Author Topic: New to Consulting - Help me avoid beginner's mistakes  (Read 6794 times)

Smokystache

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New to Consulting - Help me avoid beginner's mistakes
« on: December 08, 2016, 02:42:01 PM »
Summary (tldr): I’ve suddenly gotten two potential offers to provide long-term consulting with some large corporations. I’m a college professor whose research is relevant to these two companies. When it comes to long-term consulting arrangements and fees, I have no idea what the hell I’m doing.

Questions:
 - I have no idea how much to charge for consulting. Company A says, “We’ll come up with a project proposal. Then you tell us how long it would take you and how much you charge.” How much is a reasonable hourly fee to charge a large company for consulting on reviewing and writing specialized content.
- I plan on pursuing a few projects with Company A. They have been open and great to talk with so far and I hope that it leads to a situation where I can be on retainer for them. Do I also try to work with Company B to keep all my options open?
- What are some considerations as I eventually come to terms with one or both companies? I’m trying to avoid the rookie mistakes that new consultants make.


Really Long Version:
I’m going to mask this a bit, because I am in a situation where I’m one of a handful of people in my field (it’s very specialized, but the work/research has broad implications; but I am not really an expert/researcher on amputees).

So I’m a PhD-level researcher in the social/behavioral sciences, and I’m an expert in how people deal with the loss of an appendage (arm/leg). My research and knowledge is specialized, but it can be useful to a sizeable population and related industry. I’ve written some short books/booklets for people who have been recently become amputees (how to adjust, how to deal with the psychological factors, physical factors, educating family and friends, etc.), and I’ve had a small amount of success in selling these printed materials to orthopedic surgeons’ offices, and related medical offices where they can provide them to patients to help them pre-and post-surgery. I’ve also had some small amount of success in getting paid to speak at conferences to provide continuing education for physicians, physical therapists, occupational therapists, etc.

Professionals and businesses in the “amputee” world are beginning to know who I am and I make a small side income from speaking and printed materials (perhaps 20% of my professor salary – definitely not enough to warrant quitting my day job).

All of a sudden, 2 big companies contact me and want me to begin working in a consulting role with them.

Company A is for-profit company that works with amputees to help them get their maximum health benefits, provides specialized insurance, etc. They focus on financial services, insurance products, services, etc. They are interested in creating a newsletter and a resource website to continually share information that may be relevant to amputees. They want me to be their consultant and help provide content, trainings, presentations regarding my specialty area. In essence they want Dr. Smokeystache to be known as their “psychology of amputee” expert. They see it as a way to get their name out in the field and feel good about providing useful information. They want to develop a detailed project outline and ask me how long it would take to create 4 editions of a newsletter and X amount of online content (they want to create/manage a website that has lots of resource information). They will host the website and deal with all mailings, printings, etc. They also say that they can help promote my printed materials and make it easier for me to sell more copies. They don’t want to take a cut of my printed products, I will continue to set the prices, and are not asking for exclusivity (I could continue to sell my printed products to anyone I choose), they just want to also have it available through their company. Company A is the 1st or 2nd largest company in its specific field and has annual sales of about $500 million.

Company B contacts me just after Company A (and before I have any official partnership or contract with Company A – still just talking about potential projects). Company B manufactures prosthetics and is interested in having Dr. Smokeystache as their “psychology of amputees” expert. Also as a contract worker. I haven’t met with Company B yet, but initial emails and phone calls suggest that they would like me to provide content and resources for their written materials, marketing campaigns (including websites, blogs, etc.). Because they know that becoming an amputee is such a significance psychology adjustment (in addition to the obvious physical adjustment), they believe this will give them a competitive advantage. Company B is the 2nd largest company in the US that provides prosthetics. Company B is listed as a $1.5 billion dollar company.

Companies A & B are not competitors – at least they don’t provide the same products. In fact, the two companies have had some amount of partnership over the last 2 decades.

I’ve told Company A that Company B has contacted me. Company A says, “we’re not trying to restrict your consulting, but we believe we have enough work to keep you busy.” I’m pretty sure Company A would like me to only work with them. I’ve told Company B that I plan to begin working with Company A – but that my arrangement with Company A is not exclusive, although I wouldn’t be able to use anything created for Company A for Company B.

Other Factors
- My goal is to go into this field full-time (consulting, speaking, having my own products, etc.) and quit my academic position (I have tenure at my institution and could stay in my academic position until I retire if I wanted; I’m in my early 40s).
- There are a few people with my academic credentials that specialize in this field, and only 1 who does it full time. He is already a consultant for a competitor for Company A.


pbkmaine

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #1 on: December 08, 2016, 02:47:11 PM »
Head on over to Axecleaver's Journal in the Journals section and ask him this question.

brute

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #2 on: December 08, 2016, 02:59:54 PM »
I typically charge 3x-5x my hourly rate at my full time job (as calculate from my annual salary). Every company I've consulted for has either been happy to pay it, or not worth my effort. A lot of places will balk at a low ball offer, thinking maybe you're really not all that great if you aren't charging a premium.

trollwithamustache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #3 on: December 08, 2016, 03:09:12 PM »
I typically charge 3x-5x my hourly rate at my full time job (as calculate from my annual salary). Every company I've consulted for has either been happy to pay it, or not worth my effort. A lot of places will balk at a low ball offer, thinking maybe you're really not all that great if you aren't charging a premium.

This is really good advice... many people really do equate billing rate with value. It sounds like the OP has the academic credentials to back it up too.

MayDay

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #4 on: December 08, 2016, 05:58:13 PM »
Consulting engineers often charge ~200 an hour as a reference point.


Syonyk

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #5 on: December 08, 2016, 06:28:30 PM »
If you're doing quoted work, estimate what you think the project will take, double it, and add a fudge factor that is somewhat client dependent (sadly, the way to understand a client's likely scope creep is to do a few jobs for them, then you can correct future bids).

Charge more than you think you should.  First, you've got both sides of employment tax to cover, second, you have to provide your own office and such (which is tax deductible).

And one of my favorite consulting tricks is to figure out what I actually intend to charge, add about 15% to that, and send my invoices as "Net 30, 15% discount if paid in Net 10."  Keeps the money flying in quickly.  Also, don't forget to specify penalties for late payment (a few percent a month is reasonable past Net 30).

csprof

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #6 on: December 08, 2016, 08:34:52 PM »
I typically charge 3x-5x my hourly rate at my full time job (as calculate from my annual salary). Every company I've consulted for has either been happy to pay it, or not worth my effort. A lot of places will balk at a low ball offer, thinking maybe you're really not all that great if you aren't charging a premium.

Not a bad rule of thumb.  For me, I charge:

  - About 150% of my hourly rate for an ongoing, high-reward and low-pressure engagement that I do because I absolutely love it, and it augments my academic research, not detracts from it.  (This is the one where "I'd do it for free" springs to mind.)

  - About 250-350% of my hourly rate for fun consulting gigs with concrete deliverables & timelines.  Depends what the market will bear and how interested I am in it.  This is in the $250+/hour range -- but I think the percentages are more relevant, because they should make it easier to normalize across fields.

  - About 400-500% of my hourly rate for expert witnessing, or anything that I think wouldn't be intellectually rewarding or fun.

One thing to note, though, is that some consulting gigs are best done relative to your own salary, and some are really set by the area.  Expert witnessing is one such example -- most EWs charge based upon the fact that it's an expert witnessing gig, *not* relative to their own salary.  The same may apply in some medical consulting areas, which you should suss out for your specific situation.

(I'm also an early-40s tenured professor, which is why I'm replying, in case it helps with the relevance.)
« Last Edit: December 08, 2016, 08:36:25 PM by csprof »

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #7 on: December 09, 2016, 05:57:30 AM »
Head on over to Axecleaver's Journal in the Journals section and ask him this question.

Great advice. I’m working my way through his journal. He’s got a lot of content!


I typically charge 3x-5x my hourly rate at my full time job (as calculate from my annual salary). Every company I've consulted for has either been happy to pay it, or not worth my effort. A lot of places will balk at a low ball offer, thinking maybe you're really not all that great if you aren't charging a premium.

If you're doing quoted work, estimate what you think the project will take, double it, and add a fudge factor that is somewhat client dependent (sadly, the way to understand a client's likely scope creep is to do a few jobs for them, then you can correct future bids).

Charge more than you think you should.  First, you've got both sides of employment tax to cover, second, you have to provide your own office and such (which is tax deductible).

These are great for giving me a place to start.


One thing to note, though, is that some consulting gigs are best done relative to your own salary, and some are really set by the area.  Expert witnessing is one such example -- most EWs charge based upon the fact that it's an expert witnessing gig, *not* relative to their own salary.  The same may apply in some medical consulting areas, which you should suss out for your specific situation.

(I'm also an early-40s tenured professor, which is why I'm replying, in case it helps with the relevance.)

This is definitely relevant and it is helpful to think about this in terms of my enjoyment, how much they will profit from my work, etc.

A follow-up question/thought (and I suspect some of this thinking is me not recognizing the full value of my contributions):
In some ways, I wonder if my consulting work is worth less than some other fields (such as engineering, coding, programming, etc.), because my work doesn’t directly and immediately save them money. For example, my brother took 4 hours to write some Excel scripts/code that will save me 200-300 hours per year. It is relatively easy to see how important that is to me. My contributions will be along the lines of “hey, this PhD is writing some interesting articles, maybe in the future that will be part of the factor to sign with this company” – but it isn’t like I’m saving them.

Of course, I probably need to recognize (and keep telling myself over and over) that:
1) by using me, they don’t have to hire a new internal person (and pay benefits, etc.)
2) both companies have sales in the $500+ million range per year and so even small benefits across the entire offerings can translate into substantial sales for them
3) just because it is a less tangible service that has tricky-to-calculate benefits, doesn’t mean that it isn’t worth good money

Thanks for reading through this and for helping me remember that my skills and experience are worthwhile.

csprof

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #8 on: December 09, 2016, 08:15:56 AM »

This is definitely relevant and it is helpful to think about this in terms of my enjoyment, how much they will profit from my work, etc.

A follow-up question/thought (and I suspect some of this thinking is me not recognizing the full value of my contributions):
In some ways, I wonder if my consulting work is worth less than some other fields (such as engineering, coding, programming, etc.), because my work doesn’t directly and immediately save them money. For example, my brother took 4 hours to write some Excel scripts/code that will save me 200-300 hours per year. It is relatively easy to see how important that is to me. My contributions will be along the lines of “hey, this PhD is writing some interesting articles, maybe in the future that will be part of the factor to sign with this company” – but it isn’t like I’m saving them.

Of course, I probably need to recognize (and keep telling myself over and over) that:
1) by using me, they don’t have to hire a new internal person (and pay benefits, etc.)
2) both companies have sales in the $500+ million range per year and so even small benefits across the entire offerings can translate into substantial sales for them
3) just because it is a less tangible service that has tricky-to-calculate benefits, doesn’t mean that it isn’t worth good money

Thanks for reading through this and for helping me remember that my skills and experience are worthwhile.

They've asked you to consult for them.  Prima facie, what you have to offer is valuable to them.  Even the act of talking with you and negotiating is an expense, albeit an intangible one, so your value must be reasonable.

It's quite possible that this kind of less tangible / higher level guidance is more valuable than some kinds of more concrete things like writing a script.  There are a lot of people who can provide the latter service.

Basically, as someone who's become an expert in a very niche sub-area, compared to the skills of the general population, you're probably in a situation where most companies have no interest in what you can provide, but for the ones that do, it's probably very relevant, valuable, and hard to come by.

(For example - nobody hires me to write a few lines of Python for me.  That'd be silly - there are better programmers out there who are probably cheaper.  But I'm on the technical advisory board for a company that creates products that are directly in my area of research, and what I offer them is high-level technical guidance about the kinds of things they should be aware of, new research that's relevant to them, people to keep an eye on, application areas, etc.  They find that valuable enough to give me stock options.)

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #9 on: December 09, 2016, 09:32:02 AM »

They've asked you to consult for them.  Prima facie, what you have to offer is valuable to them.  Even the act of talking with you and negotiating is an expense, albeit an intangible one, so your value must be reasonable.

It's quite possible that this kind of less tangible / higher level guidance is more valuable than some kinds of more concrete things like writing a script.  There are a lot of people who can provide the latter service.

Basically, as someone who's become an expert in a very niche sub-area, compared to the skills of the general population, you're probably in a situation where most companies have no interest in what you can provide, but for the ones that do, it's probably very relevant, valuable, and hard to come by.

(For example - nobody hires me to write a few lines of Python for me.  That'd be silly - there are better programmers out there who are probably cheaper.  But I'm on the technical advisory board for a company that creates products that are directly in my area of research, and what I offer them is high-level technical guidance about the kinds of things they should be aware of, new research that's relevant to them, people to keep an eye on, application areas, etc.  They find that valuable enough to give me stock options.)

csprof: Are you sure you're an academic?? This is far more logical and insightful than I'm used to.

In all seriousness, I am printing your response and hanging it above my computer screen. You're exactly right - very few companies value my particular skill set/background. BUT, for the ones that do, I'm one of the only games in town (or the country) and it is very valuable to them .... and so they should compensate my efforts accordingly.

This is my new mantra. Thanks.

wanderin1

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #10 on: December 09, 2016, 01:24:06 PM »

Of course, I probably need to recognize (and keep telling myself over and over) that:
1) by using me, they don’t have to hire a new internal person (and pay benefits, etc.)
2) both companies have sales in the $500+ million range per year and so even small benefits across the entire offerings can translate into substantial sales for them
3) just because it is a less tangible service that has tricky-to-calculate benefits, doesn’t mean that it isn’t worth good money

Looks to me like they’re actually paying to leverage your credibility as an independent expert to boost their own credibility and build their brands. Especially with company A, your name will be prominent in work created for the public. That’s very different from the situation of a consulting engineer who is completely behind the scenes.

In my opinion, you need to put a value on not only your work hours, but also on your “name.” They’re not buying saved time, as with your engineer example. They’re buying an enhanced brand.


Syonyk

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #11 on: December 09, 2016, 02:25:26 PM »
^^ The question you should ask is, "Are they looking to get work done that can be done by anyone, or are they looking for you, specifically, to do work because of your recognition in the field?"

The second, obviously, should charge a whole lot more than the first.

Telecaster

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #12 on: December 09, 2016, 02:49:04 PM »

I’ve told Company A that Company B has contacted me. Company A says, “we’re not trying to restrict your consulting, but we believe we have enough work to keep you busy.” I’m pretty sure Company A would like me to only work with them. I’ve told Company B that I plan to begin working with Company A – but that my arrangement with Company A is not exclusive, although I wouldn’t be able to use anything created for Company A for Company B.


Echoing what everyone else said about price.  Do not, repeat do not lowball.   Charge full market value, the first time and every time.   

As a consultant, you are a hired gun.  If company A wants you all your time, then they need to step up and offer you the hours.   Otherwise you are off to Company B, or Company C or whoever.   That's how consulting works.   Obviously, if there is an NDA, written or handshake, you'll honor that, but beyond that you have no particular obligation to inform them who you are working for or plan to work for in the future.   

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #13 on: December 10, 2016, 07:51:04 AM »
Thanks for the additional replies. I believe that this will turn exclusive with one of these companies and I need to factor that in to my inability to work with other companies. This is a situation where they are hoping that my name recognition will increase within the field and that it will be associated with them. This is a field where there aren't many PhDs (although I think that many people over-value academic credentials, but that is another post).

For my purposes I need to remember that:
1) They are asking me to write/work with them and my name will be featured
2) Any situation where it limits my ability to work with other companies must come at an increased premium.

Thanks all. I'll try to update in the future.

aneel

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #14 on: December 11, 2016, 07:21:45 PM »
Am curious to learn how this falls out. I work with a consulting firm in analytics and as a frame of reference they bill the following rates based on years experience:
<2 yrs, $175/hr
2-4 yrs, $250-$300/hr
4+ yrs, $400-$500/hr

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #15 on: December 12, 2016, 06:51:27 AM »
Am curious to learn how this falls out. I work with a consulting firm in analytics and as a frame of reference they bill the following rates based on years experience:
<2 yrs, $175/hr
2-4 yrs, $250-$300/hr
4+ yrs, $400-$500/hr

Holy crap. I'm still getting my mind wrapped around the idea of charging hourly for my time. I'm so used to a "salary mindset." Thanks for the perspective. Each time I hear about these rates I get a little more comfortable with charging what I'm really worth.

I'm working hard to shift my thinking to "each new business partnership I can help them create will allow them to receive tens or hundreds of thousands of dollars .... so, gosh darn it, I'm worth it."

Still waiting for them to iron out the details of the projects they want help with.


Laserjet3051

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #16 on: December 12, 2016, 10:04:15 AM »
Sorry, didnt have time to read through the whole thread, but MY biggest mistake made as a beginning consultant (PhD/biopharma R&D) was that I didn't effectively price in risk. Risk can manifest as a 1099er in many ways, dependent on exactly what/how your doing things.

Tjat

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #17 on: December 12, 2016, 10:47:33 AM »
This seems like a sweet opportunity, congratulations. It strikes me as add that Company A would have any bearing into your work with any other company and it would potentially transition to an exclusive arrangement. To me, that seems more "contractor" than "consultant." I'd set your hourly rate as a consultant and proceed to fill up your capacity as much as you can. As Company A (or B, or C, etc) has new tasks for you, they can reach out to you and schedule time. If they need it done ASAP, that comes with a premium.

As an intellectual mercenary, you're a hired gun with an exclusive skill that these companies want. That's a competitive advantage and leverage to extract maximum value. Unless you become an employee (or sign an exclusivity deal or something), companies shouldn't have a say on your outside arrangements. 

wanderin1

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #18 on: December 12, 2016, 11:45:32 AM »

Holy crap. I'm still getting my mind wrapped around the idea of charging hourly for my time. I'm so used to a "salary mindset."

Yes, it is a different mindset! And to take it to another level, ideally, you are thinking not just about “hourly fee,” but also about the project fee. For example, you mention company A wants you to do trainings and presentations. Some consultants have one charge for developing the trainings/presentations, and another for delivering them. Others charge only for delivery (a high charge, per participant or per session, that has development costs built in). Back when I was doing these things, I did not charge separately for development, because it made it easier to justify the contract I used in which I retained all rights to all materials. (Because if a client pays you to develop something, there is a question about who actually owns it).

Bottom line: I suggest you look at a book or two about consulting. A lot of people like the oldies-but-goodies written by Alan Weiss, such as The Consulting Bible, Value-Based Fees, and Million Dollar Consulting. They'll help not only with fees, but also with managing consulting relationships and projects.

Would love to hear other people’s suggestions for consulting books or resources . . . .


Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #19 on: December 12, 2016, 05:59:00 PM »
Sorry, didnt have time to read through the whole thread, but MY biggest mistake made as a beginning consultant (PhD/biopharma R&D) was that I didn't effectively price in risk. Risk can manifest as a 1099er in many ways, dependent on exactly what/how your doing things.

Can you share an example or two of the types of risk that you're thinking about?

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #20 on: December 12, 2016, 06:17:32 PM »
This seems like a sweet opportunity, congratulations. It strikes me as add that Company A would have any bearing into your work with any other company and it would potentially transition to an exclusive arrangement. To me, that seems more "contractor" than "consultant." ...

I hate to admit it, but I often think of "contractor" and "consultant" as synonyms. As I read your post, the obvious differences became more apparent.

Company A basically said, "We aren't ready to ask you to be exclusive to us, but we think we can give you enough work to keep you busy." But this is a situation where there want to use my name on the materials I provide for them. So they don't want me to provide the same materials for another company. I'll need to price that in given that I can't sell that information again. 

csprof

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #21 on: December 12, 2016, 06:28:49 PM »
Sorry, didnt have time to read through the whole thread, but MY biggest mistake made as a beginning consultant (PhD/biopharma R&D) was that I didn't effectively price in risk. Risk can manifest as a 1099er in many ways, dependent on exactly what/how your doing things.

Can you share an example or two of the types of risk that you're thinking about?

An obvious one is losing a client that represents a big chunk of your income and being income-less for a while.  It's much easier for a company to let a consultant go, so your employment is likely to be more volatile.  Part of the reason you charge more as a consultant is because you're an "on-demand" cost to them that lets them ramp up or down their costs as they need -- pushing the financial volatility onto you.

I was involved in an expert witnessing gig where I got a "stop work" notice about seven weeks in, literally days before I was supposed to put in a huge chunk of time starting the first draft of my report.  Client decided to settle.  It took them about a month to get around to telling me this, during which time I was kind of in limbo.  This was just a side job for me, so it didn't affect my life much, but had I been depending on this for feeding my family, it could have been stressful.

Sometimes you get a bad client - either just jerks who you fire, or who conveniently forgets to pay you.  If I were being snarky, I'd give the examples of the contractors who worked for our current president-elect, but that would be overly political in the wrong place.  *grins*  But seriously, it happens, it sucks, and it's part of the risk you need to price in.

You can get sued.  Depending on what you're doing, you may need to, e.g., form an LLC for your consulting, purchase professional liability insurance, etc.

There are probably some more I'm not thinking of.  I second the suggestion of finding a book on the topic.

Tjat

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #22 on: December 13, 2016, 11:40:53 AM »
This seems like a sweet opportunity, congratulations. It strikes me as add that Company A would have any bearing into your work with any other company and it would potentially transition to an exclusive arrangement. To me, that seems more "contractor" than "consultant." ...

I hate to admit it, but I often think of "contractor" and "consultant" as synonyms. As I read your post, the obvious differences became more apparent.

Company A basically said, "We aren't ready to ask you to be exclusive to us, but we think we can give you enough work to keep you busy." But this is a situation where there want to use my name on the materials I provide for them. So they don't want me to provide the same materials for another company. I'll need to price that in given that I can't sell that information again.

Yes, I would define contractor as someone who is essentially an employee of the company, without any benefits, working under their direction, and not retaining any work product ownership. Contractors at my company are usually temporary and fungible resources that we scale up or down as business needs dictate. A consultant is more lucrative as you can accept/reject your own work, often retain ownership rights as the company is merely getting your permission to use/sell your product, and hold no ties to a particular company.

With Company A, can you counter their offer? Say "these materials are mine and I can give you permission to use them, but I retain the right to reuse and sell to other companies"?

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #23 on: December 13, 2016, 07:01:22 PM »
Yes, I would define contractor as someone who is essentially an employee of the company, without any benefits, working under their direction, and not retaining any work product ownership. Contractors at my company are usually temporary and fungible resources that we scale up or down as business needs dictate. A consultant is more lucrative as you can accept/reject your own work, often retain ownership rights as the company is merely getting your permission to use/sell your product, and hold no ties to a particular company.

With Company A, can you counter their offer? Say "these materials are mine and I can give you permission to use them, but I retain the right to reuse and sell to other companies"?

I think Company A wants me to write online and print content that they would market as "Hey look, Dr. Smokeystache wrote these articles for us" - so I believe they view part of what they will pay me for is that content wouldn't show up on another company's website - even if the company wasn't a direct competitor, but was involved in the same industry (e.g. Company B).

What I will try to do is make sure that the content remains mine, but I will license it to them for a period of time .... but that I would always be able to reuse it if they stopped using it. But it helps to think that if all of these assumptions are true, then I need more compensation because I can't reuse my content (at least not simultaneously).

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #24 on: December 13, 2016, 07:03:31 PM »

Holy crap. I'm still getting my mind wrapped around the idea of charging hourly for my time. I'm so used to a "salary mindset."

Yes, it is a different mindset! And to take it to another level, ideally, you are thinking not just about “hourly fee,” but also about the project fee. For example, you mention company A wants you to do trainings and presentations. Some consultants have one charge for developing the trainings/presentations, and another for delivering them. Others charge only for delivery (a high charge, per participant or per session, that has development costs built in). Back when I was doing these things, I did not charge separately for development, because it made it easier to justify the contract I used in which I retained all rights to all materials. (Because if a client pays you to develop something, there is a question about who actually owns it).

Bottom line: I suggest you look at a book or two about consulting. A lot of people like the oldies-but-goodies written by Alan Weiss, such as The Consulting Bible, Value-Based Fees, and Million Dollar Consulting. They'll help not only with fees, but also with managing consulting relationships and projects.

Would love to hear other people’s suggestions for consulting books or resources . . . .

Excellent points. I'll check in to these resources and would also love to hear others suggests about books (or possibly great blogs) about consulting.

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #25 on: December 18, 2016, 07:27:06 PM »
Update: Met with Company B this past week. First in-person meeting with a VP and another upper level employee. I assumed it was a "tell us a little about yourself and your goals, and here are a few things we're interested in getting some help with" kind of meeting. My goal was to be friendly, get as much information as I could, express genuine interest in their company and services, and commit to nothing. I think I met those goals pretty well.

I also mentioned a few areas that they are heavily involved in, but weren't thinking about having me help with. (Going back to my original prosthetics analogy - they were thinking I should help with materials about the psychological adjustment to being an amputee (which overlaps a little with what Company A wants me to help them with), and I said "I have some ideas about how you can work completely differently with pre-amputees" (a very important part of their business; and something Company A doesn't deal with at all). Company B seemed to be intrigued with my ideas and I hope this leads to an opportunity to work on that with them and leave me free to work on other stuff with Company A. Both projects would significantly increase my standing and name recognition within the industry. We'll see.

Big Question: As I think ahead to discussing projects, I'm still agonizing over the idea of pricing my time/skills. Would it every be appropriate to ask a company to (after a project has been outlined in good detail) to make me (the consultant) an offer (I'm thinking of a total price, not hourly)??

Part of me wonders if this seems unprofessional.  Part of me thinks that this would be the best way to make sure that i don't undersell myself (which is one of my biggest concerns) - along the same lines of always trying to get the employer to offer the first salary number . I've been reading some consulting books (Currently working my way through "Insider's Guide to Building a Successful Consulting Practice") and they mention that you should weigh they value or your contributions. They challenge is that I don't have a good sense of how much my expertise will help their bottom line. I know for example that Company A has sales of $500 million per year. So they have some deep pockets. But I really don't know, for example, if something I might ask $50k (for a full project) is something that they would have happily paid $150k for.

Given that they are going to put my name on these projects, they are invested in keeping me happy for the long-term - which makes me think I could say something to the company along the lines of "Ok, so we've outlined the project. Please provide me with an initial offer that takes into account the value of this project to your company and the fact that I won't be providing similar services to any other companies in  this field. And then we can either discuss the cost or examine the scope of the project to see if we can find a fee that we're both happy with."  Am I crazy to consider this strategy. Both companies know that I'm new to this type of role (consulting).

Telecaster

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #26 on: December 18, 2016, 08:40:14 PM »
Given that they are going to put my name on these projects, they are invested in keeping me happy for the long-term - which makes me think I could say something to the company along the lines of "Ok, so we've outlined the project. Please provide me with an initial offer that takes into account the value of this project to your company and the fact that I won't be providing similar services to any other companies in  this field. And then we can either discuss the cost or examine the scope of the project to see if we can find a fee that we're both happy with."  Am I crazy to consider this strategy. Both companies know that I'm new to this type of role (consulting).


You should either tell them what your fee is, or have a pretty good idea what you will accept.   If they reject your fee, then you can negotiate by reducing the scope of the project. 

You are hopefully fixing a problem they have.  If you have a problem with your car,  the mechanic doesn't ask you how much you think you should pay him.  The mechanic tells you how much fixing the problem will cost.  Then you can decide if it is worth it not.

Here's the thing that hangs up a lot of people:  The main thing the client wants to have their problem fixed, and they don't want to risk a lot getting it fixed.  So the more confident they are that you can fix their problem, the less issue your fee becomes.  If they think you can knock it out of the park, they probably don't even care what the fee is. If they are uncertain, then they won't want to pay a lot.

So from a negotiating standpoint, really study what it is they want and need and come up with some solutions, and make it very clear how you can add value.   Then give then a bid.  Hourly or lump sum is fine.   But if it is lump sum make sure the project scope is very clearly defined.     


pbkmaine

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #27 on: December 18, 2016, 08:59:18 PM »
For an hourly rate, the rule of thumb I have heard is at least 2x what you would have been paid to fix the problem as an an employee. The real trick is accurately estimating your hours. Assume it will take at least twice as long as you think it will.

BlueHouse

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #28 on: December 19, 2016, 08:36:51 AM »
Just another small point.  I charge hourly, and it's been great.  But I have one client who started setting meetings for me in the middle of the day -- on their job site or at another job site. 

That meant that for a one hour meeting at One PM, I'd leave Client A at noon, drive to Client B for meeting, drive back and be back at client A by 2 PM (with no lunch).  So I lost 2 hours of billable time.  After a few times of this happening, I told Client B that my minimum for any in-person meetings was 4 hours.  So from then on, if they wanted a mid-day in-person meeting, I charged them for 4 hours instead of 1.  Worked out for me. 

wanderin1

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #29 on: December 19, 2016, 02:28:09 PM »
Sounds like things are off to a good start! As far as having the client set the consulting fee, I’d say “don’t do it.” Part of being an expert is knowing what you are worth.

Instead, nail down an hourly fee by researching what comparable experts charge, applying what you’ve read in the consulting books, and using the info provided by previous posters. Recognize that placing a $$ value on your work is an Achilles heel for you. Ponder why and get over it ; )

For example, based on my own consulting experience, your info and the comments here, I think you should set your initial hourly fee at about $325 per hour. Are you hyperventilating reading that? Good, then it’s probably about right.

Keep in mind that you won’t have to give these clients a project price right off of the top of your head. Whether via meeting, phone call or email, they’ll discuss with you what they want, you’ll tell them you will work it up into a proposal (or “proposed plan”) and you can all go from there.  That gives you wiggle room on your hourly fee if you want it.

Remember too that you’ve already provided them with value—you expanded their understanding of their clients and the value of their brand when you told them in the meeting about out-of-the-box ways to think about approaching the market. Not every consultant can listen and provide spontaneous, creative and strategic ideas. So you are out-of-the-gate above average. Your charges need to reflect that.

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #30 on: December 20, 2016, 05:21:23 PM »

Here's the thing that hangs up a lot of people:  The main thing the client wants to have their problem fixed, and they don't want to risk a lot getting it fixed.  So the more confident they are that you can fix their problem, the less issue your fee becomes.  If they think you can knock it out of the park, they probably don't even care what the fee is. If they are uncertain, then they won't want to pay a lot.

So from a negotiating standpoint, really study what it is they want and need and come up with some solutions, and make it very clear how you can add value.   Then give then a bid.  Hourly or lump sum is fine.   But if it is lump sum make sure the project scope is very clearly defined.   

Good Advice. I'm adding it to my list.

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #31 on: December 20, 2016, 05:25:17 PM »

For example, based on my own consulting experience, your info and the comments here, I think you should set your initial hourly fee at about $325 per hour. Are you hyperventilating reading that? Good, then it’s probably about right.


I appreciate you putting out a clear number like that. And I am hyperventilating a little. But I'm also getting much more comfortable with this.

I'm really glad I posted the original question. I may transition to a semi-regular journal in case folks want to follow along. Not much is going to happen over the Christmas break - so it gives me some time to read my consulting books, talk with some friends/colleagues who consult, and begin drawing up some proposals. Thanks all!

trollwithamustache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #32 on: December 21, 2016, 08:37:56 AM »
Just another small point.  I charge hourly, and it's been great.  But I have one client who started setting meetings for me in the middle of the day -- on their job site or at another job site. 

That meant that for a one hour meeting at One PM, I'd leave Client A at noon, drive to Client B for meeting, drive back and be back at client A by 2 PM (with no lunch).  So I lost 2 hours of billable time.  After a few times of this happening, I told Client B that my minimum for any in-person meetings was 4 hours.  So from then on, if they wanted a mid-day in-person meeting, I charged them for 4 hours instead of 1.  Worked out for me.

I  charge for travel time. It took a little training, but its also helped overall efficiency with clients further away. The idea that a site visit is expensive and we need to plan it ahead of time means the site visits are all pretty efficient with clear goals and much less open ended "we need to talk about blahhhh" The efficient site visits have helped spill over into getting the rest of the work for them done efficiently.   (Open ended meetings are certainly OK early in a consulting project when you may still be working on figuring out the scope for the client but at this stage everyone knows they are supposed to be open ended)

Syonyk

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #33 on: December 21, 2016, 01:41:22 PM »
Here's the thing that hangs up a lot of people:  The main thing the client wants to have their problem fixed, and they don't want to risk a lot getting it fixed.  So the more confident they are that you can fix their problem, the less issue your fee becomes.  If they think you can knock it out of the park, they probably don't even care what the fee is. If they are uncertain, then they won't want to pay a lot.

^^ Yup.

I make a bit of coin doing side web development as the "developer of last resort."  I charge, honestly, a good bit under market at this point, because I've been doing work for this guy forever and my cost of living is pretty low right now.

I don't do his daily work.  But he knows that if a major blocking issue comes up a week before launch of some site, and his guys can't get it worked out, I'll be able to do it, and he knows I'll clear time in my schedule for it.  I do this a few times a year, and it works - I can get the issue fixed.

For example, based on my own consulting experience, your info and the comments here, I think you should set your initial hourly fee at about $325 per hour. Are you hyperventilating reading that? Good, then it’s probably about right.

I appreciate you putting out a clear number like that. And I am hyperventilating a little. But I'm also getting much more comfortable with this.

Sounds reasonable.  I bill out at $125/hr for the web stuff, and as noted, I'm seriously under market there for my skills.  Plus, I offer a 10% discount for prompt payment.  It's not my day job, it's just toy money on the side.

Axecleaver

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #34 on: January 11, 2017, 02:33:01 PM »
Posting to follow. Recommend that you don't do fixed-price bids as a beginner. That's where you need to price in risk, and that's an acquired skill. Fixed price is where you can make a lot of money very fast, IF you know things about the scope of work that isn't well-known, or well understood by the client, but that you know extremely well. You must have a very strong statement of work for this, with well defined assumptions and limits. Scope creep and changes to the scope is where you can lose your shirt on fixed price bids.

You can also do "not to exceed" retainers - let's say you bill out at $200/h. You can do a $5,000 retainer per month, not to exceed 30 hours. This creates the illusion of value - they appear to be getting you at $166/h. But typically you'll do less hours, and if you can keep them happy in 15 hours, you're making $333/h.

The easiest is to offer your services for a given rate, and provide the client with a "not to exceed" cap on the number of hours you'll work. When you run out of hours, you ask for a new statement of work. This limits their risk and is risk-free to you - you get paid T&M (time and materials) for all the work you do, no matter how many changes they throw at you.

Don't get greedy, especially as you're starting out. Provide good value to your clients, that's how you build a successful business. Charge a fair rate. You know you picked the right rate when you tell them what it is, and they pause or grumble before agreeing to it. Look to expand your work to add employees as soon as possible, especially where work can be done by a lower-skilled guy, but overseen by you. You can get good rates for this and make margin by virtue of your oversight, and signing up to guarantee their work.

Here's my stock advice for starting a consulting company. The rate guidelines are probably too low for you, given that the companies you're talking to want to piggyback on your reputation. Use that as a rock-bottom price guideline.
--

Axecleaver's steps for starting your own consulting business
WHAT
1. Cut your minimum monthly living expenses as deeply as possible.
2. Build up a transition fund to pay your expenses for 6-12 months.
3. Write a business plan: visit www.score.org for templates.
3a. Set your services and rates (1/1000th of your annual salary is a good starting point).
4. Identify customers.
5. Set meetings to sell your services. If you sell everything you pitch, then you're not pitching to enough people. Shoot for a 25% close rate.
6. Keep your day job and deliver on nights/weekends until you have at least 20-40h/week of deliverable work sold.
7. Incorporate your business.
8. Once your day job is impacting your ability to deliver, turn in your notice.
9. Purchase insurance: errors and omissions/professional liability, general liability
10. When your sales exceed your ability to deliver, add staff.
11. Hire a payroll service, HSA and 401k providers. (Caveat: explore Solo-K and SEP-IRA if you never intend to have staff.)

WHY
1. If you run out of money, you're going back to work for The Man for the rest of your life.
2. Most consultants bill monthly at the end of the month, on net 30 terms. Clients can take up to 45 days to pay. Large checks take seven days to clear. This means a job you start working on June 1 may not make funds available to you until August 22 - nearly 12 weeks.
3. A business plan template will ask you questions you haven't thought to ask yet - what are your services and what is your rate, who are your customers, how will you market to them, what does your staffing plan look like, will you offer products or just services, what margins will you use?
4. Use every resource at your disposal to find customers: your rolodex, temp agencies, headhunters, Craigslist, etc.
5. Pipeline management is a critical skill in the  consulting business. You should be selling services at least three months out, but this takes time to develop. You should always be selling.
6. Building a reliable customer list takes time. Deliver against your core services while keeping your day job. Get used to 80-100h work weeks.
7. S-corps are popular choices for consultants because it allows you to pay yourself distributions which avoids payroll taxes on a portion of your income.
8. Ease the transition into consulting by keeping your day job while you build your experience and customer list.
9. Protect yourself and your company with liability insurance. Many customers and prime vendors require it. Look for a million per instance in coverage as a starting point.
10. Hire staff as your company grows. Always be selling.
11. Outsource the administrative tasks that make the most sense.

CanuckExpat

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #35 on: January 12, 2017, 12:52:38 AM »
Posting to follow and hope I learn some things. And if I can ask, what makes you want to leave a tenured faculty position? You usually hear about people fighting to get in, not the opposite :)
« Last Edit: January 12, 2017, 01:23:26 AM by CanuckExpat »

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #36 on: January 12, 2017, 08:26:34 PM »
Axe: Thanks for the advice!

Canuck: Yes, lots of people are looking to become tenured. I work at a small liberal arts college, so it is quite different than an R1 school. I get paid to teach and advise students on classes and career plans - and the college is happy if I can slip in a little research around that. I could be happy doing this the rest of my life, but I definitely would feel like I didn't reach my full potential. While I can occasionally teach a new class, I would likely teach 4 different classes over and over the rest of my life if I stay. It takes a dedicated teacher to continue to update and reinvent the class so they (the professor) doesn't get bored with it. I'm in my early 40s, and have been doing this for over a decade. I don't see myself being happy teaching the same stuff for so long. Professors at small colleges don't make great money - especially given the years of education. I'm tenured and have 10+ years of experience at the same school and I make ~$60k.

I've been working to take my research areas and establish myself as an expert for the last 5 years and have worked up to creating almost half my annual salary in side income from products and speaking. I hope to continue to add various lines of revenue and then add several major, long-term consulting clients in addition to lots of small, short-term clients.  I'm hoping this could at least double my current take home salary. Most importantly, I believe my research and products really helps people who need help. And consulting & speaking would add in some travel and I'd get even more flexibility in my schedule. But I admit, I'm in a good position. I'd be fine staying where I am, but this new stuff really gets my juices going.

CanuckExpat

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #37 on: January 12, 2017, 08:45:27 PM »
Smokystache, thanks for answering my question. That is a very detailed explanation, and I understand exactly where you are coming from. It also sounds like you are doing great and have big plans.

Smokystache

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Re: New to Consulting - Help me avoid beginner's mistakes
« Reply #38 on: January 13, 2017, 06:08:20 AM »
Smokystache, thanks for answering my question. That is a very detailed explanation, and I understand exactly where you are coming from. It also sounds like you are doing great and have big plans.

It is helpful for me to type it out, because it isn't like I'm trying to leave a terrible situation. I like my colleagues, I like my students, I have a job and good benefits for life. My children would be eligible for free tuition. BUT, I've had about a 5% raise in the last 5 years (total), we constantly worry about having enough students, and I don't feel I would grow very much. But even I question why I would want to leave such stability. Thankfully the best part of the job is that I have flexible time to try some side things and I can likely get to the point where side stuff will equal my take home  - which will make the decision a little easier. (of course, I'm going to wait until the opportunities would be much more lucrative than my current take home + benefits, but you get the idea).