As many of you know, I share my consulting income details for a few reasons:
- To keep me motivated.
- To be transparent, and show you both what’s possible as well as mistakes made.
- To inspire you to take action and start or grow your business.
If you’re just starting out, building a business will take hard work, patience, and persistence. But the rewards can be far beyond what being an employee can provide.
This month’s consulting income numbers
Overall, my consulting income was a little lower compared to the prior month (by about $700), but has still been fairly consistent over the past few months–which is good, since big swings in revenue (especially low-billing months) make the next month or two pretty stressful when it comes time to pay bills.
The primary reason that this month’s income was lower was because I spent a great deal of time launching Breakthrough Consulting–which took far more time than I anticipated, but has been well worth it. As you might remember, the course started this week, and I’m super excited about it.
Anyway, here are the numbers:
- Total worked: $14,767.50
- Average hourly rate: $177.92
- Number of clients billed: 15
- Average days to bill (this is the average number of days between when I actually do the work and when I bill the client): 11
Again, those numbers have been pretty similar over the past 5 months, which is good, since it makes my cash flow more consistent.
A few words about cash flow
Cash flow depends not a few things:
- how often you invoice your clients
- whether you require/receive up-front deposits for projects
- the client’s accounts payable workflow–and their cash flow situation
I’ve found that it’s especially important to be able to identify problem clients early on in your talks with them. It’s ultimately MUCH better to just avoid clients who don’t have a budget or are going to be slow to pay–otherwise, you’ll waste time and a lot of your mental focus chasing these problem clients (who often happen to be high-maintenance as well).
A second point about clients and cash flow: your clients’ accounts payable process determines how fast you get paid after you send your invoices. Generally, most of my clients pay within about 30 days or so, though I have some clients who pay as quickly as 7 days. Currently, all my clients pay by check sent via snail mail. I’ve offered credit card and ACH payment options, and have had just 1 client do credit card payments–and even that client has switched back to paper check for payment. In my experience, offering different payment options hasn’t had any effect on how fast clients pay. The bigger influence is the client’s accounts payable process. Some clients have strict processes, and others are a bit looser.
So, for example, I had to gently remind 2 of my clients this past week about unpaid invoices. Not a big deal, and they’re good, consistent clients, so I know they’ll pay. But you still need to have e-mail and phone scripts in place to make it easier to manage your collection process. And if you notice any invoice staying unpaid, it’s imperative to stay on top of it and address it early. The longer an invoice goes unpaid, the less likely it is that you’ll get paid the entire amount–or paid at all.
Why is my average rate for the month HIGHER than my hourly rate?
Currently, my hourly rate is $165 for existing clients and $175 for new clients. However, this month’s average hourly rate was $177.92.
Well, a couple of interesting things happened this month:
- I launched Breakthrough Consulting here on the blog–which took a heap of time.
- The time spent on Breakthrough Consulting here on the blog meant I spent less time my hourly consulting.
- BUT, even though I spent LESS time consulting, my income stayed basically the same as prior months.
- AND, my average consulting rate INCREASED.
What’s up with that? I:
- worked less (well, technically, I BILLED fewer hours–I was still working, but working much more on blog-related stuff),
- earned roughly the same, and
- boosted my rate?
Here’s what happened. I have a product I created for a client a couple years ago that could be used by other clients, but hadn’t marketed it much. However, several clients heard about the product and bought it after hearing about it via a forum posting where I mentioned it in an answer I gave on the forum. I ended up selling the product to several clients, and that’s what boosted my rate and income for the month even though I worked/billed fewer consulting hours.
Pretty cool. It’s not quite passive income, but I’ll take it.
Essentially, I priced the product at $500 per client, and it takes me 15-30 minutes to install. When I sell that product, my hourly rate jumps to $1,000/hour. Now, if I could only figure out how to sell more products like that…
What are my expenses?
Like I mentioned in last month’s income report, some of you have asked what my expenses are, and to include them in the monthly income reports. I’m happy to do that. A couple things to keep in mind:
- Some of my expenses are only paid annually; I’ll report those as they come up. But in the meantime, you can get a sense of how much I pay in expenses each month.
- I pay myself a salary as an employee (and take distributions from my s-corp). For now, I’m omitting how much in taxes I pay (federal withholding, state withholding, Social Security, and Medicare), since depending on your situation, where you live, how many exemptions you claim, etc., your taxes are virtually guaranteed to vary wildly from mine. One thing I find helpful is claim 0 exemptions and also withhold extra federal and state income taxes; that way, I don’t have a huge tax bill come April when I file my personal income taxes. So far, I’ve been pretty accurate at estimating how much I’ll need to pay, and then pro-rate how much I need to withhold each month.
- Likewise, I haven’t included health insurance premiums in the total. I currently pay $1,207 each month in health insurance premiums (which covers myself plus my family). However, depending on your circumstances, what you pay for health insurance may vary wildly from what I pay.
Anywho, here’s the expense total for the prior month: $745.70
That expense total includes things like:
- accountant fees
- Skype service renewal
- subcontractor payments (for services which I billed and was paid by clients)
- business-related books, and
- business coaching.
Keep in mind though, when I first started my consulting business, my expenses were MUCH lower–probably in the range of under $100 per month.