Consulting or info products - 8 factors to help you decide
When you decide (or are forced) to embrace the solopreneur / freelancer / lone warrior life, you have to make a decision about what kind of business you're going to build. On the one hand, there's the consulting / freelancing route. You sell your services (in effect your time) for money. As you get better at what you do, you realise that the value you're delivering is way more than the money you're earning, and you start looking at value-based pricing. You start charging for a piece of work rather than your time. Over time, you build up enough of a reputation that you can actually make a decent living - and you have a life as well.
On the other hand, there's the info products business. This is attractive because the idea of building a product once and selling it many times is really appealing; you can literally be making money while you sleep. It will take time to build up awareness with enough people so you have a decent mailing list you can market to - but the promise of that passive income is oh so enticing.
Which is right for you? Or is a mix of the two a better way to go? Here are 10 factors that compare the two different kinds of businesses.
8 Factors that you need to consider
I've been a consultant for many years, and I'm in the process of building up the info products side of my business. Here are 8 factors that I've seen make a significant difference in the kind of life you will be leading in each of these kinds of businesses:
Speed to revenue
The first factor is speed to revenue - how long it takes to generate your first revenue from each kind of business.
It's faster to generate your first revenue from consulting or freelancing services than it is from an info products business. The problem is mainly on the info products side of the fence.
To generate revenue from info products, you have to:
- create the info products (this takes time);
- build up a mailing list (this takes a lot of time); and
- market and sell your info products to your list.
Almost all successful info products entrepreneurs will tell you it's not the size of your list that makes a difference - it's the quality and your ability to present a compelling case for your product. And to some extent that's true - but it's still a numbers game. Not everyone is ready to buy when you're ready to sell, and not all of your products will be hits.
In the consulting / freelancing world, you don't have to create a product; you just have to package and present your services in such a way that your clients will find attractive. There's a lot less up-front work before you can begin marketing and selling, so making the first sale is a lot faster.
Building a mailing list is of course not the only way to sell info products; you can use affiliate marketing, sell ebooks on Amazon and so on - but the up front work remains before you can start marketing and selling.
The next factor is price point. Generally, you can charge more for your expertise when you deliver it in person than you can for an info product.
You can make a really nice living when your prices reach an hourly equivalent of $100 per hour or more. Let's say you work 160 hours per month (4 x 40-hour weeks) and you can effectively only charge out 50% of your time (the rest is needed for marketing, sales, admin and so on), your 80 billable hours brings in $8,000 per month.
Pricing for info products are of course not based on your time, so you have to price them based on what the perceived value is for your customers. There is obviously a wide range of prices here, and even thousands of dollars is common (though they require a much bigger and more sophisticated marketing and sales engine).
Number of sales
The volume (number) of sales you have to make to make a decent living is of course directly related to price. High prices require fewer sales, low prices require lots of sales.
I do make a distinction between price and number of sales. We're so tempted to take the info products route - where we can make passive income - that we forget we have to make large numbers of sales to make a decent living from info products alone. Building up to that volume takes time and we have to learn skills (like online marketing and email list building) that we don't have to learn in the consulting or freelancing world.
Difficulty of sale
Selling your expertise is in some ways a lot more difficult than selling an info product. Once a client enquires about your services, you may have to go through a protracted process of discovery, putting a proposal together, negotiating a price and getting a commitment from your client before you get money in the bank.
There are ways to speed up or avoid all of this overhead. You can replace free discovery with paid road maps; avoid proposals by productising your services and fixing your prices (and even demanding payment up front).
On the info products side, once you have a marketing and sales engine that works, it requires relatively little work from you to maintain. Keep up the marketing and you will see ongoing revenue with relatively little effort.
In the consulting / freelancing world - with relatively higher price points - you need fewer sales and therefore the audience you have to market to is smaller as well. You have the ability to pick them with more care, the quality of your leads is higher and generally your conversion rates (the rate at which leads turn into prospect into clients) is higher than in the info products world.
In the info products world, you have less control over who is in your audience. You can discourage the wrong types of clients from subscribing to your email list by careful wording on your website, but your conversion rates are going to be lower.
So, you need to have a much bigger audience in the info products world. This will take time to build.
By definition, selling your expertise (which translates into selling your time) requires that you spend more time with your clients than in the info products world.
This can be a blessing or a curse in many different ways. You are always going to find clients that are high maintenance and need a lot of your time (the curse part of things). On the other hand, interacting with clients may be just the thing you need to keep you energised (see the Loneliness Factor below). If you're more of an extrovert, interacting with clients will give you more energy.
Building a business can be a lonely thing, and if you're in the info products world it can get very lonely slogging away at building products for weeks or months on end.
If you don't mind being on your own, this is of course not a bad thing - but there's a danger in being isolated for too long.
Every product you build and sell will eventually be used by people. If you don't regularly get feedback from potential clients on the products you're developing, chances increase that you will build something they don't need. So you still need to interact with people, even if it's only to make sure you're building stuff they can use.
In the consulting / freelancing world you're spending a lot more time with clients, and the chances of loneliness getting you down is smaller.
In the consulting / freelancing world, your income stops when you stop working. In the info products world, you get income even when you're not working.
That, of course, is the lure of the info products world - income even when you're not working. There are many examples of entrepreneurs - even solopreneurs or very small teams - that do this quite successfully. But the road to get there is long, slow and can be frustrating - and you can't stop working at it completely. Even great online products require continuous marketing and taking care of clients who purchased your products. It's not quite as hands off as you may think.
On the consulting side, things start looking a lot better when your hourly effective rate goes above $200. Even if you work 10 months per year and only charge out 50% of your time during those 10 months, you're looking at $160,000 per year (10 months x 80 hours per month x $200 per hour).
That's pretty sweet. But keep in mind your not working only 800 hours per year - you're working a full year because marketing and sales is going to take up the other 50% of your time. Or more.
So how does this help me make a decision?
You've now seen the 8 factors I've found make a substantial difference in choosing what kind of business you build.
But there's more to it than that.
The key here is that whatever you start out with, you can change it later. So if generating income is a priority now, the consulting / freelancing world is going to be a better choice. You have less to prepare, you can get to marketing and selling faster and revenue will come in faster than in the info products world.
On the other hand, if you have a job but you want more income, or eventually go out on your own, the info products route will be more attractive. You won't have to spend a lot of time with clients and you can start building an audience and an online presence without giving up your job.
You can even mix the two, like I am doing right now. The majority of my income comes from consulting to small business owners, and slowly but surely I'm building up a library of products that provide me with passive income. The downside of doing it this way is that I have to fit in product development between marketing, sales and consulting work, so it takes longer. But it works for me and in the meantime the lessons I'm learning in my consulting work all become part of the products I'm building.
I hope this helps you make your next step forward. Good luck - and don't forget to have a life.