Five ways to be profitable in IT consulting

The last thing any IT consultant wants to do is get caught up in a consulting engagement that costs him lots of time and effort and makes him very little money. It's frustrating, counter-productive, and almost certainly ensures you won't have return business with that customer. In order to safeguard the profitability of the engagement, you need to keep five key things in mind when you're: discussing the project with the customer, scoping and pricing the project, and executing on the project.

1: Have a spine

What I mean by "having a spine" is that you need to be able to do the following:

Say no to the customer when necessary.

Stand firm for what you believe to be the necessary tasks.

Be confident and unwavering when directing the activities of others.

Stand firm to prices quoted.

Stand behind your estimate and the work involved.

Some of these items may be especially challenging when you're just starting out in IT consulting, but in the end, you'll be more profitable, and you'll have customers who truly need your expertise and are willing to pay you for it.

2: Know your cost of doing business

Many years ago, I was responsible for creating a coupon booklet for a fundraiser in a small town in the Midwest. My team and I went around to area businesses and explained the purpose of the booklet and asked them to suggest coupons that their business could honor in the books. The very nice gentleman who owned the only full service gas station offered 20% off a full set of tires. Then he hesitated and said he needed to think about it for a while. I told him that I certainly didn't want him to lose money on the offering. He was nice but not a very good businessman (this wasn't the only evidence, but that's another story) -- he had no idea what his cost of doing business was and what his profit margin was on a set of tires. In order to be a profitable IT consultant, you absolutely must know your cost of doing business. You should figure in your overhead expenses, travel expenses (air travel and driving), supplies, phone time, and more. You should also build some wiggle room in the scope that you know you may need to give away without putting up a fight. Once you calculate your cost of doing business, you'll know what you need to bring in per hour to make a consulting engagement profitable.

3: Understand your Peter Principle

An independent contractor spoke with me recently about their frustrating situation. The contractor works in a small town in Nebraska, and he receives $500 for his service offering. We both knew that in other parts of the country, especially in larger and more affluent markets, he could receive much more money for this service package. Since he had no plans to move, his options were to change his offerings or include more or different services in the package. The contractor's research indicated that they risked losing business. In effect, he found his "Peter Principle" in terms of what he could get for the type of service he was offering in that location. The Peter Principle applies to IT consultants as well. We have to understand what the ceiling is we're going to get in terms of rate, or price, or contract. We also need to understand our earnings limitations within our main client base and work with those limitations. If we fail to understand all of that, we risk alienating current and new clients and decreasing our earning potential and profitability.

4: Don't let the customer change the scope

Scope management is always an issue when managing a customer and a consulting engagement. You document the work with one estimate (perhaps even in the signed contract), yet throughout the project, the customer may try to insert new "must haves." Analyze these requirements changes carefully and, if the changes are outside the original scope, let the customer decide if it's something they need and they will pay for it, or if it's something they can do without.

5: Advertise strategically

No cost advertising that actually works equals increased profitability. These advertising strategies can be huge boosts to your consulting business and likely won't cost you a penny.

Get testimonials from satisfied customers and post those prominently on your website.

Write press releases about your offerings and then post them to free press release sites on a regular basis.

Become a subject matter expert and write articles for industry sites.

Ask satisfied clients to recommend your work to other local businesses.

posted by Brad Egeland
October 16, 2010 @ 12:00 am
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