Wednesday, October 21, 2009

Building a Consulting Business

When people are looking for work, it is helpful to have a few things going on at the same time. I recommend that people engage in consulting - using their skills on projects for pay.

Reason #1: Multiple activities help fight the discouragement that comes from continually looking for and not yet finding the right thing and the "yes, you're hired!" that signals the end of your search.

Reason #2: Usually, people need to make some money to pay bills.

Reason #3: Consulting keeps your skills current, and gives you something to put on your resume that shows you are continuing to work.

Consulting is quite different from working for a salary, and it takes some shifts of attitude and consciousness. It especially takes new skills and knowledge of how to run a business. When building a business, it's good to remember that there's lots of trial and error involved for you to find your comfort zone in terms of fees, scope of work, and time it takes to complete a project.

My friend Sam wrote asking for advice regarding the price she should quote a potential client, knowing that the client doesn't have a lot of money yet is working on a very interesting project. Here are the suggestions I made to her; hope they are helpful to you!

It's obvious that you give your clients a lot of time, more than you originally estimate. My way of estimating time is to double the amount of time I think it will take. Sounds like you are finding that out already - $34/hour is about half your minimum rate!

Re quoting rates to clients, it depends on:

* how much you want to work for the particular client
* how much time you really have to do discounted work
* how much money you need to make within the time you have available for doing the work
* understanding the "opportunity cost" of taking on this work - clients you WON'T be able to take on because you are doing this work
* the boundaries you can put on the work, e.g. I can do one proposal for this price, period.

An effective way to handle pricing in this case is to say something like this:

I really want to work with you and I'm sensitive to your budget issues. My usual rate is $750 a day. I estimate that it will take me 5 full days of work to complete one proposal - including one round of revisions; identify 10 potential funding sources; and submit them. So that would be $3750. Because I really want to work with you, I want to know what you can afford right now. You can always pay me the rest later, but I do need something now.

The thing about this is that you are promising only ONE proposal with one set of revisions, a set number of funding sources and submission. Those boundaries can help you manage yourself, as much as managing her expectations. Part of being in business for ourselves means managing ourselves.

If you're anything like me, you put in a lot of extra work on the job. And when you work at a job, you are recognized and often rewarded for going the extra mile. Going the extra mile in a consulting job is fine, except when it takes away from doing other work. Your time is limited and you need to make a certain amount of money to cover your costs and hopefully put some money away in savings.

So the first thing to do is figuring out how much you need to make. I use a very simple formula:

The sum I want to make per year before taxes, divided by 40 (or 36) weeks. I use that number because I build in time between clients, time to develop new relationships and get new clients (also known as "marketing"), and time off. My client fee needs to be sufficient to cover ALL my costs. To come up with an hourly fee, then I divide that number by 40 hours. For a daily fee, divide by 5.

For example, I want to make $100,000 gross (pre-taxes). I divide $100,000 by 40 weeks, and come up with $2500 a week. My daily rate is then $500, and my hourly rate is $62.50. I'd round that up to $65 or 75 an hour.

These are points to start with.

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