5 steps to a super-profitable consultancy

Compared to 2020, average gross margins have fallen from 55% to 42%*.???

That’s a significant drop and it concerns me. Because for every success story I hear from a thriving boutique consultancy right now, I hear about two whose futures are looking much less certain.??

Here are 5 things you can do to build the profitability of your business and get the best chance of success:??

1. Enhance your value??

We talk about value propositions a lot at The Consultancy Growth Network and for good reason. If you can quantify and demonstrate that you can deliver what your clients value, then they will pay generously for your services.??

The problem for many boutique consultancies is that we are often doing things for the first time. I would encourage you to narrow down your sweet spot and focus on what you can provide better than your competitors. Learn, improve and repeat those projects more effectively each time, sell the value of them, and ultimately, you’ll become more profitable.??

2. Be bold with your pricing??

There is a huge correlation between pricing and profitability. In fact, research shows that for a relatively well-performing consulting firm just a 5% increase in price will deliver a 25% increase in operating profit*??

Clients decide on your ‘value’ by making comparisons, so consider offering more than one pricing option when quoting for work. Regularly review your pricing to ensure you will make a profit once the services have been delivered, and make sure your salespeople believe in what they’re selling so that they don’t feel the need to discount.??

3. Know your true costs??

Only 33% of consultancies review the profitability of their projects once they are finished*.???

Many consultancies don’t truly know how much it really costs to deliver their services.??

Profit is not a dirty word. Nor is profit the solitary pursuit of the business owner. This is a real gap for many consultancies and a huge opportunity to get the whole team involved.???

Top tip: In my previous consulting business, we created an in-depth pricing guide for use internally that detailed every cost, from meetings to reports. This meant that if we needed to design a solution or set up a project, we had a template ready to go which made sure that every potential cost would be considered for every project.???

Also, focus on the clients and existing accounts that are most likely to increase profit, rather than those that drain your finances and resources.???

4. Be seen in the right places??

You can charge a premium price if you set yourself up to be a premium brand. Be seen in the places your clients hang out. Be bold and get creative!??

Insight: One of our members, NextWave Consulting, credits part of their success and ability to win work up against the largest consultancies in the market to being seen as a high-calibre brand, despite still being at a relatively early growth stage. They are now listed as one of the fastest-growing companies in the UK and one of the Best Places to Work according to The Sunday Times.??

5. Aim high to increase gross margin and profitability??

Replicate what the high performers do. Here are some tried and tested ideas to increase your gross margin and profitability that I have seen in our community.???

Get creative with risk and reward deals??

Risk and reward deals can have a significant impact on your profit because they require no additional injection of activity or cost. You just need to have faith in what you do.???

For example, at my people development consultancy, we negotiated a project with a high-profile mobile phone retailer. It was a project priced at ￡240k which we agreed to deliver at half price, for ￡120k. We created such value that we earned ￡580k. Our average day rate was ￡5000 on that project, at a cost of around ￡500 a day. Which meant margins were around 90%. It was a risk that paid off.??

Drive team commerciality, visibility and accountability??

Sit down as a team, measure gross margin by project, review it regularly and share best practice on how to make projects more profitable.?It heads off that temptation to work extra hours and not charge clients for your time.?

Benchmark with your peers??

Compare your gross margin with your peers and see what the industry's highest performers are doing to supercharge their profits by getting access to the?Consultancy BenchPress report.?

*2023 Consultancy BenchPress Report??

Consultancy BenchPress 2024

Why not benchmark your profitability along with a ton of other metrics relevant to boutique consulting firms. Completing the survey will give you free access to the full report. Take the survey now.