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Why You Will Never Get Rich by Consulting

 Mar 5, 2009  |   Filed under: Business  |   Tags: Business, Consulting, Money, Opinion

There is a know fallacy in consulting as a business model. The idea of charging someone a fix sum of money for an hour of labor can only be profitable until you run out of time to sell.

If you run a company that has 10 consultants, every consultant can only work about 40h a week. If all your consultants are working with clients you have hit your cap. The only way to make more money is to hire more people and find more clients. This leads to more administration which in turn leads to overhead and expenses. This doesn’t scale.

Calculated in percent you will probably be making less and less as your company grows. But this isn't really news for most. Still people do consulting, because consulting is a quick win. With consulting you actually start earning revenue the first hour you work. It's safe.

However the fact is; you will never get rich doing consulting. For the same reason you will never get rich working for a monthly or hourly wage. To quote Ben Curtis on the Rails Podcast:

There are two secrets to wealth. One is to spend less
money than you make; that’s easy. And two is to get out
of trading time for money.

Wouldn't it be nice if you wake up in the morning and log on to your bank to see that you just earned 1k $/€/£ while sleeping. In order for this to be reality you need to separate the time you spend working from how much money you will make. In the software industry this means you need to build products not sell hours.

Products are nice because you spend a fixed time building them and then you can charge customers over and over again for using them. This means once you have built it; it will continue making money without you having to spend any more time. Once you have a couple of fairly profitable products you can retire to an island heaven somewhere and spend the rest of your days as a corn farmer.

Just a provoking thought from a consultant.