How long does it take to replace your in-house paycheck with consulting contracts?
This is one of the top questions aspiring consultants ask – or least worry about. They want to dive in and start doing work that’s more meaningful and fulfilling to them but are concerned – and rightly so! – about how to replace their current salary if they strike out on their own.
Of course, the answer to this question is specific to each person’s circumstances but there are things you can do to give yourself as much runway as possible to ramp up your consulting business.
- Grow your savings.
The standard recommendation for an emergency savings cushion is 3-6 months of expenses, so you want to add to that, if at all possible, so you have 12 months or more.
- Build your consulting business on the side.
This is not an option for everyone but if it is possible for you, you can work on your business during your off hours. This allows you to gain some momentum while still having the safety of your paycheck. Then you can determine when you’re ready to leave your job and jump into your business full-time.
- Get a part-time job.
If you’ve already left your job or feel like you can’t stay any longer, getting a part-time job to keep some money regularly flowing is another option. This can give you the stability of a paycheck while you focus your energy on building your consulting practice.
How do you get from where you are to where you want to be?
There’s a formula for that!
Yes, it requires some math along with clarity on what you have to offer and who you want to offer it to, and the ability to talk about it in language that’s meaningful to those ideal clients consistently so you build authority.
It will also require a strong commitment to putting yourself out there – asking for a conversation, making offers, and asking for the sale. These are things many people interested in consulting don’t love to do, but this is what it takes to make your consulting a business and to earn the money you need.
First, let’s define the elements of the formula:
Salary + Overhead Expenses + Profit Margin = Annual Revenue Goal
Salary (what you are currently making or could make in the marketplace)
+
Overhead expenses (office supplies, internet expenses, self-employment taxes, business license, etc. – usually 10-20% of your salary)
+
Profit margin (this is a business and your expected to make a profit – usually 10-20% of your salary)
=
Annual Revenue Goal (the total amount of money you need to bring in annually)
Revenue Goal ÷ Average Project Fee = Number of Projects Needed Per Year
Average Project Fee will likely be difficult for a new consultant to be sure of, but just take your best guess for now. The point here is to start collecting this data as soon as you can so you can update the formula with accurate numbers as you go.
Projects Per Year ÷ Close Rate = Offers Needed Per Year
Your Close Rate – out of all the potential deals in your pipeline, the percentage you actually close – will also be a bit of mystery until you have more experience, but it is usually 20-30%. Best to err on the conservative side if you’re new to sales.
Offers Needed is the number of offers you need to make, knowing that a) you won’t make offers to every lead you have; and b) not all offers you make will be accepted.
Offers Needed x 5 = Leads Needed Per Year
The number of leads you will need is yet another number that will be personal to you, but we’ve found a safe number to use as a multiplier to meet the number of offers you need.
Be sure to keep track of your own data so you can adjust these formulas with numbers that are accurate for you.
What should you do with this information?
First and foremost, you get to work on sales.
You can divide the number of leads you need by 12 to get your monthly number or divide by the number of weeks you want to work to get a weekly number of leads, i.e. contacts you should be making to meet your revenue goals.
Once you have that number, you can plan your business development/sales activity for the week and have a clear view of where you stand on meeting your numbers at any given time.
Is this the only way??
This is a very left-brained, traditional sales oriented approach that may not work for everyone. Our founder at Genysys, Ray Rood has been consulting for 40 years and has never approached it like this. To learn more about Ray’s Relationship Marketing approach, click here to listen to The Consultant School Podcast, Episode 03: How to Find Clients.
We wanted to offer this for those of you who may be looking at the numbers and wondering how you can make this work. Looking at it from this perspective can provide some comfort and a sense of control over what can often seem intangible.
The important thing to remember about this question: “How soon can I replace my income?” is that you have options. It does not have to be an immediate all or nothing situation. There are many things you can do to make consulting work for you if it’s something you really want to do.
And if it is, we believe it’s worth it!
Looking for more information on how to start, build, and grow your consulting business?
Join our FREE TRAINING for new and aspiring consultants on The Successful Consultant Profile from The Consultant School Bootcamp: How to Become a Consultant.
In this training, you will learn:
- What a consultant is and what are the characteristics, attributes, preferences, skills, and conditions essential for a successful consulting career
- The definition of each of these and, importantly, why they are so critical to your success as a consultant
- How to determine to what extent these attributes match who you are
Plus! Identify your strengths and challenge areas with the Successful Consultant Profile Self-Assessment included in your downloadable guidebook.
Click here to get your free training and begin your journey towards success!