How to run a small consultancy / freelancing business
jacquesmattheij.com
jacquesmattheij.com
I kept coming across questions of the "Ask HN" variety that were too complicated to answer fully in the setting of HN.
I've had my own share of "Ask HN" posts answered quite generously, so here is my attempt to repay in kind. At the request of the community I've not posted this here but instead on my own site.
Hopefully this is of use to some of you, any and all criticism is of course more than welcome, I'll spend a couple of hours every week on expanding it and fixing bugs or by writing about subjects that are not covered right now.
I have lost time and money not to mention potential references, after I have accepted to do some very cool hacking projects for nothing. One was a university Open Source project; the project lead could have easily got me a budget, not to mention an office, but the prospect of working with a top-tier university and "potentially" breaking into a very sexy part of computing (bio hacking) made me volunteer to do it for free. I became lead, they hired juniors and the employees got flown out to the research center and conferences while I had to scrape by staying late at night at a local university, Xeroxing research papers and catching up with a fast moving industry with no one by my side, and on my own dime.
You could be curing AIDS in your basement, and unless you're affiliated with an institution, no academic jerkwad will answer your questions, I found out. Even bio grad students would ask me who I was with and what I was doing, but quickly became annoyed when I said I was an amateur volunteer .. regardless of how much knowledge I have displayed.
I blew that one up, big time.
If you love something and want to became better at it, don't hesitate to get paid for it as well. Sometimes a pay check stub makes all the difference between whether someone takes your experience in this seriously or not.
I could tell you some fun stories about charitably translating Japanese to English.
(We know the "document" isn't quite ready and is mostly actually handwritten in the margins -- feel free to rewrite the parts that don't flow right. Oh, and despite the fact that its on a technical field you're not expert in, we don't have time to answer your questions about the intricacies of steel smelting. But we need it done tomorrow, at the latest.)
I have never, ever had that sort of problem when somebody was paying $100 an hour for the work.
As soon as someone wants more than 2 hours of my work the meter is running. It helps to separate the real customers from the 'users', and I don't mean 'users' as in end users, I mean it in the sense of people using other people.
Draper clearly wants to do business with Hilton, but tells him, "I think you wouldn't be in the Presidential Suite if you worked for free."
1. Have an hourly rate, but make an estimate for all jobs and make the price fixed based on that. Feel free to overestimate in this part; just make sure that you can come up with a solid number. For example, "10 hours, that means you owe me $1000." This will be the fixed price for the job.
2. Tell them that if your estimate goes horribly wrong and it turns out that the job is vastly more complex than you thought (but you couldn't know ahead of time), they owe you nothing if they decide to stop the job at that point. If they want to continue, of course, they can pay you more based on a new estimate.
In my experience the primary problem with small clients is that to them, $1000 or $2000 is really big money; they feel very worried about signing it over to you for dubious gain. So it's very important to make sure that they feel that they are guaranteed to get the return they were promised. And 2) almost never actually happens in reality; it's just an important step to making them feel comfortable with hiring you.
Another reason to go with smaller clients is that it's easier to get a job and there's less overhead; instead of dealing with a huge corporate bureaucracy you can often just get on Skype, discuss what you need, sign an agreement, and start working within an hour or two.
I do it exactly like that, it's a good rule.
It gives people certainty, and it's not only the small customers that like it.
This sounds like a nice compromise.
Along those same lines, how do you handle invoicing? Do you take any up-front payment? Bill weekly? One lump sum at the end of the job? Thanks.
For invoicing, I just bill at the end of each job--exceptions occur when the client isn't someone that I would necessarily trust off the bat to do this.
I don't think estimating is voodoo except at the very start. Log your hours on every project (don't burden yourself, round to the :15). You can't manage what you don't measure; this includes client expectations in regard to project scope / fees. This is where the ad industry has it right, creatives have been beaten down by clients since the dawn of advertising. We're talking centuries of abuse. :)
I usually bucket hours into 3-5 categories per estimate/proposal: client service (meeting/phone calls/etc), consulting, creative, technical, and production. Each valued at their own hourly rate. ($80, $200, $150, $150, $100 respectively). Every proposal has a high-level budget that is approved by the client. When it comes to invoicing however, we bill to-the-hour and aim to invoice 5-10% less than the soft bid if they are a good client. Billing by the hour makes the client much more conscious of feedback and "design by committee".
This works for us, we have pretty good margins when it comes to service related work without getting killed by client demands, paperwork, or tedious processes.
http://www.gyford.com/phil/writing/2006/10/26/a_beginners_gu...
The only thing that jumped out at me about Jacques guide was the insurance section. In the US, plan on acquiring liability insurance, and plan on that process annoying the shit out of you. If you work for clients of any real size, it will inevitably be a requirement at some point. You don't want to be scrambling for it at the last minute.
Also, I disagree with the recommendation of lowballing your prices to start. The cardinal rule of selling things to businesses: they're not spending their own money. Pricing is more about sending signals in corp-corp transactions than it is about utility or pain or emotions. When you come in at 60% of the prevailing rate, you're sending a dubious signal.
"Gift to HN" was very smart marketing, jacques.
I've taken your bit and amended the page (hope that's ok).
http://jacquesmattheij.com/be-consultant/pricing
I agree with you in general that lowballing is bad when done categorically, but for a starter-upper it can help to get off the ground quickly, shifting to a higher hourly rate within several months. The problem I see here is that when you're new you have to somehow overcome the lack of reputation, and one tool you have in this respect is price.
Thanks for the critique, it's much appreciated.
As for the smart marketing bit, I asked if it would be ok to post this on HN and got the suggestion to post it elsewhere and link it here, because of the length of the post, it really was written for the express purpose of helping out those that are either wondering about starting their own business or that are already operating one. The basic idea was that if it saves a few people some headache that it is already worth doing.
Originally it was one huge page but I figured I'd better split it up a bit to make it more maintainable.
The purpose of the poll I posted a while ago about peoples employment status, was to find out how many people would be interested in something like this.
If your client base is large companies, all of which have professional purchasing departments, you will never get your rate back. Rate hike discussions are zero-sum negotiations in which either you continue working at your original rate or the purchaser takes a job performance hit. It may be easier to acquire new customers at a higher rate than it will be to jack the rate up on an existing customer. And eventually, you're going to run across clients you really want, under competitive RFP situations, where they'll demand "most favored" rates --- so that 60% "entry" rate is now your permanent negotiating floor, no matter where your industry goes.
Discount with project scope, or with deliverable depth, or with long-term support, or with scheduling flexibility. Some of these non-financial perks are more valuable to your clients than the monopoly money they're spending out of IT budget --- all the more reason not to send an "amateur" signal with a below-market rate. Don't discount with rate if you can possibly avoid it.
One arts group site in particular I transitioned to a CMS, redesigned, did training with several members, implemented dynamic galleries, ... that would have been way beyond their means to pay; instead they pay me for hosting (a pittance!) and I get to support an arts group that create some great inspirational work.
If I low ball it and charge them then the publicity is "this guy is really cheap" and there'd be no way to live on what I'd earn from that. As it is I get to charge a normal rate and the arts group get to tell everyone how generous I am!
I agree with you that if you want to do that sort of thing it is better to charge nothing. The 'lowballing' I had in mind was more of an incentive to pick you over a contender with an established reputation.
They're also usually quite price conscious, especially in the current climate. Even the bigger ones are looking at their budgets with a pretty sharp eye.
(depending on the market you're active in), you can wonder though, do you want or not want the customers that are shopping around based on price only ?
Food for thought.
* You can make 24/7 support a line-item premium service.
* You can make support after a 2-week "acceptance" period a line-item premium service.
* You can have your basic rate include a 6-week window for delivery, at your shop's discretion, and make a more predictable delivery date a line-item premium service.
* You can have formal typeset documentation be a line-item premium service.
* You can have access to improvements and feature requests incur a full consulting dev cycle on your basic rate, and offer a line-item premium service to do point- and major- release updates for N years.
* You can staff projects with timelines that allow you to juggle 3-4 projects for different clients simultaneously (even if you do them serially, you preserve the scheduling flex to deliver them all at once), and offer a line-item premium to get a 100% or 200% improvement in time frame.
* In bare-knuckle negotiation with a client who is just being a good businessperson and determined to get the lowest rate possible, you can strip off features from their requirements, down to the minimum they could conceivably accept and still call the project a business win, and negotiate over features instead of rate.
If you do all of these things, you're rustproofing. But if you're not prepared to do any of them, your only lever is going to be your consulting rate, and the dynamics of the freelancing market are going to tend to drive your rate down over the medium term.
Once I increased my rate, people treated me more seriously and valued my work more. People who will pay more have been more okay with hourly rates and realize that additional changes will cost more.
The problem is that what I've written is just one guys experience, it really helps to have many perspectives on this.
Any recommendations on providers?
I'd like to see two more additions: one for figuring out what size you want to be, and one for getting help. Figure out ahead of time if you want to grow to include subcontractors or, possibly, employees; it'll change how you handle your business growth.
Also, get help. A freelancer or consultant actually has to do a lot of different jobs: you have to be a salesperson, a marketing person, an office manager, a professional, etc. Probably you only wanted to be a professional. It's easy for the paperwork to start to get disorganized, it's easy to fall behind on invoicing, it's easy to completely ignore doing any marketing (which might include things like building a nice website for your business). So, get help with those things. Despite the additional cost, you'll be glad you did.
Instead of "To Be a Consultant, a freelancer or an independent contractor", I would change it to something like, "How To Be a Consultant, Freelancer or Independent Contractor".
Anyway, thanks for the suggestion, I've updated the title.
Estimation is one thing that makes me very nervous to the point of not wanting to start my own thing. I have always underestimated things (and once it got very bad when I was doing contract work). If you could expand on tips here (such as what to avoid - i.e. don't switch to a new programming language before starting work), it would be much appreciated.
This has worked out to be in the right area about 80% of the time. I have one particular client where I bumped the multiplier up to 4 because of how often they ask for major changes halfway through the work.
But it will be done in a couple of days (2 days == couple), I guarantee it.
Probably the way I'm going to continue this project is to flesh it out slowly and to continue to subjects that deserve a page by themselves.
I hope the additions are useful to you, you can find them here:
You may be a programmer now, but once you start your own business, you are now a businessperson first, and a programmer second. This is a critical change of state that you must make. Like almost everything else, you shouldn't count on anyone telling you anything. You are no longer someone's employee. You must initiate the finding of all "how to's".
You are correct in believing this is the biggest obstacle. Without customers, you are dead. With them, you can solve almost any problem you have.
As far as getting them, you can (and should) try just about anything. Some of my experiences:
All my computer work, including job-type jobs I've held, have all come through networking. But that's really just a truism I guess, in that all work will/must come from networking. Which I take as your point...
What's interesting to me is the way one's personal network, seems to grow; like the facts of networking are stranger than fiction in an organic "Connections (BBC)" sorta way.
(Been watching old connections episodes on my G1 off youtube, while the inet is out at my house. Great show.)
http://jacquesmattheij.com/be-consultant/finding-keeping-cus...
The amount is a fixed percentage of the invoices during the first year, 12% is my current percentage.
I spot someone that has a very fat rolodex and I tell them I'm willing to pay a referral fee.
It's quite effective.
Don't talk about your service offerings at meetups and network events unless you're asked, and keep it brief. Make friends and connect re: services offline.
I just got my first customer, so I'm happy things are going well so far.
To me it seems like the logistics pale in comparison to getting some momentum going (like the classic college grad's dilemma of needing experience to get a job).
My biggest stress point has always been dealing with accounting and taxes. I realize that hiring a bookkeeper would be ideal, but as my revenue stream has had some wild fluctuations over the years I have always been a little hesitant to make the commitment. I am curious what you or the other consultants here have found to be a fair price for bookkeeping service.
The office that does this for me has in the past also provided payroll services (when I had employees), and gives me tax advice. It's run by an elderly gentleman who knows his stuff very well and he's saved lots of money over the years.