Most people want a bigger paycheck, and most businesses want more revenue. However, it’s hard to ask for a raise, just as it’s hard for a business to raise its prices.
For consultants, coaches, trainers, and freelancers, a bigger paycheck and more revenue are the same things. Let’s be honest—one of the principal reasons we opt to go it alone is the potential to pay ourselves a bigger paycheck.
There are different ways consultants, coaches, trainers, and freelancers make more money. For the rest of this post, I’ll use “consultants.” It saves a lot of typing, and “consultant” applies to anyone who gives advice.
1. Billing by the Hour
The most common way to earn a “paycheck” is to exchange time for money—also known as your “hourly billing rate” or “fee-for-service.” You may be asking yourself, “Why is this a killer way?” This earning method is how nearly every business and company works. Hourly workers clock in and out. Their paycheck depends on those time punches. It is a customary practice for corporations to pay for your services by the hour, too. The faster your billing is approved for payment, the better your cash flow.
Moreover, if your engagement scope and risks are not well defined, it is to your advantage to
However, a time-for-money exchange can limit the number of clients a consultant manages because there are only so many hours in the day. There are also limitations on the level of service a consultant can provide to each client. For example, if a balance sheet audit takes 60 minutes to complete for each client, and “Consultant Jason” has 12 clients to review today, then he’s working 12 hours today. Sigh. What about a lunch break, bathroom breaks, unexpected calls? Better make that a 14-hour day! In this scenario, Jason wants to make more money, but he can’t possibly take on another client.
If billing by the hour is the model with which you are most comfortable, there are ways you and Jason can overcome time constraints to increase your revenue. The most common and successful technique of seasoned consultants is to raise rates. Timing and approach for raising rates can be another post. However, today consider:
(a) What value does your client receive
(b)The other option is to re-brand the service so that the customer sees the new rate tied to a newly improved service. Why call your service “business process re-engineering,” when it can be, “business process re-engineering 2.0?”
2. Project-Based Pricing (aka Fixed-Fee Pricing)
For many consultants, project-based pricing is like drawing a salary. It is also easily understood and liked by many clients. In contrast to billing by the hour, you and the buyer know what the final deliverable is, what the cost will be for that deliverable, and the value received (if you have done your selling correctly). However, costs, scope, and certain risks transfer to you. That’s why many clients prefer it.
The most effective way to increase fixed-fee pricing is to demonstrate value over the fee.
Another example: “Consultant Carrie” charges a flat fee of $5,000, plus expenses and 0.5% commission (if she wins the sale) to clients needing a winning, professional response to an RFP. In this service, she works with companies that don’t have a pre-sales team or have a large direct sales force. When firms like these have to respond to a formal RFP, they turn to Carrie because her methods are sound, and her win-rates are good. If her client’s potential deal is $5M with a typical margin rate of 28%, they will earn $1.4M in profit if they win the sale. If Carrie’s fee is $260,000, her client will make $1.2M—still a hefty profit. If they lose, they are out only about $10,000 ($5,000 in fees, plus expenses). However, they gain another benefit. They’ve learned how to respond to future RFPs of this type because Carrie has taught them “how to fish.” So, there’s her killer value.
What if Carrie changes her flat fee to $10,000? Is there still value? In this example, yes! Hmm…maybe I should raise my rates!
Lawyers paid a flat rate per month to be on-call or to do some regularly defined work every month are a common example of working on retainer. It’s a killer way for consultants to earn money, too.
One of the risks with this model is that you must be available to each client when they call. When two or more clients want you at the same time, then excellent time management skills better kick in. However, when they don’t call on you, you reap the benefits of being paid just to be available.
Increasing your fees on retainer must have the same value proposition. Articulate and demonstrate the value. Most retainers are based on a contracted period, usually one year. Make sure your legally binding contract spells out the conditions under which the retainer may be changed.
In this model, you subcontract with other people to take on portions of your project. The added benefit is that you make more money by tackling more significant projects in size and scope. “Consultant Chuck” helps remodel aging hotels. He typically works on engagements as the project manager. He coordinates the staff, their timing, priorities, and hours to work. The hotel, however, interviews, hires and manages all other staff contracted for the remodel.
Chuck goes to an
The percentage markup for subcontractors depends on their skill and demand. Markups generally range from 15% to 50%.
This powerful technique leverages other assets (in this example, people) to make more money. It is an advanced concept and needs a future post to address its application and potential more fully.
When you develop a method or tool once, then sell it multiple times you’ve “productized.” It generates more income because it allows you to reach more clients and provides you the flexibility to move on to other projects.
“Consultant Kayla” builds websites for medical professionals. She prides herself on her knowledge and skill set for creating websites that include patient portals and secure patient data, online scheduling, doctor and staff directories, blogs, and more. Many medical practices don’t need complicated sites. They want a secure, attractive and functional site. So Kayla creates a product that provides pre-built templates delivering a basic site tailored to the market for most of her clients that also includes hosting for $149 per year. Her price is as good as some of the do-it-yourself services, but her packages are specifically focused on her niche expertise.
Kayla’s product broadens her market – from large physician practices to small ones without overtaxing her time and resources.
Productizing requires some upfront time and investment, but each sale goes toward recovering those costs until you reach the break-even point and you begin counting profit with each sale thereafter.
These are the “killer ways” because they give you the biggest, quickest bang for a revenue boost. But here’s a few more:
When you have developed your system of task completion, it is repeatable, and it demonstrates value, why not teach your system to others? Kayla could create a course teaching the basics of web construction.
There are many ways to teach, but here are the common ones: (1) live classroom or group sessions, (2) virtual classroom or webinars, (3) e-courses, and (4) YouTube videos.
There is some investment incurred to build the course. Like productizing, you start earning a profit after recovering your investment costs.
You’re in front of a room full of people who are all thirsty for your knowledge and expertise. In-demand speakers can quickly pull in five and six figures for speaking engagements. Sometimes you don’t get a fee, but you get market recognition instead.
Recognition drives more businesses to you; increasing your earnings from the other options discussed above.
The opportunity for speaking engagements may come up later in your consulting career – after you have built some popularity (which is not to be confused with developing your “authority”).
8. Write a Book
There is a saying, “There’s a book
Writing a book requires much up-front work before you see any revenue, but once invested, the rewards keep coming.
9. Affiliate Income
Affiliates are partnerships with other companies that connect in some way to what you do in your practice. ”Consultant Colin” helps people open new independent pharmacies. As part of his service, he refers those clients to Kayla because her specialty is assisting medical businesses and she knows a lot about keeping patient data on websites private. When Colin refers the would-be pharmacist to Kayla, he could obtain a small “referral fee” or commission. Colin, after all, led his client to Kayla. She didn’t have to spend money or do the hard work of finding this prospect. Colin should get rewarded for that effort.
Your bottom line is this: you are now a business. All companies start up with one revenue option, but they should add other options over time. By doing so, you create additional revenue and income diversification. Your business is stronger because you are not solely dependent on one way of making money. If one source dries up, you have others to fall back on. When you think back to any company you worked at, you will recall how they, too, had multiple “income streams.”
Did you notice a common theme? Create massive value your customer easily understands. This is ultimately the “killer way.”
When you are ready to explore any of these options for making more money, contact us here. We will set you on the right path toward discovering and developing what’s appropriate for you and your business.