Freelance as a consulting exit

Question

Dear experts,

I've been working as a consultant at a tier2 firm for about 2 years now and I've recently started looking into my exit options.

Working as a freelance consultant is one of them since I really like the job as a consultant, the different projects, but I'm looking to work more independently.

I assume that especially among preplounge coaches there should be some of you that have experience with that. can you give me some insights or tips? Like what are the advantages and what are the main problems you face? What do I have to do to become a freelance consultant? At this point of my career, am I actually able to pursue this exit option?

Would appreciate your help!

Answer 1

Hi Anonymous,

I am actually finishing a book on this ("how to survive the first years as a freelancer"), in German, though. For the book, I am drawing on my own experience as well as interviews with 40 or so freelancers. So I know a bit on the topic.

Without knowing you or your background (experience, country, ...) it's impossible to give an answer that is particular to you. Maybe we could cover that in a personal call or so.

But here are some general questions you should ask yourself (basically the first chapter of my book):

What's your motivation to move into freelancing? Independence? Flexibility? Money? Something else?
Am I cut out for it? Mentally? Physically? Financially?
Do I go at it alone or do I look for partners?
What is your value proposition & USP?
Where do my first projects come from? How do I find clients? How good is my network?
How long can I pay the bills if I don't find a project?
How do I develop my skills and grow personally and professionally if I am no longer part of an organization?
What's my exit strategy?

After more than half a decade of freelancing, I can say that it is a very rewarding job, but also tougher than it looks from the outside. Classic case of "the grass is always greener on the other side".

If you've only worked for two years I would strongly recommend to NOT do it unless you have something really unique and are a star in many categories (consulting skills, sales, networking, among them). Your network is probably not yet strong enough to provide you with a steady flow of projects. Your experience so far does not allow you to credibly differentiate yourself. You are too junior to be taken seriously by senior management without the company that you are currently representing. That means you will end up (most likely) on poorly paid, uninteresting projects. Which is not rewarding, neither intellectually, nor financially. Or you will be 100% dependent on intermediaries like Comatch or Hays, which is the opposite of being really independent.

Happy to help if you want to know more.

Cheers

Elias

Answer 2

Following up to Francesco:

From what I have heard from my interviews (and have experienced myself), it is very hard to make more money in the long run as a Freelancer if you come from a consulting firm that pays decently.

Of course, if you look at junior salaries that may work, but don't forget that in a consulting firm you have a career progression with corresponding higher incomes. You will have a very hard time making a Partner or even Senior Manager salary as a Freelancer because you don't have the pyramid working for you.

Many freelancers also underestimate the costs of all the benefits their company pays - health insurance, retirement savings, company car, training, ... Once all of that comes out of your own pocket, you'd be surprised how much you have to earn to beat a Consultant package of salary and benefits.

That may work in a very good year, where you can book 200 billable days at a good daily rate - but it would be foolish to assume that every year is like that. If you manage to bill a 100-120 days a year on average, you're much closer to reality for most freelancers.

Your daily rate also usually maxes out at some point, I know very few freelancers that have daily rates exceeding 1,500€ (in Germany) AND who are still booked on longer-term projects, where you can bill 50, 80 or 100 days. And those I know have 10+ years of experience.

So do the math (Example for Germany):

Even if you manage to consistently charge 1.500€/day (and that's VERY good), you bill 120 days, you earn 180k.
Deduct all non-chargeable costs of doing business (office, IT, insurance, travel, ...) and "benefits" - make that 50k
You end up with 130k a year - that's a Senior Con salary in the firm where I used to work. Not even with a great bonus. And then the Senior Con becomes Manager after two years, jumping to 160k, and then to Senior Manager (>200k) - while you have maybe managed to add 100€ to your daily rate...

Of course, I've read all the books like "Million Dollar Consulting" and "Book yourself solid" - but the reality is, that very, very few freelancers manage to get to that level.

Cheers

Elias

PS: I'm also not sure if you can start a consulting business on weekends. Of course, you can do some of the preparations (admin, website etc...), but if you work with corporate clients, those tend to want to work with you during normal business hours...

Answer 3

Hi,

If you have only 2 years of experience in consulting I would strongly recommend not doing this. You are in the best and most productive years of your life. You can work long hours, learn fast and have a lot of creative ideas. Why should you spend these years on freelance?

Best

Answer 4

Hi Anonymous,

I believe Elias has provided an extensive list of questions to understand motivation and sustainability of the choice.

I would add that the key thing you should consider is whether you would have enough flow of clients for a sustainable business in your desired timeframe - thus compensate for the opportunity cost of continuing to work for the Tier 2 company.

The freelance job is unlikely to match the returns you would have continuing working for your current company in the short term, but could become better in terms of hours/compensation long term - this is quite usual for a business when you become an owner rather than an employee.

After a 2-year experience in consulting this may be feasible if:

You identified a niche where you managed to become a strong expert, ideally with some barriers to entry to guarantee sustainability in the future and/or
You have developed an exceptional network of contacts which can create a predictable inflow of clients (more difficult considering a 2-year experience, but possible)

Advantages include:

Control your own agenda
More upside potential
Specialize in the kind of job you prefer

Disadvantages include:

Less security/ more stressful
Could fail and have to find backup options
Burn some exit opportunities you would have sticking to consulting

In general I would strongly recommend starting your business part-time (weekends), get traction (even if that may require some time) and move full time only once identified it can be sustainable and you enjoyed the experience, to limit the downside.

Best,
Francesco

Answer 5

Hi there,

I actually just wrote a long guide with answers to common questions I get from freelance consultants, or people who want to start working more independently. You might be able to find some more answers in there to your questions.

But I would say that some of the advantages you get are flexibility and a steep learning curve. You get the option to work on a lot of different projects and learn from all of them. This just means that you learn a lot, fast, which could help you evolve professionally. Also, you basically decide which projects you want to participate in and therefore there's a higher chance of you liking what you do.

The disadvantages could be that you're giving up on the safety of having an employment contract and leaping into independence. This also means that there could be periods of being unemployed.

In case you're interested in reading my article, you can find it here: https://blog.qemploy.com/why-consulting-guide-2019/

Answer 6

Dear experts,

thank you very much for your answers! This discussion has been incredibly helpful, already!

My main take-away is that it is too early for me to pursue freelance as an exit. And that it's not as easy and great as people may think ;)

however, assuming that I do decide to become a freelance consultant in the future. what would you say then, is a good time to exit? I get that with 2 years of experience it may be too early, but on the other hand as you said, the salary may not be that great as a freelancer, especially at the beginning. So I want to avoid jumping down from a very high salary in consulting to a low one as a freelancer.

Side note: I'm based in Germany (thus looking forward to your book, Elias!)