Know-How Exchange : Other

I worked for a dozen years as a freelance business development guy, but Due to an injury at the beach I'm on disability. Personally, I perform long-term business relationships rather than constantly looking for new work. In my opinion, the classic independent contractor relationship (e.g. the 20 point test) is not designed for and does not work well for long-term assignments.

If I could personally start business again tomorrow, I would seek a dual relationship with client companies, both as a part-time employee, and also an independent contractor. This would allow me to do work as assigned within company systems (as an employee) and also handle overflow and projects (as an independent contractor).

In looking for new work, you would function as an independent contractor. But the advantage to the client company is, if they find you good to work with, there is a chance of a long-term relationship as well. If you Google, "can someone be an independent contractor and part-time employee for the same company" you can find a few brief articles that may be a link to the recent IRS decision allowing this.

I'd be happy to talk with you directly if you like. Click on my name, send me an email, and let's talk. No charge.

No hourly or per diem rates. They are unfair to both the client and the consultant.

The consultant is motivated to work slowly and inefficiently, and expects the client to trust that the billing is fair ... whether or not it is.

The consultant finds that the client doesn't fully brief him/her, always keeping one eye on the ticking meter.

Why should the client pay more if the consultant takes too long to complete the task/project? Is a project delivered early worth less than a project delivered on time?

A better approach is to understand what is expected up-front and agree on a fee that reflects the true value to the client. That way both parties know what to expect and what it's worth. It requires a bit more time in advance (to think through the objective, deliverable(s) and work plan), but it lays a much better foundation for a strong, long-term relationship.

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What Mgoodman said to me is the holy grail, but unfortunately not a place where either consultants or clients can get to easily. Usually either the client or consultant doesn't understand the full extent of the project, so changes are made mid-project which affect the time required. If the quote didn't allow for this, all of a sudden the consultant can be shorted unless they can get a change order in to change the agreement. The hourly rate structure has downsides, but in this situation, it does provide some protection for the consultant.

If you can estimate what the work is worth to the client (how much money do the save), you can then charge some percentage of that as your fee. If a project will save the client $1 million, they should be willing to pay you, say, $250k to do it (so the client nets out $750k in savings). This type of info would make it easier to go toward a structure that Mgoodman proposes. But it can be hard to get that info.

Of course, if they have alternatives to you to also get that $1 million savings, then that could impact what you could charge. If some other way would do it for $100k, then it would be harder for you to charge more than this. And you need to decide if the amount of work you need to do (plus any other costs associated) would be justified by the amount you would be paid.

Now, I realize this is all hard, so will give you a rule of thumb to get at an hourly rate to consider. Likely this would be easier to start with, but keep in mind it has its downsides (as Mgoodman said) and would be worth working toward getting away from. That said, the rule of thumb is to charge twice the hourly rate that a full timer doing that work would make. If a full timer doing the work made $100k a year, that is about $50 per hour. So a consultant could target the $100/hr range pretty safely.

In your work experience, did you guys use contractors/consultants? If so, keep in mind their rates as ballparks to sanity check your rates.

Thanks, Peter. I understand what you're saying. It took us a few years to realize how important it is to price a consulting project so everyone feels it's fair. It puts a lot of pressure and responsibility on the consultant to really dig in and understand the client's expectations and the value of the deliverable to the client.

One element in the process is to document very specifically what the fee covers -- the deliverable(s) that comprise the project. We usually also give ourselves some wiggle-room in case project-creep sets in. For example, we might quote the fee as $15,000 +/- 20%. That way if there are a few minor "extras" requested by the client you can tell them in advance that they will be within the agreed overage (or not). And if the project runs very smoothly, you can bill a little less than the stated base fee. (Coming in ahead of schedule and/or under budget really appeals to clients!)

Another thing: Most clients seem to value the certainty of a fixed fee. There are never any unpleasant surprises, so they don't have to go back to management begging for more budget. They may even be willing to pay a premium for that certainty.