The Recent Collapse of Fish & Chips Stores is the Best Lesson for 1-Man Consultants in Ages
It does not matter what industry niche you are in. You must watch your operating costs.
I know you are scratching your head. What have the neighborhood fish & chips restaurants got to do with my 1-Man consulting practice?
My answer is this. We can learn plenty from the experience of others.
In fact, this is a brilliant case study from a financial standpoint. We must watch the following with caution.
- Operating costs
- Retail price of our consulting services
- Customer segment and how sensitive they are to price increase
We believe in what we do. We run our 1-Man consulting practice because we are consultants at heart.
But. We must stay afloat financially to continue doing what we love.
We must understand our Profit & Loss statement.
The Simple Profit & Loss Statement that All 1-Man Consultants Cannot Avoid
There are 3 components in an oversimplified Profit & Loss statement for all 1-Man consulting practices, regardless of their industry niche.
- Service Revenue
- Operating Costs
- Profits
At this level, only 1 formula matters.
Service Revenue — Operating Costs = Profits
I know what you are thinking. Duh. Who doesn’t know that?
But that is not the point I want to put across. 1-Man consultants must peel the onion to understand the mechanics that run beneath the surface.
Let me start with service revenue.
a. Do You Have Bargaining Power as a 1-Man Consultant?
Price is important because we use it to settle contract value and transactions. However, price is a derivative of supply and demand.
It assumes secondary priority compared to our ability to set and raise the price.
If you are one of the many 1-Man consultants offering indistinguishable services… you are a price taker. And maybe, you radically undercut the market to get deals.
I know many 1-Man consultants do this. They do so during their initial years of business to get and grow their business.
But.
You can only win this game via volume. You may require many, many consulting contracts to break even (a fanciful way of saying revenue = cost).
Revenue = Cost = $0 profit
Now, ask yourself this question. Do you want to accumulate many consulting clients and work long hours only to earn $0?
My answer is no. I hope your answer is the same.
Then, we need to have pricing power. This is the exact issue that confronts the neighborhood fish & chips stores.
The prices of fish, potatoes and oil have soared in light of Russia’s invasion of Ukraine and a subsequent suite of international sanctions. Russia is one of the world’s largest seafood producers, and is a key supplier of white fish to many countries.
If you have no control over raw materials as a neighborhood restaurant, you become a victim of escalating operating costs. That is bad news if you cannot raise prices. More on that later.
But first, I think there are 3 simple takeaways for 1-Man consultants.
- We must be in an industry niche where we can price our services upwards
- That means we must have relevant expertise and years of experience
- Clients must acknowledge our above & beyond professional competence
Sounds scary? No, it need not be. In fact, deep expertise need not translate to 20 years of experience. That is rare and hard to come by.
Demonstrating to our consulting clients that we can deliver the consulting engagement when many others cannot, is all that matters.
That is not too difficult, right?
b. Your Customer Segment Determines the Profitability of the Your 1-Man Consulting Practice
Why so? The answer is simple. Price sensitivity.
A key issue… is the extent to which fish and chip shops can pass cost increases onto consumers before they begin to lose business, with fish and chips having long been considered an affordable treat, especially in traditionally working-class areas of the country.
If your operating costs rise due to inflation (and other reasons), you want to pass the cost to your clients. That is how you stay profitable.
But what if your consulting clients are price sensitive?
Then… you are stuck between a rock and a hard space. Here’s why.
- Clients will abandon you for another service provider
- They may choose to operate without your consulting service
- Clients may resort to soft threats, where they will only continue your contract if you hold prices constant
From this perspective, you want to have consulting clients with these 2 criteria.
- They see the immense transformational value you bring
- They are willing to pay higher prices as you raise them
You can maintain the same level of profitability when you can increase the price of your consulting service to match operating costs.
So, the question is, by how many percentage points should we increase the prices of our consulting offer?
That is simple. You should raise prices to match your consulting services to the inflation rate of your country.
Parting Keynote
Not all 1-Man consultants are finance-savvy. I get that.
But we must watch our books. Service revenue, operating costs, and profits influence one another.
Also, the customer segment you are serving is critical. It influences the survival of our 1-Man consulting practice.
You don’t want to held hostage by rising costs.
You must be able to pass these cost increases to your consulting clients.
And that can be achieved by the depth of knowledge you have in the chosen industry niche.
As a content contributor, I write my observations from daily life and my business exposure. Because our life experience is the bedrock of our unique perspectives.
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