Your Firm Has a Hidden Tax Problem

Elena wasn’t struggling. Or at least, that’s what she told herself. Her boutique consultancy looked strong on paper. She had a $12,000/month advisory retainer that clients loved, a set of $4,000 workshops that sold consistently, and $6,000 diagnostic audits that helped fill gaps between larger engagements.

Revenue was stable. The team was busy. Proposals converted.

And yet she felt always underwater. Weeks blurred together. Cash kept feeling tighter than it should. Despite charging serious fees, she never seemed to “get ahead”.

Only when she finally agreed to run a proper analysis with us - after months of postponing it - did the truth show up.

The advisory retainer, the service she loved and clients valued most, was carrying the entire business. Workshops, once she counted prep and stakeholder coordination, barely broke even. Audits were worse. $6,000 on the invoice, but once she priced her own hours, they weren’t really profitable. She was doing most of it herself.

The firm wasn’t failing. It was quietly running an invisible tax system.

Her best, most loyal clients - the ones paying full fee, trusting her process, and sending referrals - were subsidizing services she shouldn’t have been offering in the first place.

Not by choice. Simply because she hadn’t seen the subsidies.

‍

What Subsidies Are (And Why They Hide)

Most consultancy founders assume subsidies only exist when you discount an offer. That’s not true. A subsidy is any hidden flow of money, time, attention, or opportunity from one service to another.

• Financial: a high‑margin retainer quietly covers the low margin of a bloated workshop.
• Time: a “small” audit eats 12 founder hours but is priced like it takes five.
• Attention: a legacy client demands three stakeholder groups, five check‑ins, endless updates. You get no energy for higher‑value work.

All three carry opportunity cost. Poorly scoped work displaces time that should go to BD, marketing, or nurturing top relationships. Money thrown at one offer could be better spent on another.

Subsidies stay hidden because early-stage boutique consultancy founders rarely track their most important assets:

1. Their time (true hours)
2. Their attention

This isn’t hard. Run a 2‑week time‑tracking experiment once or twice a year. Every 30 minutes, note what you’re doing and for whom.

For attention, use switching load: how often you change contexts, stakeholders, deliverables, or workflows in a given service each week. More switches = more hidden subsidy, even when revenue looks fine.

Don’t treat subsidies as failures that always need fixing. As I’ll show you in this piece, some are useful. The point is to design them on purpose, not let them creep in.

‍

The North Star Metric Every Founder Ignores

You can’t see subsidies by looking at revenue or even margin. The only lens that reveals them is founder yield - the value produced per unit of your scarcest resource: time.

Here’s the definition (from our piece on the “denominator trap”):

Founder Yield = (Revenue − True Delivery Costs) ÷ All Founder Hours

“True delivery costs” means everything it takes to deliver: team, subcontractors, tools, your own time priced at replacement rate, and any “free” extras you toss in to win a deal.

And include everything in the time denominator: prep, revisions, coordination, context switching, recovery time, follow‑ups, plus the invisible 30 minutes every meeting steals from your day.

To make it tangible, imagine a $6,000 mini‑audit that looks profitable at first:

• Revenue: $6,000
• Subcontractor costs: $1,000
• Net: $5,000

Now apply the fully loaded lens:

• 4 hours of prep
• 2 hours of revisions
• 3 hours of stakeholder coordination
• 1.5 hours of follow-up and admin
• 1 hour of thinking/recovery time across meetings

Total founder hours: 10.5

The true fully loaded contribution drops to $3,400. Founder yield = $3,400 ÷ 10.5 = $323 per founder hour

Meanwhile the $12,000/month advisory retainer might consume 10 founder hours across the entire month, producing a yield four times higher.

Revenue lied. Margin lied. Yield told the truth.

If you don’t measure yield, your portfolio drifts toward subsidies without you noticing.

‍

Designed vs. Accidental Subsidies

Now you might be thinking, “What if those mini‑audits are the entry door to retainers?” That’s the right question to ask, as you should view your services as an interconnected ecosystem. So time to go deeper and add nuance here.

Subsidies aren’t inherently bad. The most successful boutiques use them intentionally - to accelerate trust, reduce friction, or test new formats.

These are designed subsidies: deliberate, temporary, and reviewed.

A paid pilot priced slightly below its “ideal” founder yield. A low-friction Phase 0 scoping sprint. A legacy client discount maintained for one quarter during repositioning. A training workshop that serves as a feeder into advisory.

Designed subsidies have three soft guardrails:

1. They are time-bound. Usually for one or two quarters.
2. They have a strategic purpose. Faster trust-building, easier adoption, de-risking larger engagements.
3. They are reviewed. If still low-yield after two quarters, they are repriced or redesigned.

This is responsible.

Accidental subsidies are different. They grow in the shadows of the business:

• A workshop inherited from 2019, now bloated with extra steps
• A “temporary” discount that lasted three years
• A service that still needs the founder because the process is unclear
• A legacy client whose needs ballooned
• An audit priced for five hours that now consumes twelve

Accidental subsidies have no guardrails. No review cadence. No strategic purpose.

They persist because founders are busy, loyal, optimistic, or conflict-avoidant.

Designed subsidies strengthen the business. Accidental ones hollow it out.

‍

When A Low-Yield Offer Is The Smartest Play

Right, so not all low-yield offers should be eliminated. In some cases, a subsidy is strategically correct. Let me give you a real world example here.

A boutique cybersecurity consultancy I worked with once created a $3,500 “Exposure Assessment.” People called it underpriced. But the founders understood their buyers: few commit $40,000+ to a vendor they hadn’t seen in action.

That pilot gave the consultancy founders footholds - technical visibility into the client’s environment - that not only uncovered larger projects, but also made them obvious and easy to approve.

The pilot was barely profitable. But 60% of pilot clients bought $30k–$50k engagements.

That’s a designed subsidy:

• Limited scope
• High conversion
• Predictable hours
• Reviewed quarterly

And most importantly, it was capped.

Subsidies aren’t the enemy. Invisible, accidental ones are.

‍

A Five-Minute Diagnostic To Reveal Your Hidden Subsidies

You can spot your biggest subsidy in five minutes. All you need is to ask:

1. Which service consumes the most founder time?
2. Which consistently delivers the lowest contribution margin?
3. Which creates the most switching load - context changes, stakeholder groups, deliverable types?
4. Which service hasn’t had its pricing or scope reviewed in over 18 months?
5. Which rarely leads to follow-on work or meaningful CLV?

If one service appears twice, it’s almost certainly subsidized. If it appears three times, it is definitely subsidized.

This quick diagnostic alone can identify the largest economic drain in your firm.

‍

The Subsidy Half-Life Problem

Most subsidies start as temporary compromises.

A pilot offered for free “just until we collect a couple more case studies.” A discount for an early client. A workshop format with a “quick” prep that later became complex. A service kept alive because “it’s not that bad.”

The problem is that temporary rarely stays temporary.

Founders delay revisiting pricing, afraid to rock the boat. Teams adjust processes around the flawed offer. Legacy clients become used to legacy commitments. And busyness makes hard conversations easy to postpone.

Soon the temporary subsidy becomes a permanent feature of the company.

This is the subsidy half-life problem: subsidies don’t decay, they ossify.

Once they do, they start compounding:

• More meetings
• More switching
• More coordination
• More delays
• More BD interruptions
• More calendar drag

This slowly destroys your business from the inside, and you only notice when you’re deep in it.

‍

Stop Taxing Your Best Clients

Here is the part founders recognize immediately.

Your highest-yield clients are often the ones carrying the full weight of your firm’s inefficiencies. They pay full fees, trust your recommendations, create referrals, are emotionally low-drama, and allow you to do your best work.

And yet, through hidden subsidies, they end up funding:

• Legacy discounts
• Bloated low-margin services
• Poorly scoped workshops
• Experimental offers that never got cleaned up
• Attention‑draining, low‑fee clients

Some of you will say that’s natural, a side-effect of your business model and high client acquisition costs. As someone who both delivers and hires consulting services, it feels unfair.

Your best clients should receive the most value and the better ROIs - not the hidden tax bill of all the decisions you’ve avoided confronting.

Often, understanding this is exactly what drives change. When you realize your favorite clients are subsidizing your worst offers, restructuring your service portfolio becomes both rational and ethical.

Most of the consultancies I worked with agree with this idea: We should favor clients who are loyal and low‑drama over new prospects or low‑fee commitments. “Loyalty earns discounts, not the other way around."

‍

The Four-Line Document That Keeps You Honest

Entropy is real: processes bloat, margins slip. Our businesses naturally drift into value leaks. But you don’t need a 40-page playbook to stop it - I found success by using a simple, four-line guardrail document.

That’s a Subsidy Charter that includes:

• Protected offers: Services that should always hit a target yield. The number depends on your model (reach out to get help with that), but we all start by measuring where we are today.
• Allowed subsidies: Strategic, temporary low-yield offers (like pilots). As a rule of thumb, they may run 20–30% below target yield for one or two quarters - never longer without review.
• Subsidy limits: If an offer is still low-yield after three or four quarters, its pricing or scope must change.
• Review rhythm A cadence for checking economics. Most boutiques I work with do this quarterly, often on the first Monday of the quarter.

This tiny document prevents emotional decisions, protects your economic engine, and avoids accidental subsidies from living forever.

‍

Why Founders Don’t See Their Subsidies

Even seasoned consultancy founders struggle to see subsidies. There are many reasons for that, but what I see the most is:

• They underestimate the cost of their own time. A founder who thinks a workshop takes “about five hours” often discovers it actually consumes twelve once scoping, reviews, and internal support are included.
• They confuse revenue with contribution. A $30,000 project that eats 50 hours feels big, while a $12,000 retainer using only 10 hours is the real engine.
• They treat legacy decisions as sacred. Pricing from early years, client relationships from previous roles, and service formats inherited from different eras survive far too long.
• They avoid conflict. Repricing or retiring an offer means uncomfortable conversations - so the flawed service quietly lives on.

As founders, we have an intimate and emotional relationship with our business. This is why we struggle to look objectively at it (and why getting external perspective is so valuable). Subsidies thrive in the blind spots.

‍

Start By Naming The Subsidy

Seeing subsidies is hard from the inside. We overestimate our time, confuse revenue with contribution, cling to legacy decisions, and dodge tough conversations. None of this means your business model is broken. It just means you’re human - and very close to your work.

This is why an outside diagnostic helps. A neutral map of offers, hours, and economics makes patterns obvious: the offer carrying the firm, the one dragging it down, the “temporary” compromise that became permanent. You see what to protect, what to change, and what to retire.

That’s what the Growth Scan does: a 60‑minute look under the hood to quantify yield, surface accidental subsidies, and sketch a simple plan to rebalance in case that’s the current bottleneck holding back your business.

If your firm feels busy but strangely flat, it’s rarely a lead problem. It’s usually a subsidy you haven’t named. Once you see it, everything gets easier: pricing, scoping, bandwidth, boundaries.

Time to respect your best clients by removing hidden taxes, and lead a firm designed with intention.