The Economics Of Becoming A Consultant
Did you know that the worldwide consulting industry racked up about $391 billion in revenues in 2012? Clearly, this shows that the industry of consulting is a booming business. This shows a significant growth from 2011, when revenues were about $366 billion. For those of you who now find yourselves interested in finding out what you need to do to become a consultant, this article is for you.
So what exactly is the cost of consulting? Well, the average start up costs for your typical business consultant can be anywhere from $100 to $20,000. There are also many other different costs you will need to consider when thinking about becoming a consultant.
Marketing costs money. On average, consultants tend to spend about $7,462 a year on marketing. Referrals tend to make marketers the most money, with 38 per cent of consultants stating that referrals make up the most of their business. 22 per cent of consultants devote the majority of their time to networking.
Transportation is another cost involved with consulting that needs to be considered and planned for. Another cost involved in transportation is insurance. $183 a month was the monthly premium in 2011 for individual coverage. This gives you an idea of the costs of transportation.
Office supplies and incorporating can also be costly endeavors. You also will need to consider your setup fees, the franchise taxes involved, registration fees, annual report, income and stock taxes are all costs involved in consulting.
Pros and Cons
You will also want to think about the pros and cons of full time employment versus being a consultant. There is risk and reward in everything, but deciding to be a consultant instead of a full time employee can be risky. Of course, it does also have certain benefits.
Pros to Consulting
Benefits of being a consultant instead of a full time employee include: choosing your own hours rather than sticking to a set schedule, having the ability to take vacations whenever you want, setting your own fees, picking your own clients rather than being forced to work with people you do not want to, refusing assignments you do not want to take and the ability to work on a variety of different projects.
Cons to Consulting
The risks – or the things you are essentially giving up – of consulting rather than having your typical nine to five are: administrative assistance, regular, steady pay, health care and other benefits, tech support and the many other things that full time employees tend to take for granted.
With your consulting business, you will have to set your own consulting fees. You will need to choose how you want to get paid, whether it is by the project or by the hour. IT consultants are usually paid by the hour, while strategic planners and other more high level consultants tend to be paid by the project.
Those who demand the highest fees are generally strategy consultants. Human resources, operations management and IT gurus are usually carry the second most expensive fees.
There is a method to setting your fees that you will need to develop. Consider your market. What price do you think your market will be prepared to pay? Think of things from an opportunity or cost based standpoint. How much do you think you would make if you did something different?
Divide your recent income by the number of hours you worked. That will be your opportunity cost. Add that to the hours spent doing prep work, follow up work and marketing. That is your consulting rate. Multiply your opportunity cost by two and that will be your profit margin.