I spent about a decade as a full time consultant focusing on high end Rails development services with an emphasis on big data. And in that period I was actually quite successful both on the revenue and life flexibility front. If you have any type of truly specialized expertise then consulting is a possible career path. I know a number of folks with specialized expertise and I seem to find myself in the "How do you consult?" discussion regularly so here is a write up.
Understand the Consulting Equation
Here is the basic consulting equation:
Consulting is An Equation Where You Trade Time for Dollars
That's all consulting is. It really is just that simple, you trade your time for dollars. And whatever the consulting customer takes away from it is up to them. If they don't follow your advice, it is on them, not you. That's a tough thing to accept at times.
Be Brave In Setting Your Hourly Rate
If you're going to trade time for dollars then you have to have an hourly rate and that hourly rate usually is pretty aggressive. My general advice on setting your hourly rate is that you almost always need to be higher than you feel comfortable with. The reason for this is that if you make it too low then:
- Customers won't treat you as seriously; a higher price sets a mental tone for the customer
- It is easier to take your hourly rate down (i.e. give a customer a discount) then take it back up
One of the ways that I as a software engineer came to grips with my hourly rate is that I looked at the nature of the services I provide and I asked myself "Am I any less talented than my $xyz / hour attorney?" And when I realized that I wasn't, well, I was much happier with charging a high hourly rate.
Charge for Every Interaction
When I first started consulting I didn't keep track of the time that I spent texting or im'ing with customers. I looked at it as "well its just an im". Nope! And the answer to this again lay in my relationship with my attorney – I can't text him a question and not get billed for it so the same goes for my services.
Have a Minimum Billing Increment
Along with the concept of charging your customers even when they text you goes the idea of a minimum billing increment. This can be anything you want it to be as long as you are ethical with it and disclose it to your customers (who will promptly forget about it, at least in my experience). When I was billing $100 / hour, my minimum billing increment was 15 minutes or $25. And I know this feels like a lot but if you don't aggressively manage your consulting relationships then your consulting relationships will manage you.
How Do I Replace My Existing Salary?
If you're going to replace your existing salary then the first thing you need to know is what your salary actually is. And this sounds stupid, right? I mean your salary is what they pay you on an annualized basis, right? Actually if you are a full time consultant then your "salary" needs to cover the costs of what you currently get, which is salary + benefits. Depending on the nature of the benefits you get from a job, the general rule of thumb is to multiply your salary by a percentage which covers:
- health care
- random other benefits
The range on this is generally 1.2 to 2.0 times the salary. For example if you are working at a lightly funded startup and there aren't a lot of benefits then you multiply your salary by 1.2. And if you are working for a company with great benefits (think Google) then you multiply your salary by 2.0. So if you are making $100,000 then you might need to replace this as follows:
- 120,000 (lightly funded startup)
- 200,000 (google)
in order to have an equivalent standard of living.
Model Your Damn Numbers Well
Write Your Product Literature Early
After the financial stuff, my normal advice for consultants is to write their product literature - a web site about themselves - early. This should be roughly the second thing you do and once you make it, get feedback from people you respect. Given that this is what people see before the hire you, it should be good.
Sell Your Time in Blocks that Can Be Pre-Purchased
One final thought is that for certain types of consulting it may be appropriate to sell your time in blocks that can be pre-purchased such as "7 sessions for the price of 5". Keep this in mind because you get the revenue up front and that pre-disposes the client to keep going with you.