How to Write a Business Plan and Create a Financial Model for a Consulting Business
Q: I'm starting a consulting company. Will your app work for that kind of services business? How would I enter the inputs? How hard would this be to model with your app?
A: Yes, our model will handle a services business model and offerings such as consulting. We recommend that you think of the average consulting deliverable as a unit of offering and then input your core assumptions around that. Our app will then calculate for you the number of consultants required to deliver on your forecasted consulting projects and all associated financial statements and financial ratios.
For example, let’s say you are a custom mobile app development firm and your business model looks like this (although this is the same kind of structure for every form of consulting services):
The average consulting project is billed at $120,000 to build a mobile app
You charge one-third of the fee at the beginning of the project and the balance each month ($40k upfront and $40k per month)
The project lasts an average of three months
You pay an average of $30,000 (at a rate of $100/hour for 300 hours) to your consulting staff that work directly on the project (think of them as your Direct Labor)
You sell 5 projects the third month of your plan and aggressively grow by continuing to add an increasing number of new clients each month as you grow (7 new clients the next month, 9 new clients the following month, etc.)
Half of your custom app consulting clients will sign up for a recurring app maintenance and support agreement (Offering #2) for $500/month on a three-year contract that begins the month after the app is delivered and they renew that support at a rate of 75% at the end of the initial three year subscription
Your app support scales in the manner that 1 support analyst can support 100 clients (paying $500 per month each) or a total client revenue of $50k per month
Given the above example business model, your Offering assumptions for the app development consulting would look like this:
1. Type and Length of Offering inputs with consulting project with recurring Revenue for 3 months and no renewal:
2. Pricing Assumptions with pricing at $40k/month (for three months) billed and collected in the same month (so your cash flow implications are accurate):
3. For simplicity, we will skip customer acquisition expenses and focus next on your Offering Cost Assumptions, which is 100 hours per month for the 3-month project for a total of 300 hours to deliver:
4. Your Sales Forecast inputs would look like this:
Your Offering assumptions for the recurring support and maintenance would look like this:
1. Type and Length of Offering inputs with consulting project with recurring Revenue for 36 months and a 75% renewal rate after that:
2. Pricing Assumptions with pricing at $500/month and billed and collected in the same month (so your cash flow implications are accurate):
3. For simplicity, we will skip customer acquisition expenses and focus next on your Offering Cost Assumptions, which is the fact that 1 support analyst can support 100 clients (paying $500 per month each) or a total client revenue of $50k per month:
4. Your Sales Forecast inputs for the ongoing support would simply link to Offering #1 with a 50% take rate starting on the 4th month after initial signup for the app development:
With those inputs, you can then see all of the details of how all that impacts your financial model in the various reports. Here’s an example of the Sales report with a monthly view of Offering #1, the app development project, looks like (with dozens more rows of details and KPIs for each offering):
…and this is what Offering #2, the app support, looks like (remember, the support starts on the 4th month after the kick-off of the app dev project and with only half of the clients signing up):
All of your other reports and financial statements are all automatically calculated for you as well. For example, your Staff report will show all of the proper staffing levels required for your consulting labor as well as your support labor.
You will, of course, want to input your other assumptions of marketing expenses, overhead staff expenses, etc., but the purpose of this response was to show you how an extremely impressive and robust consulting services business plan and financial model can be easily created with only a few simple inputs.