Practical Tips for Independent Consultants and Freelancers

Bob The Barber

I want to reveal the business basics using a simple but relatable example. Consider Bob, the barber. Armed with his professional tools, a chair, and a shop, Bob offers a service— cutting hair.

His business model is basic but effective:

Bob has a service (his product) – haircuts.

He sells his product in his shop.

He delivers his product, cutting hair in enough volume to earn a living and cover his expenses.

While this is a simple model, it is the basis of all businesses.

For Bob to succeed, he must earn sufficient revenue to cover all his expenses.

The Five-Line Framework/Model:

  1. Revenue from product/service sales (which must exceed costs)
  2. Cost to make or buy the product/service (your time, including materials and contractors)
  3. Cost of selling (Marketing, advertising and selling costs)
  4. Cost of running the business (rent, insurance, utilities, subscriptions and administration) and
  5. Profit (revenue less costs)

When I refer to a 'framework', I talk about a well-structured strategy or interconnected set of rules that offer a comprehensive guide for tackling intricate challenges. If you examine this framework, you'll notice the interconnectedness of each action within the model. They're all vital components of any business operation. As we start planning quantifiable elements like time or money, this framework can transition into a concrete model, a topic we'll delve deeper into in upcoming articles.

I want to focus on the first part—revenue as the essential component for Bob or any other business to thrive. Especially so for the self-employed or freelancer.

Bob's simple business model illustrates the fundamental principle of all businesses—to generate revenue that exceeds costs. If he wants to increase his revenue, there are many things he can do, such as upsell, sell recurring haircuts or add other services. For the independent consultant, things are not much different.

Pricing Your Freelance Services

Setting your consultation rates is the first step to maximising revenue. To set competitive yet profitable hourly project rates, you will need to try and gather information about your industry, target customers, and competitors to gain insights into the pricing landscape. This will help to position your rates effectively, taking into account factors such as demand, value provided, and customer expectations. Initially, you may need to be flexible in adjusting your rates based on market feedback and to gain experience and confidence.

The Five Line Model shows us that the:

  • cost to make or buy is where you do the work (also referred to as costs of goods sold)
  • cost of selling is where you spend time and money getting the work, and
  • cost of running the business are the costs to run the business

When starting a business, you'll devote most of your time and budget to these three key areas. For example, if you work 40 productive hours per week, you may only have about 20 billable client hours. That equates to around 1,000 billable hours per year, accounting for some time off.

Setting an appropriate hourly rate must cover more than just your salary. Even if you charge $100 per hour and bill 1,000 hours yearly to earn $100,000, that revenue must also fund the cost to make or buy, the cost of selling and the cost of running the business.

Diversifying Your Income

It's wise to rely on something more than consulting work for a few large clients. Exploring additional services that align with your existing portfolio or expanding your offerings into new areas, such as online courses, ebooks, or webinars, can help diversify your income. It would also be helpful to affiliate with organisations that refer work to consultants in your field.

Managing Cash Flow

Maintaining a cash reserve equal to three to six months of essential expenses can help you manage fluctuations in revenue and the fear that that can cause. Invoicing in advance is also a good idea to help cover payment delays.

The simple but practical takeaway is to deliver premium value to your clients so as to justify higher rates. To maximise your revenue, set appropriate consultation rates, diversify your income, manage cash flow efficiently and strive to deliver premium value to your clients.

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