Project Management

Why long-term IT consulting engagements may be preferable

Next week marks the 17th anniversary of when Chip Camden became an independent IT consultant. Read his reflections about some of his consulting engagements, and find out why he thinks it makes more sense to pursue long-term contracts.

One week from today will be the 17 year anniversary of when I became an independent IT consultant. During that time, I've had 50 clients, seven of whom are still active (I'm arbitrarily defining active clients as ones I billed in the last six months).

Including the seven active clients, my average client keeps paying me for 1.7 years, but there's a lot of variance from that mean. The mode and median are very low, with 25 clients lasting a month or less; three clients stuck around for more than 10 years; and five clients are in the four to ten year range. On average, I bill five clients per month; however, I've billed as many as 10 clients in one month (how in the heck did I survive June 1997?) and as few as one client in a month (thankfully, I haven't had any goose eggs yet).

The variance in these numbers reflects the varied nature of my IT consulting engagements. I get a lot of "quickies," which are clients that want a solution or some advice on one specific problem, and then they're off. I also have clients who provide a continuous stream of work year after year; these folks put the beans in my coffee, and I can never show them enough appreciation.

Getting new clients on board takes a lot of time and effort -- time that can't always be billed, and effort that is sometimes wasted. My best year for signing up new clients was 1997 (I signed up 10), but it wasn't even close to being my most lucrative year; I spent so much time landing contracts that I didn't do as much billable work. And of those 10 new engagements, only three lasted more than a year.

On the other hand, when you only have a few big contracts, it increases your dependency on your relationships with a small set of clients. What happens if they drop you? I have three clients who have each paid me more than a quarter of a million dollars over the years. If one of them suddenly felt like they had grounds to sue me, I'd be yellow all the way down to my socks. There is less risk with smaller engagements, but then again, nothing is gained without risk; plus, the long-term relationships I have built with these clients makes it less likely that they would suddenly turn on me.

In spite of the risk of mono-egg-basket syndrome, I think it makes more sense to pursue long-term contracts that provide steady work, rather than to hedge your bets by diversifying too much.

Of course, it's important to keep clients once you've got them -- unless they're total jerks. Most of the time, you'll retain clients by doing good work. But if you're billing hourly, you may hear a voice in your head telling you that if you finish this project too quickly you'll be out of a job. Don't listen to that voice. Chances are, if you do a good job in a timely fashion, the client will find more work for you to do. And, even if they don't, you will improve your reputation, which can only lead to good things. Conversely, dragging out a project just to secure your revenue stream would most likely lead to a contract termination -- and no good referrals.

So how do your IT consulting experiences compare with mine? Do your IT consulting engagements typically run for days, months, or years? How long do you typically keep a client? How many clients do you sign up in a year? How many clients go inactive? Share your experiences in the discussion forum.

About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

28 comments
ChipN
ChipN

I've personally found that customers are impressed with a person (consultant or contractor) or group that gets things done and delivers tangible value. Too many people (staff and contract) spend a lot of time and deliver very little. You differentiate yourself by quickly learning their business, delivering what you promise, and then suggesting other ways you could assist. In almost all cases this has brought me additional work. Sometimes you need to wait 6-12 months for it, but customers remember those people who provide value. Cheers, Chip

PaladinIII
PaladinIII

Some clients need project help. Other clients need temporary help. Both of those can be of known duration. And often you do a great job and get follow-on jobs. Partially predictable for that case. And also there is the client that, for many possible reasons WANTS you to be "almost an employee". Most common reasons for the later are: -no benefit issues -no problem with reduction in staff (you).

Aaron
Aaron

A slightly different business model is the planning of assignments to dovetail. I have been consulting for 7 years now, and have only had two weeks where I wasn't gainfully employed. The assignments have varied from several weeks for one client who has become a repeat customer, to 'long term' 11 month contracts for another repeat customer. In each case, when I take a contract, I know when it should terminate, and start looking for the next assignment in sufficient time to ensure I can dovetail the next start with the current end.

Jaqui
Jaqui

I have two clients I bill in a month, for regular maintenance of systems. nice, simple contract, keep the systems running and come in when something goes wrong. both are long term ( 4+ years ) clients.

Sterling chip Camden
Sterling chip Camden

Not every time an engagement ended was it the client's decision -- sometimes it was mine. How do you know when it's over?

MikeGall
MikeGall

Were they rate company productivity by revenues/employee. So you can either whip up new customers or find a way to make people not employees. My current job is like that we are a company that does the IT for a research center. They are our sole customer (for IT support stuff we do software as well) but it is easier for them to pay us twice what the average person makes than have us on the books and have the hire ups see the per person salary directly. It just looks better to see 1M for consulting than, 200k for Bob, 150k for Steve etc. It is funny, they even pushed the on site photograph lab guy into our department/company so they can hide the cost to the government. It is better to have a slight raise in the consulting costs this year than have everyone be able to see you hired a full time photographer so you have someone to take staff ID pics :).

Sterling chip Camden
Sterling chip Camden

... at least in my specialty (software development). Usually, my contracts are open-ended, and most of them never legally expire (they just slowly fade away). But if you can do that, more power to you.

MikeGall
MikeGall

I'm thinking of starting consulting a few years from now when I have more experience (only in IT for a couple years). Stable large contracts seem to be a paradox: 1) You are almost an employee, so you have the perk of predicable income but you also become somewhat reliant on them. 2) You probably can get away with a higher rate for smaller projects, a company is more likely to through 10k at a 2 week project than through 10k to you every 2 weeks for years. I'm curious, how have people found that this works out for them? Lots of contracts means lots of unbillable hours, do you end up making the same hourly if you include all the unbilled stuff doing small gigs as you would if you just had a couple large contracts? I guess part of it is you take what you can get, if a decent large programming job landed on my lap I'd probably end up taking it and then would be a guy with few customers, where as if I had a hard time or it was just what was available, I'd take whatever little projects I could find and end up with a bunch of customers.

Sterling chip Camden
Sterling chip Camden

More importantly, does that pay the bills? If the answer to both questions is yes, then I take it that they are both pretty good-sized installations.

clinton
clinton

I have just moved from being a 1 man band to a staff of 3 - 2 tech's (newbies with a thirst for training), and a bookeeper to process all the invoices, etc. My strategy has been exactly that, to transition from ad hoc work, which does not always appear when the bills need to be paid, to a contract based structure via debit order. I am finding it way easier, and because it is more predictable, reduces my stress levels and the bloatedness of my credit line. Plus less debt collecting, and hand overs to attorneys - sometimes for the equivalent of less than $100 US. But yes, sometimes it is preferable to let a customer go. Recently we did this because a customer kept calling us in to fix something one day, then call in a 2nd company to "fix" something another day - because the strategy for their IT solution was not consistent, and the other guys invariably screwed up what we had setup (like changing the IP ranges on the DHCP, without regard to some statics that had to be left static) - we smelt trouble. The client was a law firm to boot, and being litigious in nature we decided to give them an ultimatum - us or them. They chose them, and we have walked away happy, but out of that clients contribution. We did however pick up 3 new bigger clients in their place - as one door closes another opens. So I guess a lack of customer loyalty (for price or a lack of appreciation of service) is another reason to call it a day!

Ed Woychowsky
Ed Woychowsky

1. You find yourself forgetting that you're a consultant. 2. You run-out of fresh ideas. 3. The assignment isn't fun anymore. 4. You're not pushing your skills to the limit 5. The check bounces. :(

Sterling chip Camden
Sterling chip Camden

That's a great example of why taking a blind measurement of any one metric never gives you the whole story. But accountants and managers are notorious for doing just that. And when you get to government agencies, they're usually mandated. Institutionalized stupidity.

PMPsicle
PMPsicle

I also work in software development. Most of my clients want me to work full time while the project is running. While I have had my fair share of clients who actually want me to work for the contract period, most of them set a six month contract period for the purpose of having a contract period. I've had one client who renewed in one week increments until they reached the next year ... then they proceeded to renew for three years (in six month increments). I've also had clients who signed for six months then realized they hadn't obeyed the rules and had to cancel the contract after six weeks due to authority limitations. And of course, politics wouldn't allow the manager to rehire their choice. If I believed the end date on the contract, I would have ticked off the former (not good) and been stuck for the later. I find it smarter to build in the cost of finding the next contract into my rate. Although, truth to tell, in today's market here, that just tells me how much I'm losing. And of course, I keep an eye and ear on my client and try to predict when they are going to let my contract lapse.

Sterling chip Camden
Sterling chip Camden

Yes, that is a potential risk -- I've even had a client whose accountant worried that I might be a statutory employee under IRS rules. I had to calm him down by pointing to my other clients. I think it's very important for stability in the business to have at least one regular client that will guarantee you a base income. Beyond that, the mix of short versus long engagements depends on how adventurous you are, and how flexible your budget is. If you can beat the bushes and land the short-term contracts easily, then you may be able to make more money that way. Personally, the short contracts seem to take much more unbillable time to set up than I get back via their higher rate. Maybe I should charge more for those.

clinton
clinton

You know that saying a bird in the hand is worth two in the bush, well you may lose money by being on a contract basis because if you were billing per hour and not as a part of the contract, BUT if you design the contract along mostly accurate estimates of how much time a particular client is going to require, then the stability and predictability of knowing that that entire contract fee will be coming in every month is worth much more than the additional hours you may lose out on billing. At least that is how I see it... Besides, in lean months like December, when holidays and customer shutdowns happen, we are still guranteed some income even though they did not need the usual amount of support - very cool.

Jaqui
Jaqui

between those two I have about 65% of income needed to pay the bills for a comfortable living, and work about 15% of time available. This leaves the extra time to find the short jobs and be able to work on them to make that extra money needed. But having a couple of long term contracts for some simple work helps keep the income fairly stable, a couple more and the short term jobs would be bonus money. The whole point in mentioning them is the long term contract can be very beneficial, in a stable income way, and still leave you with the time to find and get the more interesting and challenging jobs. these two are for system / network maintenance, with fairly stable systems in place. I haven't been called for an emergency situation for a long time, so the contracted extra billing to respond hasn't happened. Great for references, not so good for the bank account. :D

Sterling chip Camden
Sterling chip Camden

Sometimes it can be scary to walk away from business -- but if you have good reasons, it will work out better in the end. Imagine if you had continued to service that client under those conditions. You might not have had available resources to take on the two new, better clients. Good job!

Jaqui
Jaqui

for me. I had that happen with two employers, where I was a regular employee, not a consultant. the notice about it bouncing went with me to the EI office to apply for coverage while looking for a new position. and to the labour board offices to get the money from the employer. the cheque bounces and I do not go back to the offices.

Sterling chip Camden
Sterling chip Camden

... when you call them about it and they don't answer the phone or emails.

MikeGall
MikeGall

I worked for a cancer center for my last job. They were attached to a hospital. We got funding from one "pot" from the government and they got funding from another (Canada, in this case Cancer Care Ontario, vs. Ontario Health Insurance). Well the hospital was having money problems and we weren't. But the CEO was looking at the budget combined and decided to take radical measures including a complete hiring freeze. It was right around when I gave my notice and my employer wasn't even able to post for my position because of the freeze. This even though a casual glance at the books would show that the Cancer Center got money from another source and was under budget by several million, and the hospital was over budget. Stupid.

Sterling chip Camden
Sterling chip Camden

That's the best way to predict business (or lack thereof). If you're not in denial, it's pretty obvious whether the work is drying up or rushing in, whether your client is happy with you or not, and whether any political factors are in play.

Jaqui
Jaqui

here and there for remote stuff. Though the two mainstay contracts are usually remotely done. only if there is a serious issue do I actually have to go into their offices. but since I'm getting into running my own hosting service, I'm actually phasing the extra stuff down and out. ( hopefully the hosting service will pay all the bills before then ) and having the foundation income that stops me from hitting a panic if there is a goose egg month otherwise also helps with the stress levels. I have had a few months where the only income was the long term contracts, it is hard living, but can be done.

Sterling chip Camden
Sterling chip Camden

of steady income really helps keep you off the income roller-coaster. Do you do any remote work?

PMPsicle
PMPsicle

At least as an employee, you are able to attack the directors of the corporation (they are personally liable for all employee wages here in Canada). As a consultant if a client bounces a cheque or refuses to pay you are an unsecured creditor and have only those rights. Meaning if the client goes bust, you get to whistle for your money.

Jaqui
Jaqui

the bounced paycheque is used for proof of just cause in walking to get income until new position found. :D both times it happened the companies were gone in another 3 months.

Sterling chip Camden
Sterling chip Camden

You know you're in trouble when an employer doesn't pay its employees. Either they have no ethics, or they have no money. Either way, you don't want to work for them.

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