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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on October 15, 2021
Investment range
$3,900 - $8,800
Revenue potential
$58,000 - $144,000 p.a.
Time to build
0 - 3 months
Profit potential
$52,000 - $130,000 p.a.
Industry trend
Growing
Commitment
Flexible
Here are the most important aspects to consider when starting a consulting business:
Starting a consulting business requires time and effort. Before you jump in, you need to fully understand what is involved before you decide if a consulting business is right for you.
Consultants provide advice in various fields. The largest market segment is operations consultancy, followed by financial advisory consulting.((https://www.consultancy.org/consulting-industry/global)) Technology consulting is also a large and growing segment due to the increase in remote work.
Management consulting includes assistance on organizational planning, financial planning, budgeting, and marketing, according to market analyst IBISWorld.
Trends in the consulting services industry include:
Challenges in the consulting services industry include:
Startup costs for a consulting business can range from $3,900 – $8,800. Office equipment and a website are the largest investments, so if you already have a computer you’re way ahead of the game.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $200 - $200 | $200 |
| Licenses and permits | $200 - $300 | $250 |
| Insurance | $100 - $500 | $300 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| Initial marketing budget | $200 - $500 | $350 |
| Computer, office equipment, and software | $2,000 - $4,000 | $3,000 |
| Total | $3,900 - $8,800 | $6,350 |
Your profit will vary depending on:
The only expenses that you will encounter with each client are generally limited to materials you need to prepare, which should be minimal. So you should be able to achieve a profit margin of around 90%. The average hourly rate for services depends on your level of expertise and experience, with a range between $50 – $150 per hour. These calculations will put your hourly rate at $100.
In your first year or two, you might average 12 hours per week and work for 48 weeks, giving you annual revenue of around $58,000 and profit of $52,000, assuming that 90% margin. As your brand gains recognition and you begin to get referrals and repeat customers, you might work 30 hours per week and make $144,000 in annual revenue and a tidy profit of $130,000.
There are very few barriers to entry for a consulting business. Your biggest challenges will be:
Now that you know what is involved in starting a consulting business, you need to hone your idea further in order to be able to enter a new market with tough competition.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
To establish a foothold in the consulting world, it’s crucial to differentiate yourself, especially as a new entrant without a track record.
Conduct thorough research on existing consulting businesses to understand their service offerings, pricing strategies, and client feedback. This investigation aims to uncover a niche or a market gap that you can fill.
For example, if there is a lack of expertise in digital transformation or sustainability practices in your local market, these could represent valuable opportunities.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as budgeting or tax consulting.
In addition to market gaps, consider current industry trends and future demands. Staying ahead of the curve in areas like technology adoption, environmental compliance, or remote workforce management can position you as a forward-thinking consultant. This strategic positioning can kickstart your word-of-mouth marketing, helping to draw in early clients and build your reputation.
Begin by cataloguing all potential consulting services you can offer, aligning them with both market opportunities and your own expertise. Consulting services can span a wide range, including but not limited to:
Once you’ve identified your area of expertise, it’s time to actively seek potential clients. Research companies in your chosen niche that could benefit from your services. Direct outreach through phone calls, emails, social media, and professional networking sites like LinkedIn can be effective. Personalized messages that address specific challenges or goals of potential clients can increase your chances of engagement.
Remember, as your business grows, client referrals and word-of-mouth will become invaluable. Satisfied clients not only bring repeat business but also serve as ambassadors for your services. Thus, delivering exceptional value and maintaining strong client relationships is fundamental.
When you are just starting out, you may have to charge a lower rate until you have a track record. Consulting generally runs $50 – $150 an hour. You’ll need to make a name for yourself and show your experience and success to command a price that is at the higher end of the range.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
In the early stages, you can operate from home to keep costs low. But as your business grows you’ll likely hire staff and need to rent out an office. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Discover over 460 unique consulting business name ideas here. If you want your business name to include specific keywords, you can also use our consulting business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to consulting.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your consulting business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a consulting business. You might also try crowdfunding if you have an innovative concept, or angel investors if your expertise is considerable.
Starting a consulting business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your consulting business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use enterprise resource planning solution Netsuite, online workspace Bitrix24, and project management software CONREP to manage your day-to-day operations such as customer relations, accounting, HR, and others.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your consulting meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your consulting business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a consulting business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been providing consulting services for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in consulting. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
You may not need to hire any employees if you are starting out small from a home-based office. However, as your business grows, you may need to recruit full-time employees for various job roles. The potential employees for a consulting business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Market analyst IBISWorld says a potential increase in corporate profits in the years ahead presents opportunities for the consulting industry. When corporate profits improve, businesses tend to hire consultants to find new revenue streams and identify areas where they can invest their excess cash. Even when profits are down, some consultants are still able to land lucrative contracts with clients seeking to improve their profit margins. Either way, it’s important for you to build a good business reputation first.
You’ve now got all the business knowledge you need to get started, so it’s time to get out there and start consulting your way to success.
You can start a consulting business with minimal investment by using your existing expertise and equipment like a computer and office software. Set up your business legally, use free marketing like social media, and invest in a basic website to enhance your credibility.
Forming an LLC for consulting isn’t required, but it offers significant benefits. An LLC protects your personal assets from liability if your advice leads to legal issues with clients. It also provides management flexibility and potential tax advantages, making it a popular choice for consultants.
Start-up costs range from $3,900 to $8,800. But if you already have a computer and office equipment and can build your own website, your costs will be much lower.
The highest-paying consulting fields can vary, but management consulting, IT consulting, and financial consulting are known for their higher earning potential.
To start a consulting business on the side, define your niche, develop your offerings, build your network, establish an online presence, manage your time effectively, and start with smaller projects.
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