How Much Did I Earn In My First Five Years As A Consultant? (the ups and downs of consultancy)
I'm not sure if this is just me, but consultancy has never felt comfortable regardless of the revenue. Lets discover why...
Welcome to my consultancy newsletter. If you want to build a thriving consultancy practice in your niche, I want to help. Please subscribe to my newsletter and check out my best articles.
The Biggest Fear In My Early Days As A Consultant
I’ll share my origin story another time. But it’s worth noting I drifted into consultancy. A blog became a business.
At the time, I was 23 and figured it would be a way to avoid having to get a dreary real job.
I was happy about every new client because it delayed the inevitable process of having to look for a job. But it also created a fear that one day the phone would stop ringing (or I’d stop receiving new emails).
This fear remained with me for years. That might be a surprise as we go through the annual figures.
The Annual Figures - Feeling Proud
If you look back on our year-on-year reports, it seems obvious things were heading in the right direction from the early days.
These are my first five years of revenue.
(Note: I realised after writing that that this begins in our second year. We didn’t use Quickbooks for the first year so I wasn’t able to pull the numbers).
This is very solid growth on the surface. The total over these five years is £1.6m (or approx $2m USD). This is a very respectable number (before expenses - which varied tremendously as we took on staff).
The annual figures are what you can look back on and feel proud about.
You might imagine after seeing these figures that running my consultancy practice felt great. This graph shows it’s growing steadily and consistently each year, yay!
But you don’t experience running a practice like this.
What you experience is far, far, more stressful.
Let’s dig into the quarterly reports.
The Quarterly Reports - Existential Angst
To understand why this isn’t the delightful success story it might appear, we need to break the numbers down by quarter as you can see below.
Forget about the annual graph above and try to imagine how it felt in each of the quarters highlighted here. Focus on the end of Dec 2012 and Dec 2014. On both of those occasions, I had just been through 3 to 4 consecutive quarters of declining growth.
How would you feel if your revenue had been steadily declining over the year to almost nothing?
Imagine the stress you feel in those moments. Perhaps the industry is shrinking and drying up. Maybe you’ve become irrelevant? Perhaps there is just too much competition? Perhaps you should quit and do something else?
The quarterly figures are what drive your existential angst.
Sure income increases over time, but you don’t really experience running a consultancy practice like that.
This becomes even more apparent when we look at the monthly reports.
The Monthly Reports - The Day To Day Worries
The real awakening comes when you break revenue down by month.
Notice the wild swings in revenue on a month-by-month basis. You can see here there are months where we have 2x, 5x, and even 10x the amount of work the month before.
Notice that period in late 2012 where months went by with hardly any work coming in. Then notice how that suddenly changed in a single month.
This is what managing a consultancy practice is like at the day-to-day level. One month you suspect you might be out of business and the next you’ve got more work than you can handle.
What the heck are you supposed to do when you acquire four clients in one month after having two months with very little client work?
The monthly reports is what drives your waking days.
In the fourteen years I’ve been managing my consultancy, it’s always gone from ‘argh, we’ve got too much work to do!’ one month to ‘oh no, we’re not getting enough clients’ the next.
The only thing that’s changed over time is my stress levels. They’re much lower than they used to be. That’s partly through experience. Over time I have faith that things will bounce back. It’s also partly through having a seven-figure safety net we’ve accumulated over time.
But it’s also part of the bargain you make when you become a consultant.
When you run an independent consultancy practice you’re entering into something of a Faustian bargain. If you’re willing to accept the risk of earning $0, there’s no cap on your earnings. But you will never know what it’s going to be on a month-by-month basis. And there will be times when you do earn precisely $0.
(Aside, this has a frustrating knock-on effect when you’re applying for a mortgage etc..)
It reminds me of one of my favourite quotes about entrepreneurship by Hugh MacLeod.
If you want a regular paycheck and predictable income, become an employee. You might be bored, but you won’t be scared.
If you want the possibility of independence, freedom, and high, but unpredictable, rewards, build your own consultancy practice.
Some Bonus Lessons Here
There are some critical lessons here.
Build your safety net. For the first five years or so, I paid myself about £30k GBP per year. For a long spell, after I began hiring employees, I was the lowest-paid employee in my company. This was all a part of the plan to build a safety net. I probably saved a little too much, but having a six-figure safety net really means you stress less about downturns. They can even become opportunities.
Average by the year, not the quarter. As you can see above, it’s very easy to become really worried by downturns which seem to be never-ending. Sometimes there are downturns you should be concerned about (and perhaps want to adapt quickly to). But look for other signs of that (declining web traffic, data showing a decline in the sector/industry etc…). Otherwise average results by the previous 12 months, not the previous month/quarter.
Use your downtime wisely. You should always use quiet periods to invest in learning new skills, building your website, and working on ‘big win’ projects. Quiet periods can become spells of great opportunity. The fallow period in 2015 was when I studied data analytics which is now a central plank of our work.
Thank you for being open enough to share these numbers.
To be honest I'm astounded that you earned so much in your first year alone. How on earth did you get that amount of money starting from scratch? That's the big question!