Leaving the nest: Can you make it as a consultant?

Are you thinking about going solo as an independent consultant? Don't burn the bridge with your current employer yet! Bruce Maples covers the basics of determining whether you'll be able to survive in your targeted marketplace.

“What will it take for me to go out on my own? What is my time worth as a consultant?” If you’re thinking of starting the New Year as an independent consultant, this column is for you.
This is the third installment on determining your worth in the marketplace. You can check out the first two installments by clicking on the following titles:"Determining your worth in the marketplace" "Research, research, research toprice yourself into the market"
Why do I need $70,000 to make $45,000?
Before you make a decision about becoming an independent training consultant, you need two spreadsheets in hand:
  • Your cost to your current employer
  • Your personal budget

Why? Because the first shows you what you make now, while the second shows you what you need to make in order to cover the basics in the future.

In our first column, we calculated all the costs associated with our current employment. As noted at that time, not all of these costs show up on our paycheck. For example, you only pay 7.5 percent Social Security as an employee. If you are self-employed, you get to pay the full 15 percent. (Ouch!) You also get to buy your own health insurance—and individual rates are much higher than group rates. You’ll need business cards, stationery, and a decent printer; you’ll probably want a pager, perhaps a cell phone, and maybe even a laptop. Retirement, automobile costs, software—the list goes on and on. In short, you can’t figure your needs on only your salary; you’ve got to include all these other costs too, because they are part of doing business.

Can you cut some of them? Sure. I do my own business cards, as I need them, from pre-printed blank stock. As a trainer and writer, I don’t really need a cell phone, since most of my work comes via e-mail. “A penny saved is a penny earned” becomes very real when you’re on your own.

How much do you want to make?
Your personal budget comes into play at this point. Do you have to earn as much as you do now, or can you scrimp a little? Can you defer that vacation cruise for a few years? How about simply deferring eating out? What can you do without, and what can you cut back on? In the end, you’ve got to know how much you must gross to make your business and personal budgets work.

Some important things to ask yourself:
  • When do you have to earn it?
  • Do you have to make so much a month, or can your income ebb and flow to some extent?

I can tell you right now that your cash flow will fluctuate. After a few years you’ll know what the cycle is. For now, just plan on “feast or famine.” It’s the life of the independent consultant.

What should I charge?
This is the question of every “would-be” independent. There are three ways to answer it:
  • What you need
  • What you’re worth
  • What the marketplace wants to pay you (otherwise known as supply and demand)

Each of these is OK on its own, but the best answer will be a combination of all three.

What you need. If you’ve done your homework, you should have a good idea of the amount you need in order to make your business and personal budgets work. Let’s suppose, for example, that based on these budgets your gross needs to be $60,000. So, you figure 50 weeks times 40 hours = 2,000 available hours, so you should bill $30 an hour, right? Fact of life: As an independent, you will rarely bill all your available time. Most independents feel fortunate to bill 1,000 hours a year. The rest of the time goes to selling, answering e-mail, selling, writing proposals, selling, doing the books, and selling. Based on this rule, then, you should bill $60 an hour.

What you’re worth. This is a lot harder to quantify. A good place to start is by using the number you came up with in the first installment article when you determined “what I’m worth to my employer.” Take that number, divide it by 1,000, and you’ve got a rough estimate of your current hourly worth.

The kicker can be when you realize that you are worth more as an employee than you are on your own. If you find that to be the case, do your best to hold onto that job while you start improving your value in the marketplace by getting more education, more certifications, and more experience. Remember that your career is your responsibility, not your employer’s.

What the market place wants to pay you. This is where many folks get burned. As an example, you’re making $80,000 a year as a CWI (Certified Widget Inspector) and have a friend who gets $200 an hour doing the same work as an independent. “Wow!” you think,“ even if I only billed 1,000 hours, I’d make $200,000 on my own!”

If you’ve been following closely, your first thought should be “Well, you may gross $2k, but you won’t net that much.” Your second thought should be “Can you bill 1,000 hours?” The answer in this case is NO, because the buddy working as the independent has the market sewn up for the entire East Coast. In short, the supply meets the demand, and you will starve if you go out on your own.

In my area, simple network installation goes for $25 to $70 an hour. Research fact #1: Office Depot sells “do-it-yourself” networking kits. Research fact #2: A number of training facilities are churning out MCSE newbies, many of whom are either moonlighting or opening their own shops. What do you think is going to happen to the rates? They’re going to drop.

On the other hand, SQL Server 7.0 is one hot product, and there are very few persons in the area certified to teach it. A certified trainer can probably get $800 a day, plus expenses, for SQL 7.0 classes. Of course (oops!), the classes are only offered every three months.

Get the idea? The key is to be either good, or certified, or experienced, or all three, in one or more subject areas where the demand is high and the supply is low. Then, stay ahead of the curve by continually doing market research and adding expertise accordingly.

A few final words
As you can see, this is not an easy subject. Figuring out what you’re worth is hard enough; figuring out what to charge is a never-ending question, because the market is constantly changing. As you calculate your rate, keep these thoughts in mind:
  • Too low or too high are both bad. If you price yourself too low, you’re telling your customers that you really don’t think much of yourself. They will join you in that thought and put you in the “cheap alternative” pigeonhole. On the other hand, if you’re way above market, you won’t get much work, and the expectations for the work that you do get will be very high. Even if you hit the expectations, the customers may resent you.
  • Don’t be afraid to raise your rates. Not every other week, of course. If you’ve got lots of work, though, it might be time to put your rates a little higher. Be sure you know, though, why you have the work. Is it because you’re good, or is it a temporary supply-and-demand anomaly?
  • Be in touch with reality. Know your true costs. Decide what your time is worth, and stick to it. Talk to managers and buyers so you know what the market is doing. And don’t be afraid to say no.

Hope you’ve enjoyed these columns on determining your worth. If you have any comments or anecdotes, I’d love to hear them. See you next week!

Bruce Maples is a trainer, writer, and consultant in Louisville, KY. His latest project is market research on Word 2.0 training.

If you have a training topic you’d like for Bruce to cover, please send us a note with your suggestions. If you’d like to comment on this article, please post your comments at the bottom of this page.

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