How To Manage Your Consulting Business

Learning the intricacies of managing your consulting business is the way to make it profitable and successful. In addition to the challenges faced by all business owners, you will need to manage client expectations and deliver high quality services. All of this needs to be done while looking for the next client or project. (Who said this was easy?) These guidelines will ease the pain.

Establish and Manage Project Scope

In simplest terms, establishing scope is achieving agreement with your client on what you are expected to provide in exchange for an agreed upon fee. Ensuring services meet customer expectations, however, is more difficult than verifying a vendor delivered a certain quantity of an item. This is why it is important to establish, in as much detail as possible before the start of the project, what the client is expecting and what level of effort it will take you to provide this. While there are several ways that consultants bill for services, the most common are deliverable-based or time and materials. Each approach to billing has its own challenges in terms of agreeing on scope.

How to Scope Deliverable-Based Projects. Consultants often provide their clients with a deliverable, which can take many forms. It can be an actual product, such as marketing literature or a completed software package. Deliverables can also be a report or plan for future actions. They can be events that you have planned or complete conversions of operations or technology.

To determine pricing, estimate the amount of time and other resources you will have to invest in order to complete the deliverable. This is where your previous experience comes in to play. Based on this estimate and your rate for services, you can compute what to charge your client. Even if you agree on a fair cost for this, you still need to specify what the components and contents of the deliverable that will be included.

Too many consultants spend countless hours reworking a project because they failed to reach agreement on results. When estimating the time and cost of a deliverable, consider client dependencies as well. Often times, certain steps in your project plan cannot be accomplished because they are dependent on someone from the clients’ organization. Inform the client of the level of support or involvement you will need from his or her organization.

How to Scope Time and Materials Projects. In time and materials projects, you are paid your hourly rate for time invested plus any out of pocket expenses you incur on behalf of your client. The key to success in these types of projects is to reach an agreement in advance as to the number of hours you will spend on a particular task.

During the project, ensure that your client is comfortable with the hours you are actually billing. One effective means of communicating this is through status reports. Rather than waiting till tasks are complete and submitting a bill, provide regular periodic reports indicating what you are doing and how many hours you have spent doing it. Include any observations you have or problems that you have noted. Also identify expenses you incurred along the way, being sure to save all receipts. It is important to have some agreement on the expense guidelines you will be using. These expenses represent actual out of pocket cash to you. Failure to get reimbursed can be a real drain on the business.

Manage Your Cash

For both deliverable and time and material projects it is important to establish a billing schedule to get cash into your business. If you are working on an hourly basis perhaps the generation and acceptance of a periodic status report can trigger an invoice to the client. For deliverable-based projects that extend out over more than a two to four week time period you need to establish interim billing milestones. One way to do this is to break down the large deliverable into “manageable chunks” that are integral to the progress and successful completion of the overall project. This needs to be agreed upon at the start of the project.

Manage Multiple Clients

While initially you may only work with one client, the growth of your practice will bring additional clients. While it is less risky to not rely on one client, it does have challenges. You will have additional expectations from multiple clients. Overpromising or underestimating time constraints can cause problems for everyone. No client likes to hear that their needs are secondary to others. It is your responsibility to build a work plan for each client that takes his or her individual needs and timing into consideration. The good news is that with today’s technology it is much easier to multitask and stay in contact with multiple clients. If you are onsite at one client, there is no reason that you cannot email another client about your progress.

Avoid the Porpoise Effect

The porpoise effect is when you are heads down underwater hard at work for so long, that when you surface, there is no work on the horizon. So while you are hard at work putting in the hours and constructing your deliverables, you still need to budget time for finding the next project. This might be in the form of additional work from an existing client or from an entirely new project. Either will take time to market and develop a winning proposal.

Becoming proficient in managing your consulting business will take some time. It requires many skills and a considerable investment of time and effort. Many consultants initially tend to over deliver to clients. This can take away from the time they need to perform other tasks. Learning to exceed your client expectations at the same time you are making money will provide you with great rewards.