by Edward9 on 1/4/20, 12:37 PM with 149 comments
by zenpaul on 1/4/20, 4:09 PM
Lessons from 20+ years as a solo consultant:
- Customers rarely know what they want.
- Customers always change what they want.
- Change control in fixed bid work is vastly more important than how smart or productive you are.
- It takes an extraordinary amount of effort to find customers.
- One gets customers by searching, networking, having other good customers and mastering useful technologies.
- What matters long term is consistently making money every month.
If you truly want to be a solo consultant:
- Maintain good relationships with your customers.
- Bill hourly and get paid no later than monthly.
- Be willing to work with consulting agencies and accept their markup on your rate.
- Always be learning and using new technologies.
- Always be looking for the next opportunity.
by S_A_P on 1/4/20, 10:47 PM
-Maintain good relationships with anyone that can give you work. Most of the time you will ping pong between vendors for work.
-Don't be afraid to build in "bench" time into your hourly rate. The rates listed in this article are much lower than I would recommend. I target 85% utilized in my personal model. I work in a niche and will not consider less than 150/hr for anything less than a 12 month contract.
-Remember that despite the best of relationships and intents, contractors are expendable. You can and will get let go before employees. That is not a bad thing. In fact, its a gift. You get to leave before morale and expectations get too far out of control.
-Do put rainy day money away into fungible assets. Savings accounts probably aren't great for that.
-Do try to have multiple clients at once, if you can swing 2 full time gigs, most of the time this can be juggled in the short term.
-If you get told you are rolling off, don't take it personal. I have the hardest time with this part of it. It is my nature to give my all when I am at a gig. When the let me go, I feel that it is an affront or personal. Its not, its business. If you do this, you will make more than many high level executive salaries. That doesn't count the equity side but making 2-400k a year is a real possibility.
-When its time to leave you will know. The biggest upside I see in consulting is I have the freedom to leave when I cant deal with the bullshit anymore. -Every company has bullshit you will grow tired of. Honeymoon periods last 3-24 months, but there will always be bs.
by k__ on 1/4/20, 3:39 PM
If you get a project that takes 3-6 months you make enough money for the year and a bit left for the next year.
This means that you only need one customer to say "yes" per year. If you contact only 10 per month your success rate doesn't even have to be 1%.
What I learned is, charge per week or month and never go for full-time.
The month charging filters out all the tiny fishes and the part-time always gives you plausbile deniability when you can't answer the phone.
by Tom4hawk on 1/4/20, 2:31 PM
I absolutely don't understand why this is the problem. Something came-up (not because of you) and you will get paid for solving it.
If you don't have time (other plans) or you just don't want to do that (good example: request is stupid and you know it will cause more trouble in the future) you can just tell that to your customer (or bump-up rate for this extra work).
How value base pricing would solve the above issue?
by rgbrenner on 1/4/20, 2:55 PM
Instead it's ideas about what he wants to try in the future.
In fairness, those ideas sound great... but this is more like an advisory notice to his existing clients about how things might change.
by cosmodisk on 1/4/20, 7:20 PM
by flyinglizard on 1/4/20, 3:43 PM
But the biggest issue against fixed price is that companies are quite bad at pricing R&D activities (which is why they’re usually running late and require office heroics to complete). When you try to put a realistic price on such an activity you may give your customer a sticker shock.
I still do fixed price at places but only when the work stands alone and it’s something I’ve done many times in the past.
Working hourly, if you spread the work across multiple clients and provide good value for each, creates a structure where you cost each of them slightly less than a full time employee. My experience is that this is quite sustainable for everyone.
by Const-me on 1/4/20, 3:53 PM
When I'm spending 90% of the time developing software, especially if that's a stand-alone or well specified isolated components - I can quote after some initial research, and I agree it's a good way to go.
For other clients I'm doing a job of technical lead. In that case, too much time is spent defining requirements, reviewing other people's work, writing project documentation, etc. These things are borderline impossible to estimate in advance. For these projects, I prefer hourly contracts.
by iakh on 1/4/20, 3:05 PM
Not sure how this is a compelling argument. 40% of your time seems like a lot more than close to zero
by zoomablemind on 1/5/20, 1:48 AM
Solo/freelancing awards us that freedom to balance the risks. After all we do sell our time - we either bill our client for it OR give the account of it to ourselves (man, that design took me awile....).
So eventually it's supposed to bring out that feel of one's own time value. Raising rate is what logically comes out of this too.
Being solo also means facing one's own anxiety and insecurity. So we need to be flexible and choose whatever works to boost our professional and personal confidence, then review what outcomes this turned us. This, again, will eventually harmonize what you bill your client to what you really want to be paid.
The real question is how soon this balances out before bills would choke us. So it makes sense to not routinely under-charge just because of anxiety, as this only will make it stronger next time.
by warlog on 1/4/20, 1:49 PM
I've worked as an independent consultant for 3 years and have priced by the hour, and using value based fixed prices...the latter with mixed results.
I love Jonathan Stark's Ditching Hourly podcast... And I must recommend the 2bobs podcast with a shout out to Blair Enns on value based pricing and David C. Baker on expertise advice business.
by pnako on 1/4/20, 3:57 PM
The clearing price (in this case, of labor) is based on demand AND supply; it has nothing to do with how much value you bring to the table. Yes, it's true that maybe writing some piece of software will save some company ten million dollars per year. Should you get one million dollar for writing it? Maybe not, if I can find someone charging 60K to develop that same piece of software.
There is one way to do that with software, though: royalties. It's used for middleware for games and movies. But it's more a risk-management tool for buyers than a sure path to profit for providers (i.e. with royalties you limit your losses if the game or movie does poorly).
by weinzierl on 1/4/20, 5:16 PM
I have never seen this going well. It is in my experience very rare that companies are willing to let the consultant keep the rights and when they do there is a big chance that they regret it and want the rights for a small fee later. I've seen this damaging the customer relationship in the past. I'm curious what other consultant's experiences are?
by m0zg on 1/4/20, 8:43 PM
by flimflamm on 1/4/20, 4:22 PM
Are you the only consultant who could figure out how to bring down the cost of the appliance (in the articles example) down by 1$?
If not then your value is not as high as you used in the calculation. The potential client could find other consultants to do the same thing (price optimization of a mass product - service well available in the market). As there are more providers then estimating the "value" should take in to account that there are several offerers of service. It is now a tendering situation. I am now excluding a remote situation where all the offerers of the optimization service would collude in their offers.
by DrNuke on 1/4/20, 3:42 PM
by JoeMayoBot on 1/5/20, 1:29 AM
I also believe ethics is subjective. A consultant is running a business and has a fiduciary duty and a right to make money. If I can make money and keep the customer happy then all is good.
by brw12 on 1/7/20, 4:34 PM
* Understand who your client is, and stop and check in if they change. I once had a manager at a client company change mid-project, and the politics (and sense of trust) completely reversed -- in retrospect, I should have insisted that we start the relationship over, clarify expectations, etc.
* It's not always a good idea to agree to disagree. I estimated one sub-project would take 3 weeks, and a client insisted it should take more like one; we decided to proceed, it took 3 weeks, and the client was unhappy. Looking back, I think we should have more seriously considered dropping the project if we couldn't agree on expectations. This can be proposed gently and respectfully: if you don't think that plan is worth it, I'm happy to do my best to help you find someone else.
by fao_ on 1/4/20, 8:49 PM
But that's the thing. Companies exist solely to make money.
Let's say it again.
Companies do not exist to create value.
Companies do not exist to do cool things.
Those are all secondary.
Companies exist solely to make money.
This is business school 101.
The CEO and the rest of the workers were right in this instance. In this decision the agency was better off as a company if the person took the deal. The client at all times had the choice of going to a different firm that was cheaper, the customer in this case opted not to bother with doing those things (which might have cost them more in the long run anyway), and therefore had already committed to the cost that they would be charged.
The job of the client company in this case is to extract as much value as it can from the consultants while paying them as little as it can. Clearly in this instance, given they were happy paying that cost, you weren't being paid as much as you could have been, based on the 'value' that you 'created'.
I don't see why the person in question sees this as unethical. Or rather, I don't see why the person in question sees this as unethical under capitalism. Capitalism is an inherently unethical system, where the entire system is (From the top perspective) about ripping other people off as much as you can, or (From the bottom perspective) trying to ensure you get paid as much as you are worth to the company that you serve.
If you don't like it, back projects to change the system, whether that's to introduce more regulation, or to change the system full stop so that gross wealth-hoarding cannot exist. Until then, you have to make a living and try and make sure that you and the people you support are better off. If you can 'create value' for others by doing that, then all the better!
by zackmorris on 1/6/20, 1:22 AM
I've always struggled as a consultant, generally scraping by and feeling spread too thin. That’s because I subconsciously gave up on the idea of profiting from my business. If you stop and think about that for a moment, it means that I had internalized this idea that I would always be working linearly at my hourly rate. There would never be residual passive income from work that I had done, whether it was SAAS or building an app or frankly just reselling something that I had already made. That death of faith in a better future is one of the most toxic and detrimental blows to a maker’s psyche that I know of.
The full profit formula is:
profit = (price you charge) - (your cost as hourly rate * hours)
I’ve always said that I feel that consultants should charge at least their overtime rate to account for the overhead and headaches involved. So if you make $30 per hour as a developer, your overtime rate (time and a half) is $45 and I would recommend starting around there or round up to $50. That's only part of the answer though, because an agency will charge between 1.5 and 4 times your hourly rate, so between $50 and $120 per hour, often more. So really you are competing with agencies. Which means that there is nothing wrong with charging the same as them, and probably more if you are experienced in your target market.
But there are also physical laws to consider. It’s hard to beat a pair of coders making something, so that limits an agency’s maximum value to a customer to just twice what a single consultant can provide. Keep in mind that this ignores an agency’s existing infrastructure, ability to absorb failure costs, and scalability. But if we’re just talking raw coding velocity, an agency is limited to about twice the velocity of a consultant, no matter how many people they through at a problem (see The Mythical Man Month). Knowing that, it makes sense to me that a consultant might typically charge about half the flat rate fee of an agency. And if they always deliver, why not charge the same amount!
by gyulai on 1/5/20, 10:35 AM
It's not true that, by running a "make customers contact you" strategy, your acquisition costs are zero, quite the contrary. In order to make customers contact you, you need to take a lot of risky bets on the acquisition-side of things.
Things you might do to build a strong brand, like writing books and having a presence at events come with a likelihood that they won't be effective. By sinking time into those things, they present a risk of derailing work that actually pays. Doing a lot of PR & media work is a double-edged sword from the pov of clients who see the work you do as a trade secret. They want people on the job who know how to keep their mouths shut.
And the stream of project opportunities you get from that kind of project-acquisition is highly volatile and unpredictable. Chances are, when an opportunity comes in, you will be engaged in another project, and when a project ends, you won't have an opportunity waiting for you at that moment.
This only works, if you can scale it up enough so that the central limits theorem starts working in your favour and presents you with a constant stream of opportunities. But as a solo-consultant you wouldn't actually have the capacity to do anything with them, other than turn 99% of those opportunities down. At which point the relationship between the costs behind those acquisition effforts, and the rate at which you monetize them make the whole economics of the strategy break down. So you need to scale up your capacity and become a big agency, instead of a solo consultant, to make it work.
Element B: BARGAINING POWER
The other thing: Value-based fee sounds great, but what do you do in a situation where other people who get paid by the hour compete for the work you want to charge a value-based fee on? It's a race to the bottom, and can only work in areas that are so niche and highly-specialized that you are basically without competition, or where it would be prohibitively expensive for your prospective customers to line up alternative offers to compete with yours.
CONCLUSION
But then, the requirement to have scale, and the requirement to serve highly specialized areas so that you can have a lot of bargaining power are difficult to reconcile.
...so, all of this is just not as easy as the author of this article is making it out to be. If it were, everybody would be doing it, and nobody would allow themselves to get paid by the hour and do project acquisition by contacting the client rather than having the client contact them.
by yellow_lead on 1/5/20, 1:59 AM
by xmly on 1/5/20, 1:45 AM
Thanks...
by zerxy on 1/8/20, 5:14 PM
by bullen on 1/4/20, 4:14 PM
Not only is it economical to do bad work if you bill by the hour;
but it is also necessary to build flawed products to sell more of them.
See printer inc, light bulbs, computers, everything that could last 100 years but doesn't...
The other side of this is that energy is considered free, if we paid the real price for oil/electricity it would cost many thousands dollars per gallon/kwh.
The only way for this to change is for the whole system to collapse, and that will happen during this decade.
All arbitrary (not based on experience from nature) human skills are going away.
But math, physics, chemistry and biology will stay; prioritize in that order.
Build a good computer today, it will not become obsolete technically for the rest of your life.
Buy a ARM computer that you use as desktop, it will be usable for the rest of your life AND it will teach you to become a better programmer!