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August 16, 2008

Analyzing the Consulting Deal

Once you establish a critical mass in the consulting industry, particularly as a freelancer, interim solver or contractor; the work comes streaming in!

Client referrals, repeat work, leads from your existing work load, others in the industry, ex-clients in new roles, leads from your books and other IP out there in the marketplace. The list is endless.

At this stage the point is not getting work, which is generally pretty straight forward, the issue is getting the right deal. Everyone wants a good deal right? Nobody wants a deal where they will lose cash, or escape with the shirt on their backs now do they?

So what constitutes a "good" consulting deal?

When you look at a deal there are three fundamental areas that needc to be carefully considered.

1) How much will you make?

On the face of it this is easy - projected revenue minus projected expenses gives you gross income from the project. But there is obviously far more to it than that.

Can you charge this one on value (As per Alan Weiss' advice?), if you are on rates can you do it for an acceptably high yield? Are there any ambiguous areas that could lead you down a path of diminishing returns?

Will the project allow you to create additional IP? Something that you could then redeploy in some form later, adding to your already burgeoning sack of protected services?

What about other companies? Will this work position you well to deliver similar to others within the sector, industry or in other industries? For example, once I started to assist companies in the UK to develop their 5 year asset management plans the word quickly got out. I was able to leverage off that initial role to deliver services for 5 other utility companies at a substantial profit for me.

Is this the thin edge fo the wedge? Are there natural follow on services within the organization? if so what (conservatively) could they be worth, how likely are they to come off, and how can you leverage this engagement to get the later work?

The first consideration is always the gross income from any project. However, additional leverage for future sales should be considered - even if it is only in a very conservative forecast.

2) How much is it going to cost you to get into it? is there a long sales process? A lot of competition? Additional partners that will need to be negotiated with? What about any regulatory bidding processes? Are they something that is going to have to be dealt with at all? You should also factor in the expenses of managing and maintaining the relationship throughout the engagement, particularly if you are able to deploy more assets than just you.

3) Whats the exit strategy?Yup - whats the way out of this one? is it a rollover into larger contracts, or into additional areas of consulting in related areas? Are there possibilities to play it into a larger syndicated approach (A la "Benchmarking") Or is it dead in the water after this particular engagement?

What about the client? is she someone that has a lot of influence within the industry? Couyld her reference carry weight with her peers? Is the client interested in paying you to develop some specific IP that could, under the right circumstances, become a resaleable product?

What about retainer fees? Are you able to tie some form of residual income into this in any way at all?

Not all deals are created equal - no doubt about that. However, getting things right from the beginning will enable you to choose your engagements far more carefully and profitably. Helping you to maximize your ability to leverage your true assets - your mind and your time!