CXO

Member feedback: More about consultants and contractors

Are you a contractor or a consultant, and does it matter what you call yourself? Read what your fellow TechRepublic members have to say about the differences between those two terms.


Wow! My article, “The difference between contracting and consulting and why it matters,” elicited a lot of feedback from TechRepublic members. I’ve fished a few e-mails out of the flood that add to the discussion.

The legal distinction
First, the legal distinction. Marketing aside, TechRepublic member Dilton M. points out the IRS’s definition of independent contractor:

“If someone can be described as having their work under the behavioral control of the employer, then the person is an employee. If only the result can be governed, then the person is an independent contractor. The difference between the term contractor and consultant has to do with egos, expectations, and impressions; but there appears to be no difference legally as far as the IRS is concerned.”

Dilton is absolutely correct: If you consider yourself to be self-employed, you’d better meet the legal definition of an independent contractor no matter whether you present yourself as a contractor, consultant, or IT superhero. For more information on meeting these criteria, see my article on the IRS’s Twenty Factor Test.

Another member noted that, to him, a contractor is the self-employed professional, and the consultant is someone who works for a consultancy firm. This definition can be true, as is the converse: an independent may market himself or herself as a consultant, while a contractor may work for an agency.

Legalese aside, in real-world practice, there is no official definition of consultant or contractor. People often call themselves whatever term is used by other folks in the industry. But to be business savvy, you should know how to market your services and present yourself to clients. And don’t forget to keep your books straight.

Solutions vs. time
One of the distinctions I drew between consultants and contractors is that in the first role you market solutions, while in the second you market time. Darren G., an Oracle consultant and trainer in Australia, notes that you can’t sell clients something they don’t want:

“I have performed both roles, and the difference is what the client wants from you. If you are offering the complete fix and the client wants it then that is fine, but you cannot charge a client for a solution when they only want your time. The negotiations at the start have determined what the role I play is and, therefore, what I charge.”

It’s true: You can’t always get the type of work you want, no matter what you call yourself. Joseph D. of Norwood, PA, is a 27-year consulting and contracting veteran who says he prefers to consult because it gives him more control over both the solution and the approach. You may find his take on billing interesting and educational (I thoroughly second his experience with client specifications):

“When consulting, I first focus on the requirements. . . . In my experience, client-written specs are almost always deficient in defining scope. . . . I charge an hourly fee for the spec writing. The requirements spec contains a time and cost estimate. . . . If the client is unclear about the requirements, I am unclear on the estimates. If they are more settled on the requirements, I can be more accurate on the time and costs. It's really that simple. . . . When the client is comfortable and in agreement with the requirements, I begin the design/implementation phase of the project. Depending on the project, I will either bill hourly or quote a fixed price. Fixed price quotes are firm (as firm as the requirements) but also involve an advance which is some percentage of the total fixed price.”

Joseph also notes that regardless of what he calls himself, he prefers to charge by the hour instead of a fixed per-project fee. He notes that hourly billing makes it easier for him to handle changes in the project scope while maintaining good relations with the client because he doesn’t have to renegotiate. He also points out what may be the number one reason why some self-employed folks return to the salary fold: Marketing.

“It's the marketing of my services which I consider a challenge. . . . Consulting work is hard to come by. So I often find myself doing contract work, which I find distasteful. (I'm not the one running the project!)”

Wow! My article, “The difference between contracting and consulting and why it matters,” elicited a lot of feedback from TechRepublic members. I’ve fished a few e-mails out of the flood that add to the discussion.

The legal distinction
First, the legal distinction. Marketing aside, TechRepublic member Dilton M. points out the IRS’s definition of independent contractor:

“If someone can be described as having their work under the behavioral control of the employer, then the person is an employee. If only the result can be governed, then the person is an independent contractor. The difference between the term contractor and consultant has to do with egos, expectations, and impressions; but there appears to be no difference legally as far as the IRS is concerned.”

Dilton is absolutely correct: If you consider yourself to be self-employed, you’d better meet the legal definition of an independent contractor no matter whether you present yourself as a contractor, consultant, or IT superhero. For more information on meeting these criteria, see my article on the IRS’s Twenty Factor Test.

Another member noted that, to him, a contractor is the self-employed professional, and the consultant is someone who works for a consultancy firm. This definition can be true, as is the converse: an independent may market himself or herself as a consultant, while a contractor may work for an agency.

Legalese aside, in real-world practice, there is no official definition of consultant or contractor. People often call themselves whatever term is used by other folks in the industry. But to be business savvy, you should know how to market your services and present yourself to clients. And don’t forget to keep your books straight.

Solutions vs. time
One of the distinctions I drew between consultants and contractors is that in the first role you market solutions, while in the second you market time. Darren G., an Oracle consultant and trainer in Australia, notes that you can’t sell clients something they don’t want:

“I have performed both roles, and the difference is what the client wants from you. If you are offering the complete fix and the client wants it then that is fine, but you cannot charge a client for a solution when they only want your time. The negotiations at the start have determined what the role I play is and, therefore, what I charge.”

It’s true: You can’t always get the type of work you want, no matter what you call yourself. Joseph D. of Norwood, PA, is a 27-year consulting and contracting veteran who says he prefers to consult because it gives him more control over both the solution and the approach. You may find his take on billing interesting and educational (I thoroughly second his experience with client specifications):

“When consulting, I first focus on the requirements. . . . In my experience, client-written specs are almost always deficient in defining scope. . . . I charge an hourly fee for the spec writing. The requirements spec contains a time and cost estimate. . . . If the client is unclear about the requirements, I am unclear on the estimates. If they are more settled on the requirements, I can be more accurate on the time and costs. It's really that simple. . . . When the client is comfortable and in agreement with the requirements, I begin the design/implementation phase of the project. Depending on the project, I will either bill hourly or quote a fixed price. Fixed price quotes are firm (as firm as the requirements) but also involve an advance which is some percentage of the total fixed price.”

Joseph also notes that regardless of what he calls himself, he prefers to charge by the hour instead of a fixed per-project fee. He notes that hourly billing makes it easier for him to handle changes in the project scope while maintaining good relations with the client because he doesn’t have to renegotiate. He also points out what may be the number one reason why some self-employed folks return to the salary fold: Marketing.

“It's the marketing of my services which I consider a challenge. . . . Consulting work is hard to come by. So I often find myself doing contract work, which I find distasteful. (I'm not the one running the project!)”

Why independents charge so much
Tom F. of Denver also sounds the lament familiar to all of us in this line of work:

“I did the consulting route for a few years and found myself spending about one-third of my time marketing, bill collecting, record keeping, and other non-income producing work. I would like to find a company that would provide those services (until maybe I get big enough to afford a personal assistant) without being worked into a ‘contracting’ position. Has anyone heard of such an arrangement?”

Yes! Those companies are called agencies, and they’ll take a lot more than a third of your income, without guaranteeing you steady work. However, in a big city like Denver, you may be able to find some agencies that are willing to provide more limited services and allow you to retain your independent status. (For guidelines, refer to my article "Employment independence: Should you start out with an agency?")

If you do hire an assistant, remember that nobody can market yourself as well as you can. Any assistant who can successfully research potential clients, make industry contacts, and market your services isn’t likely to be working for you for long.

Marketing and paper-pushing is as critical to your success as any IT skill—possibly more so. The rule of thumb I’ve heard most often is that folks in business for themselves hope to bill 1,000 hours a year. Although your self-employed consultant’s hourly rate may sound like a lot, do the math. So far, I’ve billed more than 1,000 hours in every year I’ve been exclusively self-employed, but today’s economy is red hot, and I haven’t been doing this anywhere close to 27 years.

Kent M. sums it up:

“I also don't think it matters much [what you call yourself], because it all washes out in the end—the higher fees charged as a consultant fold back into marketing, training, and admin time of running the business.”

Good point. Being in business for yourself has to be about more than the money you can make, or you won’t last long. Believe me, that money is hard to come by when you are a one-person marketing, accounting, sales, and IT department.

Don’t give us (or yourself) a bad name
Unfortunately, I heard a cautionary report from Larry S. of Woodland Hills, CA, about consultants and contractors who turn in shoddy work:

“Enjoyed the article and just wanted to share my own view on one's value or worth. I have been a salaried employee for many years and had my services contracted out to other companies. . . . Only one thing has guided me in my performance—do a job you will be proud of, and work as many hours as it takes to do it right. Above all else, it must perform flawlessly and satisfy all requirements. . . . I have followed on the tails of numerous other contractors and consultants and been appalled by the shabby work many of them do. The majority of the consultants I've followed seemed to have only one objective—get in and out as quickly as possible. On the other hand, the contractors produced abundant and inefficient code. Few seemed to care that it would fail under certain data conditions or for a bad user who took shortcuts.”

Ouch! Poor work not only gives other professionals in your field a bad name, but it also reflects badly on you. Yet as more and more folks get the bug to go out on their own, competition for those contracts and consulting jobs will increase, and your references will become more important in landing that next job. However, I’d be interested in knowing whether the folks Larry had to clean up after were working for themselves or hired through agencies.

The other side of that coin
Betsy S. offers a look at her business that, in contrast, seems quite refreshing:

“I appreciated your definitions of the two, consultant vs. contractor. I consider myself a consultant. My job is to make my customers happy with my work and resolve their issues. They should feel satisfied with the outcome as well as the bill. . . . My rates are much lower than others, I have found. My final goal is not to make the most money, but to make my customers happy and feel secure about the work done. This is where I find the most gratification.”

My first thought on this was, "What a great story!" My second thought was that I wouldn’t want to offer my services in the same market as this person. I charge an honest rate, I earn it, and I make 100 percent of my living from it. Betsy didn’t say how far below market rates she works at, but I had to wonder if she’s a moonlighter or independently wealthy. Of course, her points are valid—you should always put your client’s satisfaction above money—but the possibility of drastically undercutting your competition raises some interesting issues. I’ll leave that one up to you.
To comment on this article, please post a comment below or follow this link to write to Meredith.

Meredith Little has worn many hats as a self-employed writer, including technical writer, documentation specialist, trainer, business analyst, photographer, and travel writer.


Why independents charge so much
Tom F. of Denver also sounds the lament familiar to all of us in this line of work:

“I did the consulting route for a few years and found myself spending about one-third of my time marketing, bill collecting, record keeping, and other non-income producing work. I would like to find a company that would provide those services (until maybe I get big enough to afford a personal assistant) without being worked into a ‘contracting’ position. Has anyone heard of such an arrangement?”

Yes! Those companies are called agencies, and they’ll take a lot more than a third of your income, without guaranteeing you steady work. However, in a big city like Denver, you may be able to find some agencies that are willing to provide more limited services and allow you to retain your independent status. (For guidelines, refer to my article "Employment independence: Should you start out with an agency?")

If you do hire an assistant, remember that nobody can market yourself as well as you can. Any assistant who can successfully research potential clients, make industry contacts, and market your services isn’t likely to be working for you for long.

Marketing and paper-pushing is as critical to your success as any IT skill—possibly more so. The rule of thumb I’ve heard most often is that folks in business for themselves hope to bill 1,000 hours a year. Although your self-employed consultant’s hourly rate may sound like a lot, do the math. So far, I’ve billed more than 1,000 hours in every year I’ve been exclusively self-employed, but today’s economy is red hot, and I haven’t been doing this anywhere close to 27 years.

Kent M. sums it up:

“I also don't think it matters much [what you call yourself], because it all washes out in the end—the higher fees charged as a consultant fold back into marketing, training, and admin time of running the business.”

Good point. Being in business for yourself has to be about more than the money you can make, or you won’t last long. Believe me, that money is hard to come by when you are a one-person marketing, accounting, sales, and IT department.

Don’t give us (or yourself) a bad name
Unfortunately, I heard a cautionary report from Larry S. of Woodland Hills, CA, about consultants and contractors who turn in shoddy work:

“Enjoyed the article and just wanted to share my own view on one's value or worth. I have been a salaried employee for many years and had my services contracted out to other companies. . . . Only one thing has guided me in my performance—do a job you will be proud of, and work as many hours as it takes to do it right. Above all else, it must perform flawlessly and satisfy all requirements. . . . I have followed on the tails of numerous other contractors and consultants and been appalled by the shabby work many of them do. The majority of the consultants I've followed seemed to have only one objective—get in and out as quickly as possible. On the other hand, the contractors produced abundant and inefficient code. Few seemed to care that it would fail under certain data conditions or for a bad user who took shortcuts.”

Ouch! Poor work not only gives other professionals in your field a bad name, but it also reflects badly on you. Yet as more and more folks get the bug to go out on their own, competition for those contracts and consulting jobs will increase, and your references will become more important in landing that next job. However, I’d be interested in knowing whether the folks Larry had to clean up after were working for themselves or hired through agencies.

The other side of that coin
Betsy S. offers a look at her business that, in contrast, seems quite refreshing:

“I appreciated your definitions of the two, consultant vs. contractor. I consider myself a consultant. My job is to make my customers happy with my work and resolve their issues. They should feel satisfied with the outcome as well as the bill. . . . My rates are much lower than others, I have found. My final goal is not to make the most money, but to make my customers happy and feel secure about the work done. This is where I find the most gratification.”

My first thought on this was, "What a great story!" My second thought was that I wouldn’t want to offer my services in the same market as this person. I charge an honest rate, I earn it, and I make 100 percent of my living from it. Betsy didn’t say how far below market rates she works at, but I had to wonder if she’s a moonlighter or independently wealthy. Of course, her points are valid—you should always put your client’s satisfaction above money—but the possibility of drastically undercutting your competition raises some interesting issues. I’ll leave that one up to you.
To comment on this article, please post a comment below or follow this link to write to Meredith.

Meredith Little has worn many hats as a self-employed writer, including technical writer, documentation specialist, trainer, business analyst, photographer, and travel writer.

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