Previous post in the series: Before You Become a Consultant
In the last post I discussed the things you should do and know about becoming a consultant. In this post I will discuss the independent part of being a consultant. So if you plan to become an independent consultant, after the previous post, read this one carefully.
But before I start I just want to warn people. This post mainly talks about the challenges and difficulties of being an independent consultant. I don’t want to depress anyone or make you dismiss the idea of becoming an independent consultant. There are lots of benefits and fun being an independent consultant, but sometimes people see only the good things and overlook the challenges. If you are well prepared, understand the risks and manage this process well, there is no reason not to go for it.
Being Technical
I wrote this already in the previous post, but it’s important. When you’re independent, you only have yourself to rely on from a technical perspective. Clients will expect a lot from you and you have to deliver, otherwise it will be very difficult to continue working with this client. You need an environment to try things out (like installing versions you need to test, testing upgrades, etc.) and it needs to be owned by you (and not your client). You also need some experience with how consulting works, what happens if you don’t know something or what happens if you make mistakes (all of these and more will be discussed in future posts). This is the reason I suggest working as a consultant in a consulting company, which will enable you to work with more experienced consultants, before starting on your path as an independent consultant.
Income Stability
This is a big problem with being independent (and not only in IT) – there is no stability. Unlike being an employee, clients can terminate the relationship pretty much immediately. Some days you won’t have projects because of simple scheduling issues or other reasons. You need to understand that this is how it works and plan accordingly.
The solution for this is to have a few clients and not rely on only one. Also, you can have a few “ad-hoc” clients, those who need you only once in a while. Find the right number of permanent and ad-hoc clients that you can easily “juggle”, so you’ll have the safe net, but not too many that you won’t have enough time to handle. Rate is also a factor here, more about that below.
No-Income Work
As an independent consultant there is work that you don’t charge for. If you go to conferences, nobody will pay you for that, that’s on you. Meeting new clients for the first time (for interview, introduction, etc.) is usually a no-charge work. Some marketing that you need to do is work that won’t get you a direct income as well. Remember that these things exist and take time and plan accordingly.
Time Off
Being an independent consultant is very flexible. You don’t need to request a day off, a vacation, leave early or start late (except if you have a specific agreement with your clients). However, nobody will pay you for time off. You can take a long vacation, but without income (and realizing that some clients may not be happy with waiting for your services if you do). Holidays are just the same. If there is a week long holiday (let’s say Christmas to New Years), you are not working and not making money.
If this is forced on you, take advantage of this and focus on doing the no-income work such as preparing presentations, writing your blog, or thinking about your marketing to find future clients. In any case, plan for this financially, because you don’t want this situation to derail you right at the beginning.
Rates
Setting your rates is not an easy task, and I won’t give numbers here because there are too many factors involved. When you think about the rate, these are the things to consider:
- Don’t be too expensive – as people won’t pay. They will pay a lot of money if you are a very well known in the world, but if you aren’t, they won’t. It usually doesn’t matter how much you explain that you will do the work in half the time than any other consultant. They have budgets, limitations, and they need to get approvals.
- Don’t be too cheap either – it’s quite difficult to increase the rate as a consultant. You can, of course, ask for a “raise”, but this is much less common than with employees. Find a reasonable rate that you’ll be happy with, and won’t be too intimidating for the client.
- Scope of work – if a client would like your help 2-3 times a week for a long run, consider a lower rate. This is very good for stability and the lower rate will be compensated for by the fixed number of hours and easier scheduling. If this is a crisis and you’ll work for this client just for a few hours to fix that, you can charge a much higher rate. The reason here is that you probably stopped doing something else (hence hurt another, more loyal, client), you may need to travel, and this is a short amount of one-time work. If this client likes you and wants to build a longer relationship, then you can lower the rate (don’t do this for the crisis help, as many clients asked for a reduced rate claiming they will continue working with me afterwards, only a few actually did).
- Try to ask around – you live in a certain area, try to see what other consultants charge. You should aim to be competitive with the “standard” rate (there is not usually a standard, there is quite a large range, but you can find your comfort zone within this range).
- Consider your proven skills – I’m not talking here about “20 years of experience” or “I solved many problems” type of things. I’m talking about certifications, awards, etc. If you speak at conferences, you’re an Oracle ACE, OCM, Microsoft MVP, etc., then you have more credibility. People can understand that your rate is a bit higher if you have these.
Invoices and Payment
Invoicing is another example of overhead work that takes time but you are not paid (directly) for this time. It’s something you’ll have to do or pay someone to do it for you. If you don’t invoice your clients, they won’t pay you. There is not much that can be done here, you can have a software or a person, or do it on your own time, but just don’t forget that you need to do it and it does take some time.
After invoicing you need to follow up on payments. This is a very cultural thing. Here in Canada, clients are amazing with payment. I hardly need to remind anyone to pay, and the payment is super fast (within a couple of weeks usually). In Israel, on the other hand, the standard is about 2 months after the invoice (and even that often requires nagging). So you worked during October, you send the invoice in November, and you get the payment in January (if they actually send it). By definition, even if you started working full time, it will take you 3 months to get the money. Check how it works in your area, and put some money aside to support you while you’re waiting for your payments to arrive. This is the difference between “revenue” and “profit” (which are in the books) and “cash flow” which is what you really need in order to support yourself.
Benefits
This also depends a lot on your location. Is there health insurance? Unemployment plan? Retirement savings? Anything else that is usually covered by the employer? When you’re independent, there is no employer to provide this, and the sometimes the country doesn’t even allow you to have specific benefits (unemployment insurance for example – as you are independent, how can anybody define when you are unemployed?)
Check out these things before you start, and if there are important issues to handle (like health insurance in the US), check what your options are as a self-employed contractor.
Understanding the Risk
I think I covered most of the issues of being an independent, self-employed consultant. I don’t want to scare anyone, but if this is something you plan to do, you need to be aware of the challenges and plan ahead. Do your homework, think about rates, check the benefits, have some savings for the beginning, as it takes time to get a decent income. After all of that, think if this can work for you and if so, go for it with full force.
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