Pardon my ignorance. What does a consultant do?
In a little more detail, I (personally) work mostly for B2B SaaS businesses and know a few things which tend to work for generating incremental growth in revenue. If you've followed my blog or HN posts they won't sound all that impressively new: write drip email campaigns, do A/B yet, redo pricing tiers, optimize conversion funnels, etc etc.
There are many other consulting specialties out there, obviously, but that seems to be a mutually happy place for my abilities and clients' businesses.
This is different than "freelancing" or "contract development". This is more traditional business consulting. You're going in and changing processes and structures more than anything else.
It might be around a specific goal like "make our signups more effective", but you're not just writing some code. You are going in an helping them to change their mindset by incorporating feedback (A/B testing) and new methodologies to run their business better. You get paid so much because the results don't just result in better signups, but in a transformed company at the end.
To do this type of consulting you need extreme credibility. Either a big business win, an ivy league education, or something equally as impressive.
In the markets that Patrick and Jason Cohen and Brennan Dunn are talking about, almost the entire difference between "freelancer" and "consultant" is "how you price engagements".
It is true that consultants value-price engagements, so that they collect a percentage of the revenue or cost-savings derived from their code instead of a scaled hourly rate. And it's true that to do this, consultants have to think about the actual business context of their code, and be able to confidently propose the value of that code to a real business.
But that's where the differences end! Patrick is writing code on his engagements. He's using the same problem-solving methods you're using. On a day-to-day basis actually delivering for clients, he's writing code to generic metrics and then optimize them. The only thing he does differently from you is that he chooses to work on metrics where he knows he can make a case for revenue directly attributable to the metric.
It does not take a "big business win" or an Ivy education (WAT?) to "consult" for clients as opposed to "contracting" for them. You don't even have to be particularly attentive to your clients businesses, because so many people have built and written up methodologies for using code to make money for businesses; you can literally start by reading up on those, and offering them to clients who don't already do them. How many of your freelance gigs were for clients with sophisticated email marketing systems? How hard do you think it is to send triggered email updates to clients? Start there.
Would you mind pointing out some examples, or naming the field of literature? When I googled "optimizing business processes with software" I got a bunch of ads for software. I'm not entirely sure what I'm looking for.
Freelancers typically have to be told these steps by the client (and managed).
If you can come in and steer a project, and let the person hiring you relax his/her no doubt overworked brain for just a few hours, you can charge practically whatever you want. That's how we were doing $500+/hr (each) before we quit consulting, because I led the processes for our clients. They didn't mind paying $2k simply for meeting with us both for 2 hours because they got to be the subject of conversation, instead of the leader, and they'd get a valuable report out of it at the end (for an additional price, of course).
Never once had to worry about price shopping, because if that's the service you want, there is zero competition!
Foolishly, I thought this was just Normal Professional Behavior until I started hiring people for my business.
Sadly, it seems most people out there prefer the unprofessional and haphazard approach where they take on too much work/too many clients, wait for the client to tell them what to do, then jump between clients like a scalded cat to whichever project causes the most screaming at the moment.
But I want to take yet another opportunity to stab wildly at the idea that only people who can execute at this level are "consultants", and the rest "freelancers". Though I find the terminology a little silly, let's stipulate that those are the two words. Then: a consultant is simply someone who pitches projects with value-based pricing, and a freelancer is someone who pitches market- or cost- based pricing.
Start pitching value-based deals now. Don't wait until you feel like you're at Amy Hoy's caliber of delivery. That is literally the only thing you probably need to change in your practice to start transitioning towards being a high-value "consultant".
The only thing it takes to move from market- to value- driven pricing is a positioning change. You're stuck with market-pricing when you're doing something lots of other people do. So pick specialty practices or practice focus areas; it doesn't hurt if you pick focus areas that are "closer to the money" (conversion optimization is an obvious example), but even that's not necessary if you can drive your practice towards a desirable and underserved niche.
It's fine to deliver Rails or iOS contract software projects for market-based rates (they're pretty high right now), but that doesn't have to be all you do.
Lots of very good freelancers are undercharging and everybody should price on value delivered. (Especially those freelancers who disappear and only get work done when yelled at. If only!)
That's why a lot of the educational content I've used to promote Freckle is about delivering, understanding & capturing value… for freelancers. (Which includes understanding & identifying your ideal clients because if you use a hammer to break a window and steal $1 million in diamonds, it's worth a lot more to you than if you use it to hang your kindergartener's fingerpaintings.)
Any freelancer can become a consultant, though, by changing the way they work. Read a few books, take personal responsibility, experiment with being more than a tool for executing the client's vision. If you ask your client questions and debate features, that's already a good start.
This kind of consulting — consulting, as in the dictionary definition -- is a huge value and therefore hourly rate multiplier. Anyone who improves their management skills can vastly increase their rates.
If you only provide execution, and not the other stuff I described, you will hit a ceiling a lot sooner… and suffer more price comparisons. Not as many problems as a person who just says "I code in Ruby" rather than "I help your biz make more money," but more problems than somebody who approaches the biz like I did!
BTW - I rarely did just-talk engagements. All the stuff I described above was as part of design-dev projects. The process I came up with is as follows: We would meet the client, give them a fixed price quote ($5-10K) for these meetings and guidance and the report. They would pay 100% up front. The report, then, was a deliverable they could take to use with any other (cheaper) service provider to implement. Which, naturally, never happened, because as soon as the client saw how we ran our projects, they would never dream of hiring anyone else.
That's the power of being a consultant!
I've always been doing that, and felt uncomfortable to call this activity ‘programming’. Local clients (small businesses) hire a web developer to build a site, but it usually requires at least some education and research, as they rarely have good understanding of their needs. Still I'm shy to call it consulting except to myself. Your comment helped me understand better that it's almost exactly that consulting everyone talks about—thank you.
You mentioned books—can you recommend some titles, authors, or maybe subjects?
I also recommend Patrick's recent podcasts/interviews on the subject.
In other words, once you've come up with the strategy is there still extra value in it being executed at your rates, compared to a freelancer executing the same plan at a much lower cost?
It's a huge amount of work and risk to hire somebody else after a service provider has already shown themselves to be self-managing, self-directed, professional, timely, responsible, and knowledgeable/skilled.
You know what I did when I was a Systems Engineer and had business cards saying it? I read stuff, talked to people, went to meetings, produced computer code which compiled, and wrote stuff. You know what I do for clients? I read stuff, talk to people, go to meetings, produce computer code which gets interpreted, and write stuff. I'm just really, really picky about what I'm working on. (See sibling comment by Thomas.)
This change in messaging lowers the risk factor between you and a potential client (throwing money at a coder doesn't always equate to business success), which in turn allows you to drive up your rates.
But the world is full of businesses with absolutely no technical competence at all, and so much operational competence in their own field (health services, benefits consulting, reinsurance, whole animal butchering, whatever) that they could take over the world if someone anywhere would just notice the opportunity to scale their processes (lead gen, customer retention, supply chain, market expansion, franchising, customer service) with basic technology.
To many, maybe most of those businesses, just being able to throw together a Bootstrap/Rails app makes you some kind of terrifying Wizard. If you can get over the urge to talk like a Wizard, and apply the customer service aptitude taught to every new employee at Nordstroms, you would probably find it's nowhere nearly as hard to capture the value of your work as you think it is.
I'd also note: if you're incapable of convincing a tech-impaired local business to consider a value-priced engagement that will make or save them millions of dollars, you may have a hard time building your own company(ies). Maybe not, though! Totally possible to skip that step.