How to start a consulting business
Starting a consulting business is a great opportunity to be your own boss, share your expert advice, and help other businesses succeed.
More and more people are taking the leap each year. Industry research shows that there are 65% more consultants in the U.S. now than there were in 2012 – and the demand keeps growing.
As turnover increases, companies turn to consultants to help them fill roles, change strategy, and perform important tasks.
Now’s the perfect time to jump into your freelance consulting career. So, what do you need to know to get started?
This guide will walk you through the nine most important steps for starting your own successful consulting business this year.
1. Develop your area of expertise
Good consultants share their advice, resources, and expertise in specific areas with their clients. Before you start your own consulting business, you need to know what your area of expertise will be.
Most companies aren’t looking for a “jack-of-all-trades” consultant who can help them with a bunch of different needs. Instead, they want to hire a specialist who can help them solve a very specific problem.
That’s good news for you.
You don’t have to be able to do everything for every company. As a self-employed consultant, you decide what work you do. Once you choose a specialty, you’ll have a much easier time marketing your business and standing out from others in the competitive consulting industry.
How do you choose a specialty for your consulting business?
To figure out your area of expertise, you should answer a few quick questions:
- What marketable skillsets are you already great at?
- What industries do you have experience or interest in?
- What type of work do you enjoy doing?
- What are your financial and career goals?
The perfect scenario for your new consultancy is to earn a sustainable income doing something you love. You should have an affinity for what you do and experience in that field. Finally, you should determine what clients you want to work with and how you could deliver value to them, which will help grow your business.
What are the most in-demand types of consultants?
Remember, companies hire consultants for all sorts of different needs. If you’re still unsure what your specialty should be, consider some of these most popular consultant specialties:
- Accounting consultants help businesses organize their books, project future earnings, develop a budget strategy, and all sorts of other financial needs.
- Advertising and marketing consultants could help with a number of different tasks, including SEO, creating a marketing plan, managing media spending, planning an advertising campaign, and setting businesses up with an advertising agency.
- Branding consultants advise companies on how they present their business to the world. They may help with individual tasks like messaging and design, build full brand strategies, or manage relationships with other specialists to bring a brand to life.
- Business consultants typically work with company leaders to identify company strengths, weaknesses, and opportunities for future growth.
- Human resources consultants may help with employee benefits packages, team structure and productivity, and recruiting.
- IT consultants help businesses with technical needs like hardware upgrades, cybersecurity, software training and implementation, and efficiency improvements.
- Management consultants typically offer leadership training, advice on team productivity, and strategic guidance for team and business growth.
2. Decide which consulting services you’ll offer
Most successful consultants offer one (or more) of these five services:
- You share your expertise with your clients’ employees to empower them to do better work themselves. This could include soft skills like communication and negotiation techniques for managers and salespeople, or hard skills like how to use new software.
- You help your clients find new employees. You can either focus on general hiring for all positions or recruiting for executives or other specialized positions.
- You typically work with either a team within a company or the company’s leadership to dig into their performance, product, and projections to set concrete plans for the future.
- You may fill the role of an interim manager by building a team, overseeing work, and sharing your expertise. Management is often paired with training since you’ll likely train future managers to take over when you step away.
- You recommend and set up new tech systems, service and optimize existing ones, and offer high-level technical support and troubleshooting. This service is also often paired with training.
3. Find your target market
Once you decide what you’ll do as an independent consultant, you need to decide who you’ll do it for. Just like choosing a specialization, you’ll typically have better luck when you focus on one type of client for your consulting business instead of trying to help everyone.
Why you should find a target market for your consulting business
How does focusing on one type of client help you succeed as a consultant? It helps in three ways:
- Working with the same types of clients helps you become an expert in those types of businesses. You’ll be more able to tackle complex issues and be recognized as an authority in that industry.
- Similar businesses experience similar problems. Each time you face the same type of problem, you get better at solving it for your next client, allowing you to do your work better and at a higher level every time.
- You can tailor your marketing, outreach, and referrals to the exact companies that you want to work with. You’ll be familiar with their business structures, common pain points, and industry lingo so you can better connect with the people you need to reach to grow your consulting business.
How to choose a target market for your consulting company
Consider these two questions when choosing your target market:
- What industry do you want to work in?
- What’s your ideal company size?
How you answer these questions will determine what challenges you face, who you’ll work with, and how you should position your new business. You should choose based on both your interests and previous experience.
For example, maybe you were a successful sales manager at a Fortune 500 company before starting your own business. Now, you want to help people who are in those same positions be better managers and leaders.
You’ll need to present yourself much differently than someone who wants to work directly with the founders of small tech startups to reach profitability or get acquired.
4. Write a business plan
Now that you’ve decided what you’ll do, what services you’ll offer, and who you’ll work with, it’s time to organize everything into a business plan.
Your business plan should answer several important questions, including:
- What are your objectives?
- What are your strengths and weaknesses?
- Who are you targeting?
- Who are your competitors?
- What sets you apart from your competitors?
- How would the company expand as you grow?
As with any business endeavor, research is critical. Learn everything you can about the industry, your target audience, and your competitors. Use this information to guide your business plan and any ideas for growth in the future.
5. Set your consulting fees
When you’re just starting a consulting business, it can be difficult to determine how much your services are worth to your clients. You need a pricing structure that matches your expertise, personal financial needs, and typical consulting rates for your industry.
If you’re leaving a full-time job to become a consultant, it might be tempting to set your rates to match what you earned before. But that doesn't account for other expenses you’ll have to pay as a self-employed business owner. Be sure to factor in these costs to your pricing:
- Self-employment/business taxes
- Supplies and materials
Whether you bill an hourly rate, by project, or on retainer, you need to set your fee so that it conveys your worth to the client. It can be tempting to offer a low rate to attract your first clients quickly, but this is a mistake. You devalue your work, set yourself up to be overworked, and make it difficult to raise your rates in the future – especially if you build a long-term relationship with your clients.
It’s best to start every contract with a rate that gives you enough cash flow both now and in the future.
6. Hone your elevator pitch
You never know when you might run into a potential new client – in a hotel lobby, on an airplane, or at a conference. No matter how brief the encounter, you should be able to tell them what you do and who you do it for.
This is your elevator pitch. It’s your 30-second explanation of your consulting business, and it should be so familiar that you can share it without giving it a second thought.
In your elevator pitch, you should include three things:
- Your ideal client
- Their common problems
- What you offer to solve those problems
Practice your elevator pitch until it’s seamless. It should leave prospects either asking you more about your business or sharing their business cards or contact information to learn more later.
7. Prepare a boilerplate consulting proposal
You need to be prepared when you start pitching clients. Instead of scrambling to put together a custom proposal each time, start with a template that you can modify and customize.
This consulting proposal template should include:
- The work you’re planning to do
- Goals for the project
- Terms of the agreement
- Consulting project duration
Before you send a proposal to a potential client, talk to them about their business needs, gauge their interest and expectations, and modify your proposal template specifically for them. This allows you to go into detail on the proposal based on your conversation.
The proposal can serve as the foundation for your final scope of work agreement and contract, which are crucial for avoiding work-related liability lawsuits for consultants. You’ll want to consider professional liability insurance, sometimes called errors and omissions insurance (E&O), to protect yourself from legal risks. We’ll discuss insurance in more detail below.
8. Network with potential consulting clients
Once you have the foundation of your new consulting business set up, you’re ready to start searching for new clients.
You’ll need a steady stream of clients to get your company off the ground and keep your income steady. Fortunately, there are a lot of great options for marketing your business and networking with potential clients – both online and offline.
Social media platforms like LinkedIn, Facebook, and Twitter are a great place to start connecting with potential clients. You can share helpful advice in posts, interact with their posts, and share your company and value proposition directly on your profile.
You can take advantage of many social media site’s advertising platforms, as well as popular search engines like Google. On these sites, you can pay a fee to put your company’s posts in front of the people who are most likely to be a great fit for your consulting practice.
While there are a lot of opportunities online, networking in person is still a fantastic way to make a lasting impression on a potential client. Attend local business events organized by your Chamber of Commerce and other organizations.
Many industry groups also host meetups, conferences, and other in-person gatherings that would give you opportunities to network with businesses that you could possibly work with in the future.
Once you get your first few clients under your belt, you can start asking the people you’ve already helped to recommend you to other similar businesses.
Word-of-mouth referrals are some of the best ways to keep your pipeline full of new clients since each referral comes with a personal recommendation from a happy client that the new client already knows.
While not always the most exciting task, cold calling businesses that fit your target market can help earn you the opportunity to pitch your business. However, you should be prepared to hear “no” a lot when cold calling.
9. Protect your business with consultant insurance
Shielding your new company with the right consultant business insurance protects you, your clients, and your employees (if you decide to hire part-time or full-time help). Being properly insured builds trust and confidence with your clients since they know your insurance will cover any losses that might happen if working with you doesn’t work out.
It also protects you from costly lawsuits that could be devastating for your new consulting business.
Here are some of the most important small business insurance policies that you should consider:
General liability insurance
General liability insurance is often the first policy consultants purchase. This insurance typically covers customer injuries or damages to customer property at your place of business, regardless of whether you work at home or rent an office. Most commercial leases require this policy.
Business owner’s policy
Many small consulting firms find savings by combining general liability and commercial property insurance under a business owner’s policy (BOP).
If you’re like most consultants, you’ll be starting your business from your home. Having a home office is typically more cost-efficient than renting a commercial space. However, keep in mind that homeowner's insurance doesn't necessarily cover business activities and property in your home.
For example, if business equipment, such as laptops and other electronics, is stolen from your home office, the property insurance component of your BOP would cover the losses since most personal property policies don’t cover commercial use.
Professional liability insurance
Consultant professional liability insurance can protect your assets if a consulting mistake results in legal action from a client.
If you make a decision that negatively impacts a client’s revenue or employees, the client could file a lawsuit to recoup any lost expenses. Professional liability insurance can help cover legal expenses and some damages if you are held legally accountable.
Cyber liability insurance
Cyber liability insurance is a must-have if you’re working with client data, recommending software, or helping your client manage their customer data. This insurance policy protects you from the high costs of a data breach or cyberattack.
Cyber liability coverage comes in two forms:
- First-party cyber liability insurance covers data breaches at your own business.
- Third-party cyber liability insurance covers data breaches on your client’s servers.
Both forms of this policy cover the cost of customer notification, credit monitoring, legal fees, and regulatory fines after a data breach.
Your insurance agent can help you decide which type of cyber liability coverage you need based on the services you offer your consulting clients.
Workers’ compensation insurance
If you plan to expand your consulting practice and hire employees, you’ll need to purchase workers’ compensation insurance.
Workers’ comp protects you and your employees if one of them experiences a work-related injury or illness by covering their medical costs and lost wages. Most states require workers’ comp coverage for any business with employees.
Although not technically insurance, many clients will require you to purchase fidelity bonds before they’ll hire your consulting firm. This product protects your client if one of your employees commits a crime against them, like theft, fraud, or forgery.
Compare quotes from trusted carriers with Insureon
Complete Insureon’s easy online application today to compare insurance quotes from top-rated U.S. carriers. Once you find the right policy for your consulting business, you can begin coverage in less than 24 hours.