There are many benefits to becoming a consultant or freelancer, including having more control over your day to day working life, variety in projects and more travel opportunities.
However, it is important to remember there are also a number of downsides to being your own boss such as long hours and lack of financial security if project works dry up.
The Start Ups website has an interesting guide on how to start a consultancy business.
TopConsultant have a paper discussing Becoming a Successful Independent Consultant.
Skillsfair's article How do I explain my services to clients? mentions “The problem for many people entering consultancy for the first time is that they have a very broad range of skills and experience, in fact that breadth is usually one of their main strengths, but they find it difficult to pin themselves down to a particular service or niche. Identifying a core service to market is a key step on the way to building a successful consultancy business.
Top Consultant have an interesting article Consulting: It's All About Expectations! which states “Consultants increasingly tend to describe assignment outcomes - bad or good - in terms of Client expectations. Whether it is “failing to manage expectations” or “managing to exceed expectations”, it’s all about expectations! Since Client expectations have emerged as a core concern, it seems pertinent to view the consulting business from this perspective. This note attempts to provide a framework for the business of consulting from the angle of Client’s expectations”.
Setting Consultancy fees
Deciding how much to set your consultancy fees at is a tough decision and unfortunately there is little available data to use for comparison; fees are commercially sensitive and most companies aren’t willing to disclose this.
It is also important to remember that in reality a consultant is worth whatever the client is willing to pay in return for their time and services.
When setting fees it is important to factor in the need to cover your costs plus take a salary; expenses to consider include professional fees, the cost of running an office (even if from home) and professional indemnity and other insurances. The consultant will also need to determine if the rate they decide upon is realistic, profitable and competitive.
Another factor to consider is whether to include expenses in the clients rates (for example mileage costs, other travel and hotels, telephone and office costs etc) – you may simple factor this into your rate or decide to charge the client for these costs and ask for reimbursement at the end of the project.
It is also important to remember to clarify to the client whether the fees are inclusive of VAT.
Although data is difficult to get hold of, we have rounded up a few key pieces of research which might be of assistance:
Skillsfair publishes data on consultancy fees; complete their survey to receive a copy of the report: Skillfair 2016 consultancy fee survey. Their 2011 report mentioned that "the headline ‘average rate’ for this year’s survey is £504, down 4% from last year’s £523 – that's averaged out across all sectors": Skillfair 2011 Consultancy Fee Rate Survey (PDF)
Consultancy.uk has published a general overview of rates and fees charged by consulting firms: Consultancy Fees & Rates
Morgan McKinley has published a remuneration survey for a number of technical and professional roles and sectors in London and Southern England. It includes £ Per Day rates for various types of consultant in the temporary employee data: Morgan McKinley 2016 UK Salary Guide
Top-Consultant has published a salary report on remuneration levels within the Management Consulting sector: Salary benchmarking report
The Office of Government Commerce produced a guide in 2008 which discusses the components of a consultant’s day rate and how the market influences price: Guide to consultancy pricing (PDF)
The Goodman Masson salary guide 2015 has a brief section on management consultancy salaries; see pages 24-25.
The recruitment firm Michael Page provides salary comparison information on Consultancy, strategy and change.
Members may also wish to contact the free IoD Advisory Service to gain advice on this topic - we have a few advisors on the team who would be happy to have a general discussion on the topic of how to determine your consultancy fees (however, please note they would be unable to give you specific rates for your location or field).
When agreeing to work with a client it is important to get a formal agreement so both of you are clear on what is expected.
The agreement should cover intellectual property rights of materials produced during the assignment, a description of the services to be provided, fees and time expected time periods, plus many other issues such as confidentiality, liability, termination and statement of self-employed status for tax and NI purposes.
How can I get a template agreement?
The IoD Business Information Service can provide template Consultancy Agreements upon request to members; please contact us to discuss how we can assist.
What legal form should my business be?
Sara Hanna, a legal advisor within the IoD Advisory Service, says that “One issue that always arises is whether the consultant should trade through a separate legal entity (normally a company) or act as a sole trader. The main issues when making this decision are:-
- Risk: the riskier the enterprise the more advisable to have a separate legal entity;
- Public/client perception: a company is likely to be taken more seriously and some companies always require suppliers to be incorporated and will not contract with consultants who are sole traders;
More details can be found in the IoD Factsheet: Should I incorporate or not?.
Professional indemnity insurance
The Training Zone discuss Why management consultants should have professional indemnity insurance and mention that “There tends to be two types of professional indemnity insurance policy – aggregate and any one claim. Aggregate policies insure you up to the cover limit for all claims made during the period the policy is in force (usually 12 months). So if your limit is £1m, regardless of how many claims you make, provided that they do not total more than £1m when added up, the insurer will pay the claims. Any one claim is different; it provides the full cover limit for each and every claim you make. As long as each individual claim you make is under £1m, regardless of how many you make, your insurer will pay the claims. Any one claim cover is generally seen as being more comprehensive than aggregate cover.”
IoD members may be interested in the IoD Professional Indemnity Insurance: “Our professional indemnity policy will offer cover for compensation you may need to pay to correct a mistake or cover any legal costs due to negligence, such as giving incorrect advice or making a mistake in your work”.
How can I find clients?
One of the best ways of finding new clients is by networking; it can be useful to belong to groups of other freelancers in the same profession/trade. It is a good way of sharing experiences, comparing areas of expertise, learning about opportunities –and pitfalls, and work can come your way by referral.
Jayne Barr, IoD Marketing advisor, says that “Personally, I think cold-calling is a waste of time, so I always find some sort of connection – however tenuous – before I approach someone. Then I just ask to meet for a coffee and a ‘catch up’, as it’s less threatening. People don’t generally refuse a coffee!”.
She also believes that LinkedIn is the best freelancer tool as most people have a LinkedIn profile and it’s a great way of establishing who knows who, and how to reach them. IoD members may find it useful to join the IoD LinkedIn group.
Jayne mentions “I always try hard to renew my connections on a 3-monthly basis. Certainly, in Marketing, if you don’t ‘keep your head above water’, you disappear. It is vital to keep current”.
Another IoD Advisor, Martin Davies, says connections helped him when moving into consultancy; he suggests that “building connections first and/or focusing at the beginning upon already cemented relationships (even if outside the business world) is the best way forward for building a network of opportunity.
He also agrees that LinkedIn is useful – “LinkedIn is a great source of finding oneself back in touch with the huge number of individuals whose passage through business life has crossed with yours. In fact, the sheer volume of it all can sometimes be quite intimidating”.
In summary, Martin's last piece of advice is “use your existing connections first; they know who you are and how good you are at what you do”.
Useful organisations for consultants
Listed below is a collection of organisations for the consulting and freelance industry:
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