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Dialog endSo you want to be a consultant...?
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Or: Why work 8 hours/day for someone else when you can
work 16 hours/day for yourself?
I've been a consultant of one form or another since 1985 when I started
my old company, V-Systems, with a friend from college, and actually did
bits and pieces of consulting as early as 1982. I have been asked often
about the business, and I decided to write this up.
Please note that I am providing observations from my own personal
experience, but I am not providing tax or legal advice. You need
to pay somebody for that, and I'm not qualified.
Furthermore, I am not even attempting to make this a comprehensive
guide for everything required by one in or contemplating the
consulting business. I am purposely omitting whole areas,
such as licensure, insurance, and negotiating & there are other
books for that, and this isn't trying to be one of them.
These sections (except the last) aren't in any particular order.
Different flavors of Consultants
There are many ways of structuring a self-employed practice, and I'll
touch on two that are at different ends of the spectrum. I only have
my own experience to draw on, so these should be considered broad
generalities rather than pigeonhole-type definitions. I have gotten
substantial pushback on these definitions, so I urge you to take
them only generally.
Contracting
A "contractor" is typically hired for one project (via a "contract"),
and the relationship is often more technical than personal. One is hired
to write a communications controller, build a website, or modify some
software, and at the end of the project: you're done and you move on.
Most contractors work on one project at a time, which surely allows a
great deal of focus, and though there is a often a bit of hanger-on work
after the project has finished (say, helping the in-house staff integrate
your work), once the contractor has moved on, the focus goes with him.
This is not to say that you won't be back: doing a good job on the first
project certainly means you'll be given more consideration for a
subsequent project, but it's just as often a new project as opposed
to working on the old one.
Consulting
A "consultant" typically has multiple customers at a time, and
it's more about a long-term relationship than it is about a specific
project. There will certainly be projects in the course of a consulting
relationship, sometimes big ones, but the general idea here is that you're
an always-available resource they can call on for big matters or small.
In a few cases, I am the IT department for several customers,
and they use me so they don't have to hire a dedicated person for it.
Unlike the contractor, this involves a lot of juggling when the
fluctuating demands of multiple customers comes into play. It's harder
to get a deeper focus because of all the context swapping going on, but
long term relationships are worth it in the long run.
I mainly operate as a traditional consultant, and though from time
to time have done one-time projects on a contract basis, this paper
mainly addresses the consulting relationship.
What's it take?
The single biggest surprise to prospective consultants is when I
suggest that their technical skills will not be their biggest asset.
Those skills are required, of course, and often help get you in the door,
but the long-term customer relationships on which a consultant depends
are built on one thing only:
Consulting maxim:
You must give the customer The Warm Fuzzy Feeling&
Your customer certainly has to believe you can do the job, but they
cannot wonder if you're going to get back to them, or if you're
going to do something stupid (again?), or offend one of their
customers. Your practice is never more stable than when your customers
trust you completely to take care of them.
I still have my first customer from 1985, plus several others since
before 1990, and I've been asked to do work I was clearly not the
best for, simply because my customer liked doing business with me.
Many moons ago I knew a gal who was a salesperson for the computer vendor
I did business with, and she was not even close to being as technically
competent as I was. When she left to do consulting, I figured she'd
never make it because of the "lack" of those skills.
But she did make it, and did a damn good job, too. She was good enough
with the subject matter to take care of what was in front of her, but she
was ferociously dedicated to taking care of her customers, and
this was where I learned that The Warm Fuzzy Feeling& is central
to a good customer relationship.
It didn't take long before her subject-matter skills were as good as
her customer-service skills, which made her a gift from God to her
customers: within a wide range of problem space, they would rather
pay her to "figure something out" than hire somebody else who already
knew how. It wasn't until later in my career that I found this out
for myself.
Thank you, Cindy, for showing me what makes a good consultant.
Consulting maxim:
"Trust" is your best job security
But it takes more than good customer service skills: one must be a
self starter, require very little supervision, and the ability to
keep on task without a boss looking over your shoulder.
Working at home can be a wonderfully comfortable and productive work
environment, but it's not meant for everybody. Distractions abound &
spouse/children, the television, that really comfy couch & and it's
really easy to burn tons of time without getting anything done. Working
by yourself requires substantial time-management discipline.
Though some consultants (like me) prefer a solitary work-at-home
existance, it doesn't have to be this way. Many consultants spend much
of their time on the road, with plenty of human contact, and you can
tailor your practice to have whatever mix you like.
Job security
Notwithstanding the prior maxim, the short answer is that you
don't have any.
Consulting maxim:
You have no job security, even if you think you do
Consultants & even good consultants & are often considered a
necessary evil by customers who use them, and it's exceptionally
easy to stop using one. It doesn't require firing or confrontation,
just "we don't need you any more" or even just not calling.
This has happened to me several times: a sure thing with many years of
history stopped on a dime when a customer's customer canceled a project,
or when another customer was bought by a bigger enterprise.
This is not personal to your customer & it's just business &
but when your gravy train evaporates without notice, it's very
And terrifying.
The best way to approach this is to diversify & if you have only
one ongoing project, you can find yourself out of work with no more
notice than the time it takes the phone to ring. By being aggressive
about finding more than one customer, and even making it a point to
value a backlog of work, you have a fighting chance at dodging the
vaporizing-customer bullet.
Beyond having regular ongoing work lies matter of cash flow. Even if you
regularly invoice at the start of every month, customers have their own
schedule for paying, and this can be nerve-wracking to deal with.
For many years I operated on net-30 terms & payment due within 30 days
of the invoice & but when you add postal delays, waiting for manager
approval, being put on the next regular check run, and sitting on the
president's desk for a signature, it's not hard for invoices from even
good customers to take 45 days to arrive in your hand.
I moved to net 10 terms, and this made an enormous difference in
cash flow: a few customers simply cannot accommodate that fast of an
invoice turnaround, but it's been a big win. This is a "soft" 10:
I tell my customers that the first regular check run on or after
net 10 is timely, and this usually means 10-15 days. What a huge
difference this made in cash flow.
Where this still gets tricky is when a customer is a bit late for
whatever reason: your creditors don't really care. But a consultant
can never do anything other than perform routine collections with
a customer. Asking for a stale invoice to be paid is fine, but it's
exceptionally bad business to give the customer any hint that you're
in a bad place.
Consulting maxim:
A financially-struggling consultant does not give a customer
The Warm Fuzzy Feeling&
No matter how tight your bind, your customers can't find out.
The Customer Relationship
I've mentioned several times The Warm Fuzzy Feeling&, and I'll do
so again: this is absolutely central to how you manage your practice.
Have "customers", not "clients"
This is a minor semantic point, but one I've stuck with for
many years. A "client" implies that the consultant is superior,
while "customer" suggests that the consultant is beholden.
It's virtually impossible for a consultant to forget the technical
nature of the relationship & you solve problems all day long & but
it's very easy to forget the customer service aspect. We want to
avoid this as much as possible.
Medical doctors are notorious for getting this wrong: we've all had a
doctor we really loved (The Warm Fuzzy Feeling&), but the office
staff didn't measure up. We are a patient to the doctor, but a
customer to her medical practice.
I've never heard of a doctor or a lawyer use the word "customer", but
as a consultant I am proud to. I exist at the pleasure of my customers,
and that means being easy to do business with.
Consulting maxim:
You are primarily in the customer service business, not the
technical business
Be exceptionally easy to find
When I go into the bank and find a long line to reach a teller,
it's of course frustrating. Mentally, I start a timer in my head,
and the longer the timer goes the worse of an experience it is.
What stops the timer? Leaving the bank?
No. & It's reaching the teller.
When your customer pages you, his timer starts: return his call
immediately.
If the customer has an emergency, it's much better
for him to hear your voice 5 minutes after paging saying "I am on the
road right now, I can jump right on this in an hour" than to just sit
around waiting, wondering if you got the page.
Consulting maxim:
For a good consultant, your voice is comforting: Be very easy to find
When the customer knows you're going to be on the case, he can
stop worrying and attend to what's in front of him. In my entire
career, I have never dodged a page or screened a call
even though I was tempted more than once.
There are all kinds of arrangements for getting paid, and none is really
superior to any other. I have virtually always operated on a strictly
hourly basis, invoicing once or twice a month, but it's also possible
to do "monthly retainer", "fixed-bid contract", or some other combination.
And no method of billing can avoid talking about "churning", which
I'll define also.
Hourly billing
This is the easiest to manage: you work an hour, you
invoice the customer for a hour. For occasional or ill-defined
work, it's hard to use anything but hourly billing. The
customer bears the brunt of projects that get out of hand, and
the customer is really at the mercy of the consultant for being
fair. This makes many customers nervous for fear of project-creep
and "churning" (defined below).
Consulting maxim:
Hourly arrangements of any substantial magnitude require that
you have earned your customer's trust
There are many variations of retainer arrangements, but one version
is where the customer purchases a guaranteed minimum number of hours per
month (at a substantial discount), and they are worked off as the month
goes on. These are particularly popular for outsourced IT departments,
where you form a remote help desk, servicing issues as they come up.
They are good for the customer, because they get a significant discount
for a consultant, and good for the consultant, who has a predictable
income stream every month.
Fixed-bid projects
When a customer has a specific project, you provide a fixed
quote: "I can do that job for $X". Customers often prefer these,
because they know in advance what they're going to pay,
but they are the most problematic for the consultant.
These require highly detailed specifications that list exactly what
is expected of the consultant. If it's not entirely clear what the
requirements are, there will be endless disagreements over whether this
or that is in the scope of work: The customer will think it is (you
work for free), and you will think it isn't (customer pay me more).
I have relatively little experience with fixed-bid contracts,
but I do know that your estimate should include a substantial
fudge factor. This is not gaming the customer but allowing
for surprises. All programmers are optimists, and all projects
run into unexpected roadblocks: your fixed bid means you
allowed for that.
Consulting maxim:
The best way to appreciate the value of a good spec is to
do a project without one
Generally speaking, ambiguities in a specification must be resolved in
favor of the customer (you're the consultant, you should know how to do
this), though it's certainly possible for a customer to try to take
advantage of you. A good customer will take into account extraordinary
roadblocks that nobody could have anticipated (say, a critical vendor
goes out of business), but it has to be much more Earth shattering than
"it's harder than I thought".
It's not unheard of for a consultant to go back to the well on a
fixed-bid project, laying out a case why the project has gone over and
why you need to be paid more. This is always uncomfortable, and the only
way to manage this is if the customer has been in the loop in fairly
substantial detail throughout the project.
If you've been telling the customer "it's going great" for six weeks,
you're going to have a hard time showing up on the due date explaining why
you're not finished and also asking for more money. Instead, if you have
been making regular detailed progress reports, even including your
own mis-steps, it's more likely that problems will be headed off at the pass,
and the customer will be more amenable to sharing the cost of surprises.
Consulting maxim:
Customers hate unhappy surprises much more than timely bad news
A customer recently made a point that's essentially the same thing:
Consulting maxim:
Bad news does not get better with age
This is the all-too-common phenomenon of a consultant
running the clock simply to run the clock whether the customer
actually needs the work or not. This could be outright padding
(aka "lying") on an invoice, or recommending/doing work that's
not really required.
Consulting maxim:
Churning by dishonest consultants is the single worst thing that
has ever happened to honest consultants
Every consultant has projects that run over, and sometimes in
retrospect you will realize that your time was not spent in the
most beneficial way: this is inevitable. The question is whether
your efforts were made in good faith, and a healthy dose
of no charge time (see below) is usually a fairly effective
I wish to repeat that I am not expert in the finer details
of structuring a business deal or how to best negotiate with
your customer. There are so many ways that a deal can be structured,
so many different kinds of projects, and so many different
personal styles, that no simple summary could possibly capture
even a fraction of them.
But what they all have in common is that you are completely up
front with the customer, deal in good faith, and fully intend
for this customer to provide you with a great reference when
the project is over. Not surprisingly, these all contribute to
The Warm Fuzzy Feeling& that is so important.
Touching on some more specific points:
Never, ever lie or fudge on an invoice
If you are ever caught & or even suspected & of funny business
on the financial front, you will not be trusted anywhere else.
It is impossible to give a customer The Warm Fuzzy Feeling&
if they are wondering about the legitimacy of your invoices, and this is
fatal to a customer relationship and to ever getting a good reference.
This is not to say that mistakes on an invoice won't happen, but
how you deal with them will tell a customer a lot about how you
do business. Your goal should be to overwhelm them with integrity.
Once, I accidentally double-included an 8-hour charge on a customer
project: hit the wrong key on my time-billing system and didn't
catch it. One of them was completely legitimate & and the
customer knew it & but the fact that two charges in a row had the
same time and detailed description were a dead giveaway to a mistake.
My response was to write off both line items even though I
was entitled to one of them. By making the penalty for error high,
I made it clear to the customer that I don't play the "see what I
can get away with" game, only writing off the mistakes. Eight hours
was real money, but nothing compared to the ongoing business I got
from these folks.
It sometimes hurts to "eat" time, but the alternative (burning a
customer) can be much worse.
Consulting maxim:
Ongoing business is much more important than maximizing every billable hour
Consulting maxim:
It's better to give away some time than to throw away
your reputation
Provide time-billing transparency
Anybody who's dealt with a lawyer has gotten a bill that said
Review documents ....... 40 hours
and for most of us, the lack of visibility into work done is maddening.
Your customers should never think this about you:
list your work in detail
to say what you did, and & if necessary & who asked you to do it.
Which of these two line item details would you rather see from
somebody you're paying real money to?
Your detail should ring a strong bell with the customer,
with him nodding his head on every item while he reviews your
invoice. This gets you paid sooner and gives the customer The
Warm Fuzzy Feeling&.
Consulting maxim:
Detail is comforting to a customer
Give away some free time, but make it visible
Most honest consultants spend a certain amount of time for customers
that's off the clock, and this can be for several reasons. It could be
that it's for something you're not strong in (and cannot justify charging
full consultant rates), it could be a pet interest of yours where you
are willing to give away the time, or it could be that your time on the
task was so unproductive that you don't feel right about charging for
it. These are all fine reasons.
But don't do it quietly. If the customer asked you about email
systems and you felt like you wanted to research this on your own, it's
important to list this on an invoice as nocharge time:
This shows the customer the level of effort you've exerted on his
behalf, and it puts you in the "trusted advisor who's in our corner"
category, and not a "consultant only thinking about cha-ching".
Consulting maxim:
If the customer doesn't know you did work off the clock, you don't
get credit for it
It also makes it harder for a customer to object to the time you did
bill for, but it's important not to use the nocharge time as a ploy:
the goal is to maximize the customer goodwill, not to maximize the
revenue on any given invoice.
It's good for business to make your customers comfortable with your
work for them: it maximizes The Warm Fuzzy Feeling&.
Admit your mistakes
Every consultant pulls the boneheaded move now and then:
deleted the wrong file, forgot to do the backup, left the firewall
off for the weekend. It's contrary to human nature to expect
that a consultant will never make a mistake, but it's also not
reasonable to expect the customer to pay for them.
For a surprising number of your mistakes, your personal culpability won't
be known to the customer unless you tell them, and in most cases you
should do exactly that. Though you're likely to get away with deflecting
the blame as often as not, if you get caught your reputation will be
positively destroyed far worse than the mere responsibility for
the mistake.
I performed the same software upgrade for two unrelated customers,
and some weeks later both had the same problem with a little-used
This issue was getting increasingly
important, as it was affecting their customers, and after several
days of intensive research it turned out to be due to a small but
significant oversight I had made during those earlier upgrades.
When we finished, it would have been really easy to (a) blame it on the
software vendor, and (b) get paid for all my time. Neither one would
have been right, so I wrote a letter to both customers explaining
that the problem was fixed, that it was due to my error, that they didn't
have to pay for any of it, and extending my apologies.
This was an expensive adventure for me, but both customers were grateful
for getting a straight story about something that was impacting their
business, and this kind of candid admission contributes much more to
The Warm Fuzzy Feeling& than you'd expect from "I made a mistake".
It's embarrassing to admit mistakes, but you owe this to your customer.
The very reason you're a consultant is that you're the subject-matter
expert and are supposed to know what you're doing. Everybody makes mistakes
now and then, and I suppose that even some honest mistakes will mark the
end of a customer relationship. But it's never happened to me.
Consulting maxim:
If you routinely take ownership for your own mistakes, you're much
more likely to be believed when you claim something is NOT your doing
Housekeeping and Paperwork
In the late 1980s I almost left consulting because the administration
and paperwork was such a burden, but my savior was Quicken, Timeslips,
and Turbo Tax. If you don't have a mechanism for dealing with invoices,
your checkbook, and your taxes, you'll surely go out of your mind.
Time Billing
You need a way to capture your time, invoice customers, and record
their payments: this is hard to do well with anything home grown. Many
moons ago I had written a time-billing system using the Informix database,
and I hated invoicing every month. Then I discovered
and have been using
it ever since. This is very popular with lawyers, but it does a fine
job for consultants as well.
The disadvantage of TimeSlips is that it's "a different program" from
Quicken, and it means double entry of invoices and payments. This is
a serious drag, especially when Accounts Receivable doesn't reconcile.
The Quickbooks accounting system has a time billing system that's
very substantially inferior to that of Timeslips, but it's all
integrated with the rest of the accounting system: I have recently
migrated to it. Those comfortable with real, double-entry accounting
may wish to give it a try, but it's not for those who have never
run their checkbook electronically.
Finances / Your Checkbook
For some time I operated with two checkbooks & one business, one
personal & but I gave this up more than ten years ago. Once I started
using , the need for that
simply evaporated as I was able to properly categorize and class all
my transactions to obviate the need for two accounts.
It seems natural to separate accounts on a "purpose" basis, but in
practice this is difficult. If you go to Home Depot to get some stuff
for your office and some stuff for your house, which credit card do
you use? Are you really going to write two checks at the
cashier's stand? With the line waiting behind you?
I've found it much easier to use Quicken's "class" mechanism
to make this work perfectly. Every transaction has a "category"
(office supplies, home repair, telephone charges, etc.), but this is
not sufficient to split your expenses. By creating a class to each
item, you can make that Home Depot receipt go where it belongs:
Description
Category/class
Home Depot -- light bulbs for kitchen
Home Repair/personal
Home Depot -- light bulbs for the office
Home Repair/business
One account, one receipt, two purposes. This works really well
and takes much of the burden of separate recordkeeping off your
shoulders.
However & many accountants and CPAs will strongly advise against
this, especially if you're anything other than a sole proprietor
working out of your house.
It's said that IRS dealings are easier
with separate accounts, but I believe that having meticulous electronic
records alleviates that substantially. I suppose I'll find out during
my first audit.
Taxes are much more complicated for consultants, because
Schedule C (Income from Self Employment) is much more complicated
than Schedule A (Itemized Deductions). Every expense you have that
contributes to earning income is deductible & software, auto use
when traveling to customers, a good portion of your internet use &
but this requires substantial recordkeeping.
It's tempting to just get a good tax guy, but the taxes are not the
hard part: it's the recordkeeping that categorizes which of your
expenses are properly business expenses. It's not fair & or at least
a bad idea & to drop off a box of receipts to your tax guy and have
him try to read your mind.
Good tax guys are not cheap, and you want
to pay him to prepare your taxes, not do your bookkeeping.
If you're using Quicken, getting into good habits of category and
class will go a long way to taking care of this: having detailed
reports of your properly-organized expenses mean that you don't need
receipts for your tax guy, and he can file your return properly.
For many years, I used Turbo Tax to compile and file my own taxes, and
it was helpful to really understand how it all works. But I can hardly
emphasize enough that you should get your own tax guy. My tax guy & who
walks on water as far as I am concerned & saved me an enormous
amount of in-my-pocket money the first year I used him.
It's one thing to know the mechanics of taxes & as I do &
but it's another thing entirely to know what's a supportable deduction
and where the gray areas are. This is a minefield for those who haven't
gone down this road, and having a good tax advisor will pay for himself
in about the first fifteen minutes.
Thank you, Tom: you rock.
Filing your receipts
Most new consultants attempt to separate receipts as well as they
do accounts: separate folders for business receipts and personal receipts,
but this quickly falls apart unless you're unbelievably rigorous in
maintaining this separation. When you get your credit card bill every
month, which folder does it go in? What if it has some personal and
some business expenses? This gets messy in the first month,
and it's not necessary.
Years ago I adopted the practice of using 15" x 9" accordion files
with a separate tab for every letter of the alphabet. I use a new
file every year, and file all receipts & for whatever purpose &
alphabetically by vendor.
This is optimized for the only kind of
search you'll ever do: fetch a specific receipt from a specific
There are other financial queries you'll do (how much did I
spend in March?), but you'll never need to gather all receipts from
March. Having your receipts ordered by vendor name is perfect.
Promotion and Advertising
I've never done any explicit advertising or promotion: no Yellow Page
ads, business card on bulletin boards, etc. For years I was fortunate
enough that word of mouth was sufficient for me without having to put
on my sales hat, but the internet has changed this substantially.
Some may consider banner/Google ads, but I believe this is likely
to be expensive and of limited effectiveness (though I have not tried
either one).
It turns out there is a very effective method of promotion that does
not involve spending any money or putting on a sales hat:
Consulting maxim:
Your best advertisement is publishing original, technical content
In my case, I write
on my website -
this paper is one of them & and publish them on my website. I usually
do one or two per month, but it's not on any kind of schedule. Once
I've solved a problem that I think others might have trouble with,
I'll write it up.
Or, if I believe that I can explain a topic better than other resources
(say, ), I'll produce one as well.
In some cases I'll proactively promote them, such as submitting
narrowly-targeted venue such as
I certainly announce them in my weblog, but by and large I allow
Google to do all of my promotion for me simply by indexing them
for people to find.
These do take a long time to write (and it's non-billable time),
and certainly those who are not strong
writers will have a harder time of it, but I believe these to be very,
very effective methods of promotion. Most people who benefit from your
Tips won't be candidates for customer status, but it does help establish
a reputation for competence in the area you're writing about. It's
also nice to get a thank-you from random people on the internet who
are grateful for your efforts.
But when prospective customers are investigating a potential consultant,
a website that is more technical than marketing may very well be seen
as a positive: with clear, strictly-technical content, the customer can
find out for himself that you're qualified rather than rely on you to
simply claim that you are.
Consulting maxim:
It's a huge asset to communicate well & cultivate this skill vigorously
Writing for a magazine is also a great way to raise your status in
the community: most magazines are always looking for good writers, and
getting published is typically a relatively informal process. Find an
area you're competent in, make sure you understand the publication's
target audience, and email the publisher with a proposal.
You will be expected to produce an article of so many words, and this
number is chosen by the publisher based on how much space he has in the
issue in question. If he asks for 3000 words, don't submit 2500 or 3500.
And you must be on time: there is no surer way to burn a relationship
with a publisher than to miss your deadlines.
This promotional approach does take time & a reputation is
lost quickly but gained slowly & but I believe that these
efforts gather a kind of momentum: as your track record of writing and
publication grows, you'll have an easier time being accepted into the
next one. All of this contributes to a larger and larger body of work
that precedes you to potential customers.
References
If you conduct yourself properly, you will accumulate a list of customers
who will speak well about you: in many cases these will be your
best source of new business, and in any case they have a name:
your references. No matter how renowned you are for your technical skills,
it is hard to overemphasize just how important your references are to
a successful consulting practice.
Think what you would ask if you were checking up on somebody you
were about to hire: you'll ask about his skills, of course,
but that's not all:
How was he to work with?
How much supervision did he require?
Did he show up when he said he would?
Did he deliver what he said he would?
How were his invoices?
Would you recommend him to others?
Though some of these questions touch on the technical, most are about
the relationship. Many of us know engineers who are technically very
strong but nevertheless hard to work with, and some are so difficult
that the customer will work with a lesser consultant rather than deal
with that primadonna.
Consulting maxim:
Your references are your reputation in the consulting world
Obviously, one can get a friend to pretend to be a reference, and I'm
sure this happens (much like lying on a r&sum&), but I
believe this to be a terrible way to start a new relationship.
Likewise, it's obvious that you get to pick from your customer base,
and you'll not choose those that are less than happy with you. But your
prospective customers know how this works, and they can read a lot into
what your references say (and they can smell a lukewarm reference
a mile away).
If you're doing a good job taking care of your customers,
they are usually more than happy to say good things about you to
This doesn't always materialize, of course: from time to time there will
be that relationship that simply doesn't work. A personality conflict,
internal politics that you get caught up in, or a non-work life crisis
can all conspire to create an engagement that you don't care to talk
Almost all long-term consultants have customers who will report a
bad experience & I have a few & and sometimes these will be
your fault. Only if the problem is due to overt dishonesty or
incompetence should you worry about word getting around.
On Being Objective
Some consultants choose to include product sales in their practices,
and though this is a legitimate aspect of business, the question of
objectivity always arises with the customer. They will (rightfully)
wonder whether you're recommending the product because it's the best
or because they have higher margins, and there is not really any way to
completely remove this if you have a vested interest in the transaction.
Make no mistake: it's possible to be objective, and many
consultants do choose their product lines strictly on what's
the best value. What remains is the perception in the customer's
eyes, and all you can do is conduct yourself honorable and transparently
so there is no question about your vested interest.
Consulting maxim:
Your customers cannot wonder where your interests are
This means transparency.
I have long believed that computer-products sales do not have
enough profit to be worth the trouble of dealing with sales
tax (and sales tax authorities) or warranty returns. Maybe
you'll make $100 on the sale of that printer to a customer, but
if it's dead on arrival, you have to eat the time required
to box it up and send it back.
But this is a business decision, not an integrity issue.
Personally, I made it a practice of selling nothing but my time, and
to never accept referral/finder's fees, kickbacks, or commissions from
vendors (though there is nothing wrong with a vendor taking you to dinner
now and then). Not only does this avoid the warranty/sales tax issues,
but the customer won't ever wonder if I have a vested interest in the
transaction or if that interest is influencing my recommendations.
From time to time, a customer will require something & software, a cable,
etc. & and I'll purchase it on their behalf, but this is strictly as a
convenience to the customer. I include the item on my invoice at exactly
what I paid for it, and I include the receipt.
Those who use this pass-through arrangement may be wise to include the
phrase "Total includes sales tax collected by merchant" with the item
to make it clear that you're not a reseller and are not responsible
for collecting sales tax on your own account.
Be Easy to Fire
There are several reasons why a customer might find it
difficult to fire a consultant:
He does great work and is a tremendous asset
He has passwords for everything: will he give us the list?
He has all the source code: will we get it back?
He has access to everything: will he do bad stuff to us?
He hosts our DNS: will he screw with us?
Only the first is a valid reason to keep somebody around, and customers
are unnerved by the subtle fear of "what happens if...?"
others. Consultants ought to structure their arrangements to remove as
many of these as possible, and instead rely on their own good work to
be their best job security.
From time to time, I give customers "How to fire me" instructions:
"Here are all your important passwords", "Your contact at the hosting
center is who", "Source code is here",
"Revoke my network access by (A), (B) and (C)", etc.
Customers should ask for this from all of their consultants, not
only to make them easier to fire, but as a contingency in case the
consultant is hit by a bus. Sometimes customers do ask, and it must be
met with immediate, full disclosure. It's not your data, you're not
allowed to hoard it.
Consulting maxim:
Customers are comforted by consultants who don't act entitled to
their engagements
If a customer wants to fire you, hoarding this data will buy
you a little time, but this breeds resentment in the customer
that positively does you no good.
And sometimes you will be fired & it could be that the project has
been cut, they cannot afford you any longer, or they may simply not like
you very much. These things happen, but what marks you as a consultant
of integrity is how you behave on the way out.
Find everything & physical and otherwise & that
conceivably belongs
to your soon-to-be-former customer and return it with a cover letter
stating that you have done so (this partly for your own protection). Even
if they have covered their bases well, it's common for them to have
missed something (e.g. "I'm still the registered contact for
management, I recommend that you transfer this your own staff. Password
is hello").
You may never hear from them again, but you'll know that you did
the right thing.
Firing your customers
Many years ago, I read a column in
small-company-makes-good, and the now-successful owner was asked
"How did you know you'd made it?". The answer has always stuck with me:
"When I didn't have to do business with people I didn't like"
I am fortunate that the overwhelming majority of my engagements have
been pleasant and productive, and I've made some very good friends out
of them, but not every one is like this. For one reason or another,
the relationship can sour or a customer may start taking advantage of you,
at which point you can consider just walking away.
I once had a customer that I generally liked a lot, but for whatever
reason, they positively could not pay me on time (and they even had net
30 terms at the time). I believe they were in an industry where taking
your time was just part of how they were allowed to operate, and in spite
of talking to my customer about it every single month, nothing changed.
I believed that I was performing a valuable service to this customer,
but apparently not valuable enough to be paid on time, so I completed
all outstanding work and invited him to find another consultant (i.e.,
I fired him). Not surprisingly, he's not among my references.
Consulting maxim:
The customer is NOT always right
Not all consultants in the same position would have made the same
choice, but everyone is allowed to choose whom to do business with.
But even when you fire a customer, make sure you do so with
integrity: the customer may not speak well of you, but you should
give him no grounds to claim that you acted dishonorably.
Google is not always your friend
These days, many customers evaluating a consultant will do the
same thing you do before going on a first date: Google them.
This is where the other side of a net presence comes into play:
though your website may be professional and full of outstanding
technical content, this can all be undone by your own words
found elsewhere.
If a search finds a potty-mouthed political flame, a public trashing
of your ex-wife, or open advocacy of illegal activity, this can go
a long way to telling a prospective customer what kind of person
you really are. It might not impact their view of your technical
skills, but it may give them a good reason to look elsewhere for
a consultant.
Consulting maxim:
The internet never forgets: don't provide dirt for your future
A good rule of thumb: if a search engine can index the venue, don't say
anything you would not want your customers or your family to read. This
certainly leaves you open to private venues, such as a members-only
forum, where you can tell that dirty joke or vent about the ex, but even
here it's wise to be concerned about inadvertent leakage.
A colleague has noted a countermeasure for this:
have a ridiculously common name.
How much do I charge?
This is the single most common question that prospective consultants ask,
and one of the hardest to answer. The short answer is a mix of "whatever
the market will bear" and "how busy you wish to be". Some consultants
operate on a strictly hourly basis, others on a retainer, and yet
others on fixed-bid contracts & none is inherently superior to any other
(though some are more suited for some kind of arrangements than others).
I operate almost entirely on a by-the-hour basis, with only occasional
forays into retainer or fixed-bid arrangements, and my rates were
initially set when I started out in 1985. Those rates have risen steadily
over the years to reflect my growing experience, though the end of the
Internet boom did put a damper on them.
New consultants typically ought to charge a bit less than the going rate
for other consultants in the same area, which allows for their lesser
experience and wanting to get a foot in the door. I'll note that "lesser
experience" refers as much to "conducting a consulting practice" as
it is to "knowledge of technical issues". Many very good engineers leave
big companies with outstanding subject-matter expertise but nevertheless
have only corporate experience: much of this does not directly
translate into consulting.
Raising rates is usually difficult for new consultants: you've built a
good personal relationship with your customers, and now you're asking
for more money. Raises should be modest, and with plenty of notice
(at least one full billing cycle, perhaps even two).
Raising rates is usually done when demand for your services is high,
and there's a good chance your customers know when this is: you're
juggling more work and they see scheduling farther and farther out.
Some customers will use less of your time at the new rate, but in
some sense this is intended.
Consulting maxim:
If you're booked up solid, your rates are too low
One must be careful that one doesn't take this too literally: the
concept "booked up solid" is over a fairly long time period & many
months at least, perhaps even years & and it doesn't mean that
rates should be jacked up just because you're having a busy week.
I can't remember ever raising rates more often than once a year,
and even then not for all customers at once.
It's also common to have different rates for different customers.
Long-term customers, upon whom your business is likely based, should
probably pay a bit less (or at least reduce or defer the increases):
they are your bread and butter, and consistent ongoing work is
much more important than maximizing your hourly rate.
Consulting maxim:
Your long-term customers are your best customers
Furthermore, different kinds of work deserve different rates. For
some of my customers, I am essentially the on-call MIS staff, so
I am at the mercy of day-to-day whims. This makes it hard to schedule
the work, so it is normally full fare. But for other customers I
do project-based software development, where I might be writing code
for several months.
This is work that I can do when I'm not solving problem-of-the-moment, and
in that respect is better work because I get to pick my own schedule.
Long-term, at-my-own-schedule work warrants a lower rate to encourage
this kind of business. Background work makes your time more liquid,
and consultants (like me) who prefer to mainly work at home love having
a backlog of things I can work on in my slack time.
A similar principle applies to offering lower
rates for work you simply enjoy more than other kinds of work.
I don't typically offer multiple rates to the same customer, though
this is certainly possible. I could imagine a consultant offering web
design for one rate and network diagnostics at another, but this gets
difficult to manage, especially when there is some legitimate question
over which category the particular work should be in.
When offering a discounted rate to a customer, consider doing so not by
lowering the rate itself, but by offering/increasing the timely-payment
discount. If your going rate is $100/hour and you wish to offer a customer
a $90/hour rate, make it a 10% discount if their invoice is paid within
account terms.
This way you have given more teeth to your due-by date, and a customer
that decides to use his consultant for float will have a hard time
defending taking the discount after paying late.
Happily, though: consultants are generally earning the most when they
are thinking about money the least: By focussing on your customers and
your skills, you make yourself the most valuable.
Consulting maxim:
The best way to make a lot of money is to make your customers
a lot of money
Time and Project Management
This is a very hard problem for a true consultant, but less so for
a contractor. Your schedule is largely at the whim of your customers,
and many consultants find that it's a feast-or-famine existence. You may
have a nice comfortable level of work, but then two customers come with
large projects: how can you do it all?
Unlike corporate employment, where your boss gets to make these priority
decisions, one customer rarely cares that some other customer also
needs your attention. In many cases you can simply schedule the work
("I can do that for you by next Tuesday"), but consultants involved in
day-to-day work cannot really expect a customer whose whole business is
down due to a crash to just wait a week for you to show up.
Though your customer may very well understand that you're busy,
are dealing with some other customer disaster, or you have to stay home
with a sick child, one cannot escape the reality that a consultant who is
not available has less value than one who is. I've heard many customers
speak well of previous consultants:
Said by customers:
"He was a great guy, but he was never available"
To some extent this can be partly addressed by higher rates & which
reduces your demand & but this only works over the long term. In the short
term, you do not want your good, long-term customers going elsewhere
because you're not around, so the only solution may be to just work harder.
Consulting maxim:
As long as you're sleeping, you still have inventory
You have to decide how much of your life you're willing to be consumed by
your consulting practice, and you may decide that the always-available
treadmill is just too stressful & this is a completely legitimate
But you're going to be less valuable to customers, and
therefore justify lower rates.
Many consultants have a common fear & will the work dry up? & and
this can be quite pervasive. You have no real job security and are
at the mercy of customer projects, budgets, and personalities, and in
many cases you don't know that you will have work two months from
now. This creates an incentive to take more work than you can handle on
the assumption that it might not be there in the future.
I was booked up solid for 17 years (yet always with the "what if...?"
fear) before the bottom fell out in late 2001, and an empty pipeline
is a very sobering experience.
Your pipeline is the amount of committed work you have in front of
you, and longer pipelines are much more comforting. You can't do much
to avoid or predict the routine day-to-day interruptions, but you
can schedule the larger projects. Taking on a new project that
you can start in two weeks means that you now have a certain amount
of work you can count on.
Consulting maxim:
The fear of an empty pipeline is with most consultants
constantly, even if they're consistently very busy
Unfortunately, consultants worried about their pipeline have a natural
tendency to squeeze in new projects. Though the new project is done at
the moment, the time taken adds to the total pipeline because the other
projects remain. This is not terribly fair to the existing customers
who are getting pushed back (probably without notice), but it's hard to
overemphasize how powerful the empty-pipeline fear is.
Even good consultants do this now and then, though they typically manage
it by cutting into non-work time rather than outright shortchanging
existing projects.
A final note on time management: with ongoing customers, there will
often be low-priority background projects that can be handled more or
less at your convenience & e.g., anytime in the next few months &
and these are great to have in your back pocket during a slack time.
But many of these long-term customers have a kind of unspoken limit
on how much you can bill them in any given month, so there is only so
much of that back pocket time you can expend all at once. Of course,
if there is a disaster and you have to dive in, it takes what it takes,
but most customers will call a time out when the invoice level reaches
a certain amount.
You're likely to run into a circumstance where you have things you could
do for this customer, have nothing on your plate for anybody else,
but have already reached that unspoken limit: if you go over, you'll
probably get paid, but it means you're not going to be trusted to
keep it reasonable in the future and will be subject to heightened
Locating this unspoken point is difficult, but it's important not to see
it as gaming the customer. This all presumes that the customer
legitimately needs the work done: otherwise it's just churning, which
is dishonest and besmirches the whole consulting profession (and this
is a close cousin to "value billing" used by accountants).
Instead, you're providing the customer with a service by properly
prioritizing the tasks in front of you, and in some cases you are more
qualified to do this than the customer is: "Does that server need to be
replaced right away, or can we get six more months out of it?" or "Is
our firewall secure enough, or must we upgrade the software now?".
Consulting maxim:
You must know how to read your customer
The Projects you don't take
It should come as no surprise that not every consultant is qualified
to take every project, what's not obvious is that a consultant
should not take every project for which he is qualified. There are
circumstances when telling the customer 'no' is giving them
good service even if you don't get paid for it.
A customer wanted me to "just start programming" on a large
software system, but over their objections I insisted on
creating a formal specification first.
After creating a 100-page document (which in retrospect
was nevertheless wholly inadequate), Microsoft Project
told us that it was going to take far more time and money
than the customer had available.
The project was shelved.
It would have been easier (and certainly much more fun) to "just
start programming", and I took serious pushback from the customer
during the process, but it's absolutely clear that this was
the right thing to do.
Consulting maxim:
Your customers are buying your judgment, not just
To be fair, I did get paid for writing the specification, but
it was far, far less than what the programming would have been.
I was brought in by a new customer to evaluate another
consultant's work. I found him to be technically competent, but the
customer felt he was too secretive and generally difficult to work with.
So they could get rid of him, they asked me for a proposal to provide
around 20 hours/week of consulting, and even at a discounted rate it
would have been good work: it was a very slow time for me.
But during my evaluation I met a low-level guy on the help desk, and
it was apparent fairly quickly that he was the perfect guy for the
job. He was young, but he had good training, good experience, and
had simply been smothered by the other consultant and not allowed
to grow in his position.
During the meeting with the customer, I told them they did not need
me: they would get much better service for much less money by using
their own staff. They were flabbergasted to hear this, but it turned
out to be exactly the right advice for them.
I understand they have been thrilled with Joe.
I lost the project, but gained a reference and helped a very nice
young man take a big step early in his career. And you never know
when one of those managers may go elsewhere and need the services
of a consultant who's demonstrated that he looks out for his
customers.
Consulting maxim:
Being known for your integrity is the Holy Grail of consulting
Consultants should always act in the best interests of their
customers even if it's not so good for you. It may be expensive,
but this is how a reputation for honesty, integrity, and
professionalism is built.
Intellectual Property
Unless you are providing nothing but services, your engagements are
likely to involve some intellectual property (software, documentations,
designs, patents), and the open question is "Who owns it?"
My policy has always been "The customer owns everything".
It's possible to structure an arrangement where you provide software in
binary form, with source code being extra or put in escrow, but I
believe these to be counterproductive to a good customer relationship.
If you're seen as holding back or trying to create a device for extra
billing, the customer often feels like you're trying to manufacture
job security: this never engenders good feelings.
Consulting maxim:
An open customer relationship cultivates The Warm Fuzzy Feeling&
By telling the customer "Everything is yours", you are making it clear
that you are relying on nothing but your performance for ongoing work,
and there are no questions about what's in and what's out.
One question that arises often: "can I reuse software from one
customer to another?", and the answer is "sometimes". Generally,
you cannot reuse a whole project because it represents
customer-specific functionality. This is their property
and you can't repackage it without their express permission.
But once it gets down to the building-block level, it's perfectly
reasonable to reuse library code that performs generic, non-proprietary
functions (say, a networking library or a database abstraction layer).
I have a substantial body of C/C++ code that I draw upon for every
project, and as long as nothing is tied to the original customer (either
by comments in the code or proprietary functionality), this allows you
to do your project in less time.
Some consultants actually charge for their building-block libraries
(so called "toolkits")
and though I suppose this can be reasonable if it's a really substantial
infrastructure, I have never done so. I decided that part of my value
is everything I bring to the table, and it's what allows me to
do a project faster and better, justifying my rates.
The other reason is that customers are usually suspicious of these
toolkits, viewing them as an excuse to charge more money.
This is less
of a concern if the toolkit is available on the open market and not
strictly as a pitch to consulting customers, but my libraries do not
warrant that kind of packaging.
Many of your projects will be one-time custom jobs, but sometimes you'll
be asked to build an actual product that your customer will sell (more
likely on a contract basis). In these circumstances, other arrangements
are possible, such as offering a discounted rate in return for a royalty
on each unit sold.
This reduces the hit that the customer takes up front and gives you a
vested interest in the long-term success of the product: it's better
for everybody when your interests are largely aligned with that of
your customer.
But it does require more recordkeeping, and it create incentives for
the customer to underreport sales. These arrangements require much more
negotiation skill on your part, especially since the customer usually
knows his own market space better than you know his space. I have never
undertaken a royalty engagement.
Another issue that comes up from time to time is patent rights, and
this often generates very strong feelings. I have always believed that
software patents are terrible for this industry and have opposed
them vigorously. My previous position had been that I would not participate
in software patents in any way, but I have reversed myself.
I have several customers who patent everything they can find, but strictly
as defensive measure. Often, the only defense to a claim of patent
infringement from another party is a patent portfolio of their own:
they will trade and call a truce.
My customers positively hate this & it's expensive and an enormous
distraction & but they have to play in the same game as their
competitors. Refusing on principle to patent anything means the
customer may be defenseless when the Cease and Desist letter arrives.
I have not yet been involved in any patent proceedings, but the
general sentiment of the "Customer owns everything" consultant is
that the consultant assigns the patent rights to the customer
while perhaps retaining the role of Inventor.
Making the Leap
I have been a consultant for essentially my entire adult life
& I've never held a "real" job & and the question of making
the transition from corporate life to consulting is something
I simply have no real experience with. But I can touch on a few
issues that I imagine are probably important.
It's important to handle the obvious financial considerations
first: have a nest egg in the bank, arrange for health insurance, create
an office to work in. This all takes more money than you think, and
cashflow issues are always more difficult than you expect.
Many consultants get their start not by diving in, but by dipping a toe
in the water. A bit of work on the side is a great way to get a feel
for the business and see if it's really right for you.
Though the extra income will be nice (and is often the main draw), the
primary benefits of these early contracts are usually not financial.
Do you have the ability to manage your time without supervision? Are you
able to treat customers like customers? Are you able to think well
on your feet without a boss to fall back on? Can you earn a reference?
Most beginning consultants don't realize how important these non-technical
factors are, and some have taken the full plunge only to find out that
they were simply not cut out for consulting for whatever reason. Failure
is usually a very painful experience, and starting slow may help avoid
Your early contracts will almost always be at a less-than-market rate:
if you're not generally available during working hours, and if you take
a day or two to respond to queries, this makes you less valuable
to the customer. But it's extremely valuable for you to find out
how you work in this arena. This is an investment.
But I'd like to wave you off on a common trouble area: customer theft.
When your corporate job includes servicing of customers, it can be
tempting to go solo and take those customers with you, but this is an
enormous mistake if it's not done with the approval of the company. In
addition to potentially running afoul of non-compete-agreements with
your employer, it sends the message that you cannot be entrusted with
a customer relationship.
Consulting maxim:
If you have a reputation for stealing customers, you'll
never be trusted by other professionals
But once you've gotten a few projects under your belt, you'll hopefully
have a taste for how the business operates, have some great references,
and have enough work lined up to create a comfortable pipeline. If so:
make the leap!
Technical Skills and Certification
I purposely put the technical part of this Tech Tip last, to reinforce
the notion that "customer service", not "computer science" skills are
the biggest factors in a successful consulting practice. But it's foolish
to think that technical skills don't matter: you don't have a business
unless you can offer a service that a customer is willing to buy.
I have a Bachelor's Degree in Computer Science, but this only rarely
comes up and I have never been asked for my GPA (it wasn't anything
spectacular): this is my only certification. Though for employment,
certifications (degree, MCSE, CISSP, etc.) tend to matter a lot,
they are much less important for consultants.
Consulting maxim:
Your references and your experience are far more important
than your certifications
What counts here is truly learning the subject matter, and there is no
harm in obtaining the certificate in the process. But if the goal is just
to collect some paper, it leads to the prototypical computer jockey with
lots of alphabets after his name but limited power in the driver's seat.
Where the skills question gets tricky is when getting outside your comfort
zone: a customer will ask you about a project that you are almost, but
not quite, qualified for. Surprisingly, this happens a lot: if you have
conducted yourself well, your customer would rather find a way to use
you & a known quantity & than find somebody else. This occurs over a
fairly wide range of skills.
When considering one of these projects, the first rule is: never lie
to your customer about your skills. Be completely candid with your
customer about what you know and how you would address the project.
This would likely include substantial off-the-clock time as you
got up to speed on the technology in question.
Consulting maxim:
Do not BS your customers
But it's important to weigh not only how you think you could handle
the job in question, but how much you could leverage this for some
next project, perhaps with a different customer.
For instance, if you've been a Visual Basic programmer for a long time
and are invited to consider an ASP.NET project on the web, this may be a
stretch for you technically. If this is an area that you see yourself wanting
to branch into, tell the customer you will get up to speed on your own
time and may even offer a discount to make your services more attractive.
What you get at the end of the road is not only a new skill,
but a new reference. The time you spent on this project makes
you more valuable & more full service & to this and other
customers in the future.
Consulting maxim:
"Education" is one of the best investments a consultant can make
The term "education" is used broadly here: formal training, heat-of-battle
experience, previous consulting projects, and even personal
projects at home that interest you.
This Tech Tip has been many months in the making, and it's important
to emphasize again that it's based strictly on my own experience and
observations, and I have no special business-school training to back
it up. Most of this was learned on the job, and I can only assume
that my still being in business after 20 some years means that it's
not entirely without merit.
But there are a lot of ways to conduct a consulting practice, some
of which bear no resemblance to how I have conducted mine: you
are strongly urged to seek real counsel before setting out on
Consulting maxim:
Don't quit your day job solely based on what you read here
The very best of luck to you.
Note: The & in The Warm Fuzzy Feeling& is a
presentation device, not a real trademark.
For another look at the life of consulting, please consider
(subtitled The 70 Lessons of Sane Self-Employment), by Dr. James Chan, which is less about how-to and more about what you're going to go through.
It's an easy read, and it gives a great insight to the experiences of self employment in a wide variety of industries.
This may give you clues as to whether you have the personality for going it alone or not.
Special thanks to
his graphic-design help.