A consulting business provides expert advice to help other businesses improve their operations. It provides valuable insights and strategies to enhance efficiency and profitability. Business consultants cover various business areas, including management, sales, marketing, HR, and IT.
According to Statista[1], the average earnings of a management consultant are $212,000 as of 2023. The global consulting market reached nearly $1.8 trillion that same year, showing that businesses around the world are seeking consultants now more than ever.
A successful consulting business is essential in today’s market to help organizations navigate the complexities of the business environment. Whether an organization is struggling with strategic decision-making, wants to get ahead of the growing competition, or needs to keep up with ever-evolving technology, your consulting business can be what it needs to succeed.
Let’s examine how to start a consulting business, from choosing your services and a business structure to marketing and getting your first clients.
What is a Consulting Business?
A consulting business is a service that offers professional advice, guidance, and solutions to individuals and organizations. This helps them improve overall performance regarding operations, strategies, and outcomes, allowing them to achieve their goals.
Here are some of the biggest reasons organizations seek the help of a business consultant:
- Create custom strategies to address specific business challenges.
- Inform decisions to drive growth and success based on comprehensive market analysis.
- Create flexible work policies to support work-life balance and attract top talent.
- Implement new initiatives and processes that facilitate change management.
- Provide robust financial strategies that reduce costs and increase the bottom line.
- Assist IT in aligning technology with the goals of the business.
According to Management Consulted[2], some of the world’s most successful consultants include Bain & Company, Boston Consulting Group, and McKinsey & Company, with earnings of $6 billion, $11.7 billion, and $13.5 billion per year, respectively. This demonstrates that the consulting industry is in high demand, considering how much these firms earn.
Assess Your Skills and Expertise
When starting a successful consulting business, you must first assess your strengths—what you’re good at. To do that, you can dig into your peer and performance reviews, as well as your personal experiences, to get a better understanding of your skills.
You may find that your strengths lie in several important areas that many businesses struggle with, such as leadership, strategic thinking, and solving complex problems.
You should also assess your expertise based on your educational background (i.e., degrees, certifications, and specialized training). Based on these, what unique skills can you bring, considering your knowledge and hands-on experience? Is it social media marketing, software engineering, hospitality management, or information technology?
Beyond looking at your skills and expertise to find your consulting niche, look at industry trends to determine where demand is the highest. For instance, with the fast advancement of the digital age and the rise in data breaches, perhaps cybersecurity could be a good industry to consult in.
The biggest consulting sectors include healthcare, financial services, and technology.
Develop a Business Plan
You can’t start a consulting business (or any business) without a business plan. For your consulting firm, make sure it covers the following areas:
- Business Description: Write a concise and compelling summary or elevator pitch of your consulting business. Something you can use to quickly communicate your mission and purpose to potential investors, partners, or stakeholders.
- Goals: Ensure you clearly define your goals, which will serve as a road map for success. They will ensure that you have metrics by which you can measure your performance to ensure that your decisions always put you on the right track.
- Target Market: Identify your ideal client, their specific needs, and how you can address them effectively. This insight will help you craft services that meet their requirements and assist you in developing a marketing strategy to reach them.
- Services Offered: Clearly outline your services to your target market. Highlight those that set you apart from competitors. Explain what value each service offers potential clients.
- Financial Projections: These help forecast future revenue, expenses, and profitability. They clearly indicate your business’s viability and can serve as a tool to attract potential investors.
Choose a Business Structure
When learning how to start a successful consulting business, you must define your business legally. That’s where a business structure comes in, and the good thing is that there are several business structures to consider.
Sole Proprietorship
A sole proprietorship is a business structure where you are the only one who owns and runs the business. Setting it up is easy and inexpensive—you just need to register a business name and get all the necessary licenses and permits needed to run it. It’s why it’s one of the most common business structures.
With a sole proprietorship, you have full control of every aspect of the business. That means you have the flexibility to tailor your consulting services as you see fit (there’s no one to object).
You get to enjoy the success yourself since you’re the sole business owner. It also makes filing taxes easier since the profits are treated as your personal income.
However, you’re liable for all its liabilities, which puts your personal assets at risk if a client sues. This is called unlimited liability. You might also find raising capital challenging since many investors might prefer businesses that are separate legal entities.
Furthermore, the rate at which the business grows depends on how much work you put into it—so prepare for long workdays ahead.
Partnership
A partnership is when you and one or more people agree to share the responsibilities of the business, including all the profits, losses, and liabilities. To form a partnership, you need to register the business, including tax registration, and obtain licenses and permits.
Although not legally required, you should also craft a partnership agreement. It outlines the rights, responsibilities, and profit-sharing arrangements between you and your partners.
The biggest advantages of forming a partnership are shared responsibility and teamwork. You can combine skills, expertise, and resources to offer a wide range of consultancy services. This also means you get to share the workload with others, allowing you to focus better on the clients you want to work with and achieve a work-life balance.
On the downside, you still have unlimited liability and can lose your personal assets because of the business’s debts.
You also have to share your profits with others. Furthermore, disagreements can arise, making decision-making inflexible and even halting business operations in some instances.
Limited Liability Company
A Limited Liability Company (LLC) is a business structure designed to protect its owners’ personal assets from the business’s liabilities. The business exists as a separate entity, meaning creditors can only come after the company’s assets—your personal belongings are safe. This protection is called limited liability.
Forming an LLC involves choosing a business name and filing the Articles of Organization—a document containing the organization’s basic details (e.g., business name, address, members, and their roles and responsibilities).
As with any business structure, you’ll also need licenses and permits, and you must register for tax purposes.
You can form an LLC by yourself or with others. Apart from limited liability, one of the biggest advantages is that an LLC looks more professional. Clients and investors will find you more credible to deal with than a sole proprietorship or partnership.
Another significant benefit is that you get to choose how you want to be taxed. You can decide to be taxed as a sole proprietor, partnership, corporation, or other business structure.
However, setting up and maintaining an LLC is more involved and costly than a sole proprietorship or partnership. It requires more administrative work to keep up with compliance, and tax filing might be complicated if there is more than one member.
C Corporation
A corporation (C Corp) is similar to an LLC because its owners (shareholders) have limited liability.
Forming a C Corp requires filing Articles of Incorporation, which are similar to the Articles of Organization for an LLC but include more details such as stock information, board of directors, corporate purpose, and initial capital.
One of the biggest advantages of a C Corp is its ability to raise capital in various ways. Investors often find it more attractive to buy stock in companies. A C Corp can have as many shareholders as shares, which is ideal for a growing consultancy firm.
C Corps also has a perpetual existence, meaning it doesn’t cease to exist due to ownership changes, unlike the other business structures mentioned above. Additionally, the C Corps can enjoy certain tax deduction benefits.
However, setting up a C Corp is more complex and costlier than an LLC and is subject to more regulations. Also, decision-making is done by the board, which can be an extremely inflexible process.
Furthermore, the corporation’s profits are taxed twice—at both the corporate and individual levels.
Define Your Services and Pricing
To ensure that you have consulting services that are for the market, you should do the following:
Define Your Services
Defining your consulting services is important because, according to Harvard Business Review[3], you need to ensure your practices (methods, approaches, and service offerings) perfectly align with the needs and expectations of your target clients.
You should evaluate your core areas of expertise and how they can help clients solve problems or achieve their strategic goals. This will help you establish your unique value proposition so your services are perfectly tailored to produce tangible results for clients.
Conduct a Competitive Analysis
You can then conduct a competitive analysis to find out how much other consulting firms are charging for similar services. This can be a good way to see how much clients are willing to pay for your unique services.
The goal is to ensure that the services are priced competitively, whether by matching, exceeding, or undercutting the competition, while also being profitable for the business.
Decide on the Pricing Model
You need to decide whether to charge clients based on hourly rates or per project. While client preferences differ in this regard, you can get an idea based on factors like the pricing strategy used by competitors, the nature and complexity of your services, and the predictability of project scopes.
As a good rule of thumb, if the projects you’ll be consulting on have too many variables, an hourly rate works best. However, if your services have clearly defined workflows and deliverables, project-based pricing might be the go-to option.
Set Up Your Consulting Business
Setting up your consulting business means creating a professional work environment, acquiring the necessary tools, and establishing an online presence. Doing this allows you to operate efficiently and look credible in front of clients.
Set Up a Home Office
You need to find a dedicated space that’s quiet and free from distractions. Afterwards, purchase the necessary furniture, such as desks, chairs, and storage solutions, that convey a professional environment.
Next, buy equipment and technology you’ll use to do the work, such as computers, tablets, printers, and reliable internet.
Also, choose decor that looks professional while showcasing your personal style. There’s plenty of choice for that, including paintings, plants, bookshelves, motivational posters, and brand elements (logos, mission statements, and values).
Invest in Essential Tools
Many successful consulting businesses invest in the right tools to manage various aspects of their operations effectively. Here are some key tools to consider:
- Communication: Zoom for video conferencing, Slack for team collaboration, and Microsoft Outlook or Gmail for email management.
- Project Management: Trello, Asana, monday.com, Notion, and Smartsheet are great examples of project management software for task organization and tracking.
- Time Tracking: Toggl, Bitrix24, Clockify, or Zoho Invoice can help you track billable hours for accurate invoicing.
- Document Management: You can use Google Workspace or Microsoft 365 to create, share, and store documents.
- Customer Relationship Management (CRM): Tools like monday.com CRM and Zoho CRM are great for managing client interactions and sales processes.
- Accounting and Invoicing: QuickBooks, FreshBooks, Xero, Wave, and Zoho Books are capable accounting software for managing finances and creating professional invoices.
Create a Professional Website
Establishing your online presence is extremely important, and nothing does that better than a website. Here are the key steps to creating a professional one:
- Choose a domain name that reflects your brand.
- Select a reliable web hosting service.
- Hire an expert web designer to design your website and a copywriter to fill it with content.
- Include the essential web pages—Home, About, Services, Portfolio, Testimonials, and Contact.
- Ensure each page has clear calls to action placed strategically throughout.
- Optimize the website for search engines and ensure mobile responsiveness.
- Include a blog where you discuss consulting tips and industry insights to establish authority.
Market Your Consulting Business
Creating a marketing plan is the most effective way to approach marketing your business. It will serve as a guide for promoting your consulting business to potential clients.
The key components to include are:
- Target audience: Identify who they are and the benefits your consulting business will provide them.
- Marketing objectives: Setting these ensures you have measurable goals to work toward. Examples include acquiring a certain number of clients or reaching a specific revenue target within a set timeframe.
- Unique value proposition: Clearly state how your consulting firm differs from the competition and why you’re the ideal pick for potential clients.
- Marketing channels: Make sure you utilize every platform you can to reach your target audience. Examples include social media, email, paid ads, blogs, review sites, and webinars. Mix and match to find the best results.
- Budget: Look at your goals and channel the right resources efficiently to achieve them.
- Execute and measure: Set the plan in motion, regularly analyze results, and improve the marketing tactics accordingly.
- Content strategy: Create content that addresses the pain points of your target audience and communicates your expertise.
- Networking: Identify ways to build relationships that expand the opportunities and reach for your consulting business.
Get Your First Clients
After launching your consulting business, getting your first clients will be the most important step. Here are some effective strategies to help you build your client base:
- Cold outreach: Reach out to potential clients through calls or emails to introduce your consulting services. During the discussions, ensure you communicate clearly that you understand their needs.
- Referrals: Ask existing contacts and people you have worked with to spread the word about your consulting business.
- Networking events: Attend networking events in your target industry. Use this as an opportunity to build relationships with potential clients or future collaborators.
- Strong portfolio: Showcase successful projects to demonstrate your credibility and ability to produce results.
- Testimonials and client success stories: Highlight positive reviews, testimonials, and success stories to provide social proof of your expertise.
Manage and Scale Your Consulting Business
Your consulting business needs a way to manage clients and maintain long-term relationships, and CRM systems can help you achieve that.
Here are some CRM systems you can look into:
- monday.com CRM: This is a great solution for small to medium-sized businesses looking for a fully customizable CRM. It has an intuitive interface for easily tracking client interactions and projects. It can help you manage tasks, automate workflows, and foster communication and collaboration.
- Zoho CRM: This CRM can accommodate businesses of all sizes. It has robust features to provide consulting services at scale, including project management, marketing automation, and customer service tools. It not only helps keep client relationships healthy but is also geared towards helping improve business operations.
- Salesforce CRM: Offers a wide range of features for larger consulting firms, with an array of client and project management tools. It also has advanced reporting and AI-driven insights for quick but effective business decisions, on top of being a highly customizable system. If you expect to consult with clients with large datasets, Salesforce can help you deliver the expected results.
When your consulting company is ready to scale, it’s best to look at key areas where you require additional expertise and hire the right support staff or subcontractors to help your business. Ensure anyone you hire aligns with your consulting business’s goals and values. Provide training where necessary, but make it clear to them what their roles, responsibilities, and expectations are.
Top Consulting Niches to Specialize In
Not all consulting niches are equal—some are more in demand than others. But if you have expertise in the following niches, they are worth considering:
Accounting
Accounting consultants help optimize the financial position of a business through financial advice. To earn clients’ trust, you need to be a CPA (Certified Public Accountant) or have a similar qualification.
You also need to be knowledgeable in accounting-related areas, such as bookkeeping, auditing, tax preparation, and regulatory compliance.
According to a report by Benchmark International[4], the accounting services industry, which includes consulting, is expected to grow to about $804.27 billion by 2028.
Branding
A branding consultant is a marketing consultant who helps businesses manage their brand identity, whether by building, improving, or maintaining it. Their job is to ensure that potential customers in the market have a positive perception of the businesses they consult for.
To become a branding consultant, you will need experience in marketing and design, as well as communication, creativity, analytical thinking, and problem-solving skills.
Businesses hire brand consultants because a strong brand is needed, especially in a competitive market. By doing so, they can better set themselves apart from the competition.
Business Mentor
A business mentor is a consultant who provides advice, guidance, training, and support to businesses and their employees, allowing them to grow and succeed in competitive markets.
A good business mentor’s skills include strategic planning, leadership, and communication. They also need to have knowledge of business and market trends in their niche.
Businesses worldwide seek mentors to help them overcome challenges, increase revenue, and achieve long-term success.
Web Design
A web design consultant helps businesses by advising them on how to create and improve their websites. They ensure a website has optimal user experience, aesthetics, and performance.
To be a website design consultant, you need skills in various web technologies, such as HTML, CSS, and JavaScript. You also need graphic, UI/UX design skills and copywriting skills.
In the digital age, businesses rely on websites to attract and engage potential customers online. Web design consultants are in demand because they help create the most effective websites.
Human Resources
A human resources consultant advises businesses on improving and managing human resources functions, practices, and policies.
An HR consultant needs several skills, including communication, conflict resolution, and strategic planning. They also need to be deeply knowledgeable about HR functions, practices, policies, and labor laws.
HR consultants are increasingly being sought after to help businesses optimize their workforce, ensure compliance, and ensure that everyone in the organization is working towards meeting its goals.
Green Living
Green Living Consultancy helps businesses reduce their environmental impact by advising them on the best sustainable practices to adopt and eco-friendly solutions to implement.
Becoming a green living consultant requires expertise in several fields, including environmental science, renewable energy, sustainable design, waste reduction, and environmental regulations.
Green living consultants are in demand to meet the growing need for sustainable practices among businesses. Some lenders and investors also provide funding to businesses that have good sustainability practices.
Organization
An organization consultant advises businesses on the best way to improve their overall operations to achieve their goals. They examine an organization’s processes, structures, and workflows and suggest ways to improve them.
Becoming an organization consultant requires strategic planning, change management, process improvement, and problem-solving skills.
To succeed and grow in a competitive landscape, businesses increasingly seek the help of organization consultants to streamline their operations.
Healthcare
A healthcare consultant is an expert who consults with health-related organizations, offering advice to help them improve their efficiency.
Being a healthcare consultant requires skills and expertise in health-related fields, such as health sciences, nutrition, fitness, and public health.
Healthcare organizations and institutions are seeking the help of consultants more and more to cut operational costs while still achieving better patient outcomes. This is because there is a growing emphasis in the industry on proactive health management.
Cybersecurity
A cybersecurity consultant advises businesses on ways to protect their data, systems, and employees from cyber threats.
The competencies of a cybersecurity consultant include ethical hacking, network security, risk assessment, and incident response. They also need knowledge and experience in defensive security and encryption protocols, compliance standards, and analyzing security threats.
The demand for cybersecurity consultants is due to the increasing incidence and sophistication of data breaches and hacks in organizations worldwide.
Common Mistakes to Avoid
Starting a consulting business can be exciting, but it’s important to be aware of common pitfalls that many new consultants face.
Here are some key errors to watch out for:
- Undercharging for services: Charging a low consulting price undervalues your services and can attract the wrong kind of clients (e.g., quantity-focused clients instead of quality-focused clients). These clients can easily burn you out, hurt profits, and limit your growth potential.
- Lack of a clear niche: This makes it hard to stand out among your competition, especially in crowded markets. It also undermines marketing efforts and makes it hard to establish credibility since the expertise needed for each market is different.
- Poor time management: This is one of the biggest causes of client dissatisfaction since it leads to missed deadlines, low-quality work, and frustration. You can quickly lose trust in the industry if you don’t manage your time efficiently.
- Overpromising and under-delivering: Failing to meet client expectations leads to negative impressions of your company. Clients won’t recommend you to others and may even leave a bad review. Not only does it lead to lost business, but it harms the potential to attract new clients.
- Neglecting to market your business: Not marketing your business limits its visibility. In a crowded market, it means that clients will easily overlook you. If you aren’t getting new clients, your growth potential is significantly hindered.
- Ignoring legal and financial setup: This opens your consulting to a host of legal problems (e.g., tax and compliance). Proper legal and financial setup is not only key for protecting you against liabilities but for building credibility and trust in the industry as well.
- Lack of client follow-up: This is a missed opportunity since you don’t get to strengthen relationships with clients, something that can lead to repeat business and referrals.
How Much Does it Cost to Start a Consulting Business?
The costs of starting a consultancy business will vary depending on the niche you plan to focus on.
Some niches (e.g., health, legal, financial, real estate, and insurance) will require you to have specialized licenses and registration. Others (e.g., cybersecurity, data analytics, and environmental) can have high equipment costs for things like computers, advanced software, lab equipment, and diagnostic tools.
The first costs you need to consider are your fixed costs. Here is what you’re looking at:
- Business license: $100–$200
- Business entity fees (for separate legal entities): $100–$200
- Insurance: $100–$500 per year
- Rent: $500–$2,500 per month
- Office equipment: $1,000–$5,000
- Office furniture: $500–$2,000
- Promotional materials (e.g., business cards and brochures): $250
Next, you have your variable costs, which can fluctuate based on the type of consulting business you intend to start. Here are some of the variable costs associated with that:
- Marketing and advertising: $250–$1,000 per month
- Website: $300–$5,000
- Utilities: $100–$300 per month
- Travel: $500–$2,000 per month
- Miscellaneous Expenses: $200–$1,000 per month
On average, starting a consulting firm costs between $5,000 and $10,000. However, specialized equipment, licenses, and permits can significantly increase those costs.