Should You Become an Independent Consultant?

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Launching a consultancy isn’t for everyone. One expert tells you what to expect when you start your company. | iStock/izusek

Nearly 40% of Stanford GSB graduates become independent consultants at some point in their career.

Robbie Kellman Baxter is one of them. “I was in big-firm consulting before business school and then went into product marketing,” she says. “I learned I gravitate more toward strategy than operations.”

In 2001, the day she returned from maternity leave, Baxter was laid off. “I realized I couldn’t be dependent on other people for my livelihood,” she says. “I wanted control over my destiny and decided that I would work for myself for at least five years.”

Those five years have grown to nearly 20. Today, Baxter is a global expert on subscription pricing and membership models, consulting with startups, VC-backed midsize firms, and industry giants like Microsoft and the NBA. She is also the author of The Membership Economy and the forthcoming The Forever Transaction.

Here, Baxter provides insights and advice on making the transition to independent consulting — including key questions to ask, pitfalls to avoid, and the challenges of growing your business.

Ready to Go Independent?

Consulting isn’t right for everyone.

“Not all of my independent consultant friends have been happy,” Baxter says. “Many have returned to big organizations. A big company means a big brand, lots of support, really smart colleagues, and less selling. But the trade-off was worth it for me.”

It’s a trade-off that anyone considering consulting must consider: “We often imagine only the good parts and not the full bundle of benefits and challenges. The biggest question is: Do I have the stomach for sales and marketing? A lot of Stanford people are used to being recruited and even chased. Being independent means asking for things rather than being handed them.”

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Robbie Kellman Baxter | Courtesy of Robbie Kellman Baxter

Baxter also suggests asking, “What are my constraints and can I confidently work within them? What are my goals?” Money is a big one, as you’ll be paying for things like insurance out of pocket. “If you’re the household’s sole source of income,” she continues, “you may want to save six months of expenses to get your business off the ground — a year, even better.”

Baxter advises “planting seeds” for consulting while still working a conventional job: speaking at conferences, writing for trade publications, and growing your network are all ways to build a personal brand and set the stage.

You should also be prepared for what Baxter calls “administrivia”: everything from computer issues to travel plans. “Are you ready to take on business management tasks? And don’t forget the challenge of working alone. A lot of my GSB friends really missed collaboration when they went independent,” she says.

Consultant Versus Contractor

Baxter underscores the difference between consultants and contractors, terms that are often conflated.

“Consultants are experts on a process or subject matter,” she says. “Consulting projects tend to be shorter and more highly compensated, like helping a company enter a new market. You don’t look like an employee — no desk or required hours.”

Contractors, by contrast, do resemble employees: “Contractors usually get paid hourly and work longer projects,” she says. “Often you’re subbing for someone, like someone on maternity leave. This can still be prestigious work, like coming in as a contracted CFO or interim head of product or marketing.”

Finding Work and Growing the Business

Perhaps the primary challenge for new consultants is growth.

“When starting out, however much time you have for your work, spend at least a third of it on sales and marketing,” Baxter says. “You also need a brand that attracts people. Starting out, I was just ‘Robbie Baxter from school’ or ‘Robbie Baxter from work.’ But I invested in building a brand around membership and subscription models — now clients come to me. Just hanging out a shingle rarely works.”

It’s critical to monitor your progress: “You might say if you don’t have consulting gigs after X months, you’ll be more open to interim contract roles. There’s no rule of thumb because it depends on your goals. I wanted control over my work and schedule, so I was willing to do contract work if it gave me that. Others may want to focus on a passion like sustainability, so they may want to give themselves a longer runway.”

To Hire or Not to Hire

“There are two kinds of hiring that consultants do,” Baxter says. “One helps you focus and perform your best. For me, it’s not a great use of my time to do billing or diagnose a printer problem. So that’s more about support, whether a real person or virtual admin.”

The second type of hiring is about building your firm: “This happens when you get to a point where there’s more work than you can do. So you look to become more leveraged as an independent expert, which often means raising your prices and narrowing your focus. Or you build a firm. A marketing consultant might hire a designer, writer, or account manager — or more marketing consultants.”

The Money Part

Working as a consultant means a less predictable income stream — and requires strategic pricing.

“Income can be very lumpy,” Baxter says. “You can make more in one project than you would in a year, but you can have dry spells too. If you get one fewer project than you got last year, it may not mean a problem with your system, but it can throw your life off, depending on how much you have saved.”

Fees can take several forms: “For hourly pricing — as a contractor might offer — take the salary you figure that job is worth, maybe $100,000/year, then double or triple the hourly rate based on 2,000 hours/year. So you’d take the resulting $50/hour rate and ask for $100 or $150 for hourly work. You can also use that rate to create a project fee based on the estimated number of hours.”

Another option is results- or value-based pricing: “Think of the financial impact you might help the client have, such as generating $10 million in sales by entering a new market with a strategy you created. But recognize there’s a lot of work that comes after yours, such as for execution. Then think about a fair percentage of that projected new revenue to ask for — maybe 1%, or $100,000.”

Consultants can also work on a retainer basis, for instance charging $5,000 per month to access their expertise — such as how to sell to the military. “Usually that requires a lot of credibility or a pre-existing client relationship,” Baxter notes.

Finally, some consultants use transactional product pricing. “They may charge $2,500 for a workshop or $5,000 for a speech,” she explains, but warns, “that might commoditize you.”

In closing, Baxter emphasizes how crucial it is to enter consulting with eyes wide open. “People simply underestimate how different it is from working full time for an organization: the selling, infrastructure management, costs, loneliness. Nothing drives home the financial impact like paying for your own insurance the first time. That can be a real shock!”