $35,000 divided by 80 hours = $437/hour

And when you build a program the way we teach it, you can package your delivery up so that you have assets working for you, and it’s not all tied directly to your time or your effort. 

This is how I have leveraged myself in our businesses. I spend on average about 10 hours on Traffic and Funnels. Mondays and Tuesdays are Traffic and Funnels days… and we generate (at the time of this writing) over 7-figures per month. That’s $25,000 per hour… it all comes down to the problem you are solving and the design of your consulting business. 

There’s no way we can cover all the basics and nuances of program design in an article. If you want to accelerate your journey, after reading this article you need to talk to us about becoming a client and we can partner with you (with our templates, infrastructure, coaches, and support) to hit your targets faster than you ever thought possible! 

So back to pricing, if you take 5 clients per month, at $7,000 per client, you’re at your goal of $35,000 per month. And if you get into it and you realize that you’re having to spend more time with each client than you want to work – you can tweak this hourly rate of effort up a little bit, and your price point might go from $7,000 to $8,800 per client. 

Where did I get $8,800? 

Well if you go from 5 clients per month to 4 clients per month, but you still want to pull in $35,000 per month of income… that means you need to make up for the missing $7,000 by increasing the rates on the other 4 clients. The math on that is $1,750, so I bumped your pricing up from $7,000 to $8,800 (just a $50 buffer – you could charge $8,750 but for the sake of easy math let’s round it up!).

WHY PEOPLE GET STUCK

This was originally cut out of this article, but I think it’s so important that I added it back in. Last month, I was teaching a group of private clients about “effort” and how your effort really doesn’t matter when setting your prices. 

It’s easy to get into the old rut of thinking, “If it’s hard, I charge more. If it’s quick and easy, I charge less.” But that actually is not good for you and (more importantly) it’s not good for your client. 

We’ve all heard the old story about the broken printing press. I’ll provide a reminder here, though, just in case. As the story goes, a publisher goes into the office one day and the printing press is no longer working. An expert was called in to fix it. When he arrived, he stood and looked at the machine, briefly pushing some parts to listen to the noise they made. 

After two or three minutes, he went out to grab his tools, came back inside, and tapped on a few parts for about 10 minutes. Then he left, the whole ordeal taking less than 30 minutes. Two days later, management got a bill for $1,000. The accountant who received the bill was upset, $1,000 for 30 minutes of work seems preposterous. So he asked for an itemized bill! He received this itemized bill in return: 

• To tap the machine with a hammer …………. $10
• Knowing where to tap in the first place …….. $990

What a powerful story! 

The things people are paying for is not your time, it’s the expertise behind your time! 

The hardest part about this whole game of consulting is disconnecting “effort” from “reward.” Honestly – we learn so many things in our lives that are not helpful and not empowering, and I think this is one of those things I had to UNLEARN. 

There are three levels to true wealth: 

1. Income (which you cannot live without)

2. Assets (which compound and store your income)

3. Time (the most important piece, to be invested and enjoyed)

Only time is finite – the other 2 pillars you can always get more of. I see most people get caught in this trap after they begin to get momentum. You might not struggle with it right away, but bookmark this article so you can revisit once you’ve got some wins under your belt. 

Imagine building a $30,000 per month income stream – great by most standards. You’re working hard, let’s say 45 hours a week. And you decide that you want more… for your family, for your giving goals, for whatever. 

But the problem now becomes this: even if you wanted to double to $60,000 per month, you cannot work 90 hours a week. Do not get trapped here. Honestly, this is a huge part of why I decided to write this article and my book “The Consultant Next Door” to show you that you don’t have to be bound to the traditional rules of time like everybody else is. 

If you are aware that first of all, it is possible to orchestrate the proper systems and programs to disconnect your time from your income. If you believe that, then you are well on your way, you just need to partner with someone who knows and understands how to do it! 

That’s it from me on the models to choose from when starting a consulting business!

If you’re ready to get into “what,” exactly, you are going to be selling as a consultant, and how to set it all up. I cover it all in my book “The Consultant Next Door”

In your service,

-T

There’s no way we can cover all the basics and nuances of program design in an article. If you want to accelerate your journey, after reading this article you need to talk to us about becoming a client and we can partner with you (with our templates, infrastructure, coaches, and support) to hit your targets faster than you ever thought possible!