- Contracts, contracts, contracts
- Immediately stop all work when any customer doesn't pay an amount owed. There's a natural inclination to keep going, but this is a firm of pathetic cost fallacy.
- Work with an escrow provider and eat the fees. You'll generally have a 10% non-collectable rate, until you work with an escrow provider. This can be lowered to 1-3%, meaning you stay far ahead. More importantly you reduce the time spent in administration, and running after customers.
- Downpayments / upfronts are key. Any customer that is unwilling to engage in this practice, is a customer likely to not pay.
- Maintain ownership of your code, if you can. True, consulting code has little value - usually. But sometimes, you can legally, reuse the same blocks, or segments across multiple projects. Your rate of return increases dramatically here.
- Your name is your bond. When people learn they can trust you, even in just a handshake (remember: contracts!) they happily recommend you to your friends
- Digitize it all. Do everything in your power, pay for every web service that makes sense, to reduce your overhead. I was incredibly happy to pay for receipt scanning (shoeboxes), book keeping / invoicing, and accounting (xero). Most people view this as an expensively monthly cost - which it is at the beginning. It will also, eventually cost less than an hour of your consulting time. Scale.
- Never price at the top of the market. It's better to be 100% busy at 80% of the fee structure, than it is to be 50% busy, at 125% of the base rate.
It is absolutely not better to be 100% utilized. The math at the end of this comment suggests that the difference between 100% utilization and 50% utilization is marginal, but the real pricing difference you're playing with is probably something closer to 2.5x-3x the rate you think is competitive. It is better to be 50% utilized at 2.5x what you were making at the rate that had you 100% utilized.
It's actually bad to be 100% utilized at all; if you are, you're treading water building your business. When you exceed 80% utilization, do one of two things: raise your rates, or start hiring.
I have three other pieces of advice.
One you need to decide whether you want to run a consultancy or be a consultant. The first means scaling by hiring more people the second means scaling by increasing your rate. You can make more money doing the first but your job will eventually be 100% account management and sales.
The second piece of advice is you need to come up with a business plan. The most important part of this is an actual plan for predictably acquiring new customers.
Third general piece of advice is 98% of the time being a general software consulting company is a shitty business. A good first step is pick a specific problem and/or a specific industry. "We build custom CRMs for enterprise sales organizations.", "we do custom ERP work for Oil & Gas" or "We help startups scale Postgres databases" are all much better businesses than "we write software". This is for two reasons. One you have a specific product you're selling to a specific customer which will help immensely with sales/marketing. Two the margins are much better.
Even if you're truly solo, you will need ~20% for sales, account management, accounting, and residual business management tasks. If you're at 100% utilization either you are neglecting these areas and hurting yourself in a much shorter term than you'd think, or you're working 6 days a week, which means you're not really at 100% utilization.
Regarding paying customers, I agree with the sentiment, but probably not with the detail. I've worked with a few Fortune 500 companies and their payment terms are 30-90 days. On the other hand advances are very commonly accepted and I've never had any pushback. I go for 50% and could possibly push higher. It still doesn't create entirely positive cash cycles but it's decent.
Must be nice to have so much money in the bank that not only can you pay 6 months of several people's salaries, but you can also tolerate the risk of the client not repaying you that amount.
Can't you just volunteer for these companies instead? If the need free work so they can get their employees to do something useful and pay for it, and you want them paying their employees instead of you as a contractor, you can be straight up about giving away your labour, instead of pretending that they're going to pay you as your customer
If you're giving stuff for free on purpose, just give it away for free
And yes, stop work if a client fails to pay. It's so tempting to say, "Well, they're nice, and if I just do xyz for them, they'll pay." No, you've found a deadbeat client. Join the club.
But there are other parts of this with which I'll disagree.
Chief among them: Contracts are important, but I see them as a formality more than anything else. If I have to sue a client, then it's all over anyway; the time and legal fees won't be worth chasing. I work with people with whom I get along and (generally) have mutual trust.
Also: I've consistently charged at the top of the market for the last few years. Some clients don't want to pay top dollar for Python training, but others do -- and the ones who do are the easiest to work with, who understand that they're spending a lot, but also getting a huge ROI.
I tend to favor this line of thinking most of the time. But sometimes I'd rather be 50% busy, and pricing is one way to influence that. It is worth understanding the power and purpose of pricing.
My favorite discussion of pricing for consulting is a chapter in 'Secrets of Consulting: A Guide to Giving and Getting Advice Successfully', Gerald Weinberg.
The whole book is a goldmine of useful perspective once you're past the initial round of setting up shop and making sure you are getting paid.
Set a sliding scale of rates, based on how much they either commit to pay up front or pay timely over the past 6 months. In my shop it was a Service Plan, each one priced just under a common budget threshold. So a $9900 plan got a 5% rate discount, $24K 10%, $49K 15%, etc... (discounts not exact, make your own). If they pay that much up front, they immediately start on the discounted rate, if they just work up to it, they earn the step-down in rates as they pay bills on time passing each tier within 6 months. (Nothing wrong with using escrow too, but we never had it arise).
the cool thing about this is that it provides an immediate answer to the inevitable questions about getting discounts — instead of client trying to beat you up on price, it becomes "of course, here's our discount plans, what works best for you?". I probably should have expected that, but it really surprised me at how thoroughly it banished those uncomfortable conversations.
I was given a tip about this type of billing by a random guy in a hall conversation at a conference decades ago, and I wish i knew who it was to say "thank you", because that billing structure really paid off.
Also, emphasize "Your name is your bond.". Absolutely key to be reliable. The world is way smaller than it seems, and being a trusted provider goes a long way, in ways you can never predict. It is far more important than any kind of being flashy.
That said, regarding payments, my tip to the OP would be around negotiating down payment terms and chasing finance teams with the anger of 1000 suns if you need the cashflow!
I agree. Late payment is much more common that no payment. Also, clients, unjustifiably or not, usually take umbrage at being asked to cough up what's owed. I give everyone a healthy grace period and send gently-worded reminders, but I won't stop working unless there is a material breach of contract or unless my reminder isn't at least responded to with a "Sorry we're late with your payment, we're working in it."
No way. I'd rather be 50% busy at 125% of the base rate.
I charge more, specifically to keep 50% busy. One needs downtime. When you can deliver on time reliably and wrap it up nicely (documenting internals, design decisions, etc), you get repeat business.
Wait, what?
I'm an FTE, never been a consultant. But personally, I would be ecstatic to give up 50% of my income in exchange for 6 months off per year.
Your numbers imply giving up only 21.875% of potential income, unless I'm mistaken. That seems like the mother of all no-brainers.
one other point i would add here is that it is often good to have 2 parallel clients, you will have more freedom to say no to mistreatment from one and also less stress to have zero income when a project ends.
* You need to be making 150-200% of your FTE rate to come out ahead in a year
* Bill daily, not hourly (you can bill weekly, or quarterly, too.)
* Raise your rates.
* Count on signing your clients master agreement, not yours
* You can win by getting every contract reviewed, or by just signing them blindly
* Specialize
* Incorporate; it's easy and cheap
* Keep your SOWs vague
* Don’t waste time on your website design (but do write)
* Do go nuts with your proposal design; pay someone to help you
* Target 80% utilization; past that, hire or jack your rates up
* Don’t work with clients you’d want a down payment from
* Don’t hire a salesperson
* Your availability on a calendar is worth money; so is your implied consent to be terminated on no notice; make sure you’re charging for it
* Get an accountant ASAP
* Do favors; karma works better than ads
* Don’t do conferences/conventions
* You can subcontract at first — most new consultants do — but get out of that quickly.
These are just things I think I learned over 15 years of doing this work; only some of them --- like never billing hourly --- are things I'd go to the mattresses over, but I think they're all generally correct.
> Specialize
Or die.
> Bill daily, not hourly (you can bill weekly, or quarterly, too.)
Largely agreed, the hour is a bad unit which poses the potential for customers treating you as someone they can throw random time-wasting tasks at. I'd add, consider fixed/value pricing on certain projects. Particularly if/when you specialize, and as you take on tasks that are more close-ended (consulting, analysis, design, ie, anything that's not implementation) you may be able to shatter your rate ceiling this way. I've had projects where I've effectively 5x-10x'd my rate with fixed prices.
> Your availability on a calendar is worth money; so is your implied consent to be terminated on no notice; make sure you’re charging for it
Worth reminding your customers in a casual chat explicitly (and tactfully, of course) if they raise an eye brow at your rates. I've done it and have brought potential customers back into the fold very quickly.
> Don’t hire a salesperson
Your mileage might vary on this one. I'm currently testing a playbook / sales process that I might be able to delegate in a few months... This can be further made easier if you've specialized properly. I've heard of some people having success with some degree of sales delegation, but I'll admit I have no experience with it. At any rate, I'd agree that you are always going to be Chief Sales Officer, unless maybe you form a partnership (ie, a proper company) with someone who takes on that role - and even then you'll still need to devote some degree of time to sales (going to critical meetings, etc.)
> Don’t waste time on your website design
Unless you're doing design-ey things, maybe. But regardless, don't make it utter crap either, there are so many consulting firms with off-putting websites that reek of lack of professionalism that offering a clean design might be a differentiation factor.
In my book, there is a finite number of options:
1. Go through your network - lots of writing / talking in case someone knows someone who's looking right now.
2. Become famous - conferences, blogging etc.
3. Cold call potential clients.
4. Work with recruiters and dedicated boards for this.
For an established consultant, I can imagine they get a lot of business through referrals, but for someone just starting out, I don't think so. What worked for you in the early days? Did I miss a strategy that works?
* Don’t waste time on your website design (but do write)
Specifically, "do write". Your writings will be way more accessible than conference talks.
He also may mean "don't sponsor or have booths at conferences or conventions". I personally find them valuable for connections but you don't need to attend them to make sales.
I'm not in the consulting business, however, and the list of benefits is speculative.
> * You can win by getting every contract reviewed, or by just signing them blindly
could you elaborate on that? not sure i understand
> * Keep your SOWs vague
that can help you or hurt you, right? i'm working at a big consulting firm and our motto is to write the SOWs as explicitly as possible to prevent scope creep.
> * Don’t do conferences/conventions
why? isn't that a perfect way to stay up to date and network?
> could you elaborate on that? not sure i understand
Not the OP, but what I think they mean is that the time or money spent to review contracts just about pays for itself: if you spend a lot of time reviewing contracts or a lot of money having them reviewed by professionals, you may save some money some of the time, but if you just sign contracts after a cursory glance you will probably come out even just the same, on average.
Copilot has been found to spit out copies of code it was trained on. You don't want to violate your contract with client, nor expose client to IP theft or GPL taint.
But proprietary code is the problem in the equation. They are not GPL and any code that gets bits of such proprietary code would be in violation of the copyright...
Which is why you need airtight service agreements, and then the willingness to follow up on them. Obligatory video, "Fuck You, Pay Me": [https://www.youtube.com/watch?v=jVkLVRt6c1U]
I only ever had two customers (out of > 200) not pay in about 15 years. One got a lawyer letter and paid up. The other (new customer, and one I was warned to be wary of) I actually dragged to district court to receive a judgement. They then still wouldn't pay. I figured there was no one there I'd ever see again in my career... so I sent the sheriff. They wired payment within hours.
Sure, but it continuously opens to you new opportunities to unearth something that does scale, but isn't available yet...
In any normal employment you don't get that.
a) It doesn't need to be your time exclusively
b) Time-based pricing is only one pricing model for consulting businesses.
I'd add that, funnily, I sometimes hear this from FTEs (who sell their time) or product entrepreneurs who eat ramen for five years and then have little to show other than the time they've spent on the product. Meanwhile, some consultancy owners make real bank... It's fine if your risk profile allows you to do product, but if it isn't obvious, a service business can be totally legit.
I am incredibly happy with my work. I get to do what I want, earn a good living, have almost zero meetings, and am constantly learning new things.
But I made many, many mistakes along the way, leading to years of so-so income, limited sleep, and limited time with family.
My biggest mistake was trying to do too many different things. By focusing on one type of problem, you'll gain expertise (useful when helping clients). But you'll also gain a reputation for solving those sorts of problems, and clients will start to find you.
You still need to learn how to market yourself. You need to learn how to ask for money (which I found hard). You need to get a sense for who will stiff you (and some clients will!).
Indeed, a big problem with many consultants is that they forget they're running a business. When you're an employee, you can ignore all of the business stuff; you get a paycheck, and someone takes care of all of the little and big things, from invoicing to taxes to contracts to angry clients. When it's just you, you get to do all of that.
You can take a look at the podcast I do, the Business of Freelancing: https://businessoffreelancing.com/ (We'll hopefully start to record a third season in the coming weeks.)
Beyond that, I strongly recommend Philip Morgan's "Positioning Manual," which can help you figure out just what niche you want to enter.
Best of luck! And remember: If consulting doesn't work out, you're not a failure. It's not the best match for some personalities, markets, places, and times. But if you can make it work, then power to you, and I wish you the satisfaction and success that I've had.
About 3/4 of my work is going onsite to companies, and teaching 10-20 people Python. I currently offer a bunch of courses, from "Python for non-programmers" to advanced Python workshops. These range in length from 90 minutes (what I call "microcourses") to 4-day sessions.
The other 1/4 (which I'm working to grow) is an array of online courses, with much overlapping content from my corporate training.
In the case of blockchain, the answer is almost certainly "yes."
But then, what do you do with that topic? I can, off the top of my head, think of a few things:
- Teach general "intro to blockchain" courses - Teach developers how to use the blockchain - Help companies develop blockchain-related apps - Help companies optimize blockchain-related apps - Help companies secure blockchain-related apps
Note that I know almost nothing about the blockchain, and I was able to come up with a few niche-related services you could offer. I'm sure that someone with more knowledge could come up with better, more appropriate ones.
Or, better yet: Ask friends/colleagues working at companies using the blockchain what their problems/bottlenecks are. What problems would they pay money to get rid of? Whatever they answer is your opportunity -- and if multiple people give the same answer, then you should grab it.
You want a super-tight thing that you do (e.g. "I fix performance issues for large NodeJS code bases", or better still "I write tooling to measure performance hotspots in NodeJS code bases".)
Despite this sounding like cutting off potential customers, it doesn't work that way. Customers will reach out to you with some generic work that they want done "because I know you know NodeJS" even when you say you specialise in something.
A good first book to read: "Book yourself Solid" by Michael Port.
Get one client. Do an amazing job. Use that to tell other clients what you do.
Be specific. Most people outside tech have no idea how it works. Tell them what they will get.
Increased sales, reduced costs, better productivity. Whatever it is you do, forget about the tech and talk about the benefits.
Get your elevator pitch right. Mine is "I help businesses fix their procedures". People then say "You know, I could introduce you to my friend...."
Business first, tech last.
That's a very good point. People who want to get stuff done, don't want to hear about all the tech buzzwords, they want to hear if you can make their life easier or not. And if you throw around tech jargon to impress them, you likely loose them as they don't understand you.
My first clients came from volunteering at the local football club. As others have said, connections matter.
Do what doesn't scale. But don't do it for free.
Few points…
Word of mouth is best advertising.
Prove yourself trustworthy and honorable, there are still assholes who will try to take advantage of you but on balance, this will pay off over time.
Don’t work for free. If companies want you to work because it will look good for referrals or something- run.
Don’t work for equity or revenue shares without some cash as part of the deal. Cash is skin in the game, it makes everyone act differently.
Treat your team better than you wish you were treated - they are your most important relationships.
Be willing to fire clients.
Fancy contracts are a waste of time, if you ever get to the point after work has begun that you are talking about wording in a contract - you already lost.
Lastly…learn to delegate, I spent way too much time doing too much of the work myself- sharing the load is a superpower.
OP or anyone else thinking of doing this, feel free to reach out for a longer chat on the topic.
Obligatory The Oatmeal: https://theoatmeal.com/comics/exposure
https://training.kalzumeus.com/newsletters/archive/consultin...
I can testify as to the troubles that flow from doing work for discounts or gratis; I'm currently four years into a client relationship where I started out by helping them out of a desperate situation with a cut-price block of work, then they've continued to build their business on the basis that I (or other consultants) can keep providing ongoing work at comparable cut-price rates. Any time we try and explain that they need to increase their budgets if they want to keep funding further enhancements work, they protest that they're a non-profit with very limited budgets - they just can't accept that it costs big dollars to do this kind of work on an ongoing basis. It's just super-hard to adjust the expectation once the client has locked in an idea of what the work is "worth".
As tptacek pointed out above, favours/karma can go a long way, so it’s not necessarily the case that you should never do anything for a discount or pro bono.
It’s a matter of setting the right expectation. If you’re doing a favour, make it clear that that’s what it is and what the limits are, and avoid letting that become the expected ongoing deal.
Anyway, couple of things that worked for us:
* Try to get retainer contracts: we would offer one when we had delivered a project. This is great for you as it makes income more predictable. And it is great for the client as they know they have certain capacity from you, and don't have to go to their boss with a new budget request for every small thing they want changed
* Don't let a client grow too large: we had a big client that wanted to buy all capacity we had to offer, and wanted us to hire more for them. We never let them become more than 50% of revenue, so we were able to survive when they went away one day (the "burning platform memo"). Keeping them at 30% would've been even better, but it is hard to say no to money
* Don't try to be fancy: you're not one of the big consultancies, so don't emulate then. If clients wanted that stuff, they'd deal with those companies, not you. Our sales conversion rates improved radically when we switched from tailored suits to jeans and conference t-shirts
1) staying general works, but niching down works even better. My most successful friends found an up and coming technology partner and rode that wave.
2) most of my business year to year is grown in existing customers. Very little comes from new customers (90/10).
3) marketing/selling becomes much easier if you have a technology partner that is exploding like a rocket (e.g. chat gpt consulting?). Otherwise marketing/selling is mainly about producing content that drives leads. Presenting at conferences is probably one of the best ways we have driven business. But no one method drove enough business.
4) there is an inflection point around 4-7 people and at 30-40 people. at 4-7 you need to manage but the people arent quite generating enough money for you to not work on projects. It can be very hard to get past this point. At 30-40 you now need a layer of management and you have to develop them.
I really like the following sources that apply to consulting 1) so you want to be a consultant (whitepaper) 2) naked consulting 3) managing a professional services firm
Also really like 5 dysfunctions of a team. It isnt specifically geared towards consulting, but it is important as you get employees.
Say a company wants to increase their organic search traffic, I'm guessing that's where a consultant can come in, do some research, provide recommendations, then build out a solution?
And I guess to follow up on this, I've worked as an IT contractor for several years now, but I'm not clear how someone would get into consulting. I'm not even sure I've seen individual consultants before at companies. I've worked with Accenture consultants who have worked on projects with me, but I've never seen an individual do similar work. How would one get into this - is it purely networking, or do recruiters place consultants?
Sorry if these are stupid questions. I guess I've never really understood what people meant by consulting and it seems people can use the term to mean quite a range of things.
I'm not particularly inclined to do pro bono work in exchange for raising my profile (unless that work is of such a high profile that it would drive large numbers of CEOs to my door! This is very unlikely for the gigs I have seen).
For the former, I'd bill fixed price, fixed outcome - half up front, half on delivery. This is the highest margin work buts it's bitty.
For the rest, a flavour of t&m depending on duration of the engagement.
Testimonials are great, but get some case studies together also and make sure your pitch deck is tight.
There is a lot more I could say, ask in the comments if you wanna talk - happy to oblige.
Source: I did tech consulting and advisory for investment banks and hedge funds for 20 years.
My company made most of its money by referrals from one client to another, and it was important to have someone who is good at maintaining relationships with not only current clients, but old clients, and prospective clients. If that's not you, find someone who will do it for you. They should be good at it, and ought to be second nature to them: it's not a one-time thing, it's an ongoing part of that business model. I meanm you might get lucky and have one client for years and years, but you should plan on having to constantly be hustling for new clients, since that's the most common scenario.
I did consulting for 13 years. The upside is you get to work on a lot of different stuff, and become really good at a variety of technologies, as well as the general skill of becoming good at picking up new skills. You also get to look at a stupid product or application and think to yourself, "it's your money, pal," because you don't have to pretend you're saving the world at some dumb startup, you're a mercenary who parachutes in and then escapes on a hang glider just as the startup is about to explode. On the other hand, you don't get to focus on one thing and get really good at it, or focus on one market and learn every angle of it, or focus on one product and iterate on it until it's good.
My job now drives a lot of secondary value encounters which allows me to “spin off” different ideas with other people.
I did consulting with a client or two but usually it’s not sustainable on a monthly basis.
I view Consulting as a really incredible way to learn simple business skills, how to ask for money and structure engagements.
My personal feeling is that exposure to consulting is ultra valuable even on a hobby basis and it is very valuable skills to have, though may not be sustainable.
My feeling after trying to make it work for a couple years is you are making a bet with your time. You are better off spotting a high potential project that is just getting started; inserting yourself by just being helpful and then growing it and ultimately turning it into ROI.
A really great high value paid position might take 3-6 months to develop. I think I’m better at spotting and developing these.
The idea that you will just walk in getting top dollar is unlikely. You have to spot the right place to be, position yourself into it by being helpful and likable and then enlarge the opportunity by growing it.
For me Consulting still requires a very entrepreneurial sense of timing and also the ability to get into position and develop something new with a high potential client.
Compensation was generally good.
Work was challenging and engaging. If nothing else it got me exposed to a lot of enterprise environments and business owners.
Don't miss the feast-or-famine workflow, constant shifting of priorities and needs, the artificial "give a shit" about the flavor of the month clients, and the constant up-or-out hustle environment.
What worked for me is to keep jumping from client to client until you find a good one that makes up for the "bad" ones; with the bad ones not necessarily bad (as don't pay, sky-high expectations, bad communication, etc.. never take those) but rather clients that will have 2-4 months of work only.
The reality is, your consulting business will go two ways: Either you'll grow to x/xx employees; or it'll be just you. The difference is huge, and your responsibilities as well as your day to day job will be different. For the former, you are a manager and a seller. For the former, you are a software developer that need to have a small sales pipeline and keep in touch with an accountant.
I'd not advice on the former, but for the latter, just reach random people here or elsewhere. Somewhere along the people you reach, you'll find work for short periods, or small gigs. One of them will turn into a year long arrangement. It might seem risky that you are relying on a single client, so price accordingly for the down time. But address this with the mentality that your next gig will come from somewhere else. For me, when I was looking, it was a maximum of 1-2 months that I'd land the next gig. Usually shorter. Been at this since 2010, so maybe adjust for the current "down" market.
For the big fish clients (aka: Corporate Gigs) that some people here suggest hooking with, I'd suggest not to put much effort into that. The reason for that is simple: It's more about navigating politics, hierarchy, organizational complexity and bureaucracy. It can be lucrative but it can also drain you in the short time, these are also gigs that gets established with politics rather than skill. They can be draining until you get paid, and if you are short in cash (or need a fast money pipeline) this can turn stressful. I'd advice to push this for a later date.
It's also important to say that the first type of clients will rarely convert to the second type of clients. My experience is that the two categories don't overlap. So if you are about 2, (especially if you are looking to grow) and want clients that will be happy to pay for your airtravel+hotel+wine&dine meal, by all measures start looking for 2.
Still, I have been pretty happy working this way. I may have been lucky in that the customer have appreciated the work I have done and I have had responsibilities outside of pure tech, such as acting as team manager for a technical team for example.
I have tried more than a few times and different kinds (if we can say it that) - helping with hiring, training for interviews as well as being a dev (technical architecture, design and implementation). Nothing stuck. I ultimately had to take up a full-time gig to pay the bills - but I still don't want to give up on this dream of mine - being my own boss (sort of - since I know customer is always the boss!).
I would like to know how you got your start and how you got your first customer, then the next and so on. I am not necessarily looking to build a tech empire, hire dozens of others, but rather eek out a decent living by doing what I do best - design and build large-scale systems.
Can anyone offer advice or resources: 1. Common compensation structures (salary/bonus/profit sharing/etc splits) 2. Appropriate time billing practices, i.e. billing to the minute vs billing blocks of time
For example, whether or not customers pay on time can depend a lot on the region (and decade!). Not to mention that there's also a big difference between small and large companies, as well as different industries (manufacturing vs restaurants vs banks, etc.)
