Maybe it is time for you to consider whether or not you should jump into consulting rather than remain an employee at your current company. Plenty of people do, and they reap the rewards of being a consultant. However, the grass is not always greener on the other side, and the money doesn’t have to be, either.
Although it is true that you can make a higher per-hour rate as a consultant, it is not necessarily true that you make more money. The common mistake made by many is that they simply measure an employee’s salary against a consultant’s hourly rate multiplied by the number of billable hours in a week (usually 40) and then by the number of workweeks in a year (52). Using that formula, it’s no wonder that programmers jump into consulting without a thought past the money. Let me break that formula down a little. At first glance, the 40-hour workweek looks innocent enough, and it may be. However, before assuming a 40-hour workweek, you must consider some of the unbillable work that goes into being a consultant. This includes marketing; general accounting practices, such as billing clients, paying bills, and preparing taxes; and payment collection. You wouldn’t have to perform all the unbillable tasks daily, but, if you are going to be a successful consultant, you would have to perform each of them at one time or another.
Now I’ll look at that 52-week work year. Remember: A consultant gets paid only for hours worked. Therefore, you must first subtract any planned vacations and holidays. Then, you must budget unplanned time away from the client, such as sick or personal time. That already brings the work year down to around 46 weeks. You may also want to attend a seminar or two. You need not only to budget the time off but also to subtract the costs of the seminar, hotel, travel, and other expenses from your income. Oh yeah, don’t forget about benefits. You have to pay for your health insurance and retirement plan out of your pocket, too, unless you can attach yourself to your spouse’s benefits package. That’s a lot to think about when figuring how much money you will make as a consultant.
I read a decent guideline once. It said to take the salary you make and divide that by 1,000 to determine your starting point for a consultant’s rate. For example, if you make $60,000 per year as a programmer, the guideline says not to think about consulting unless you can get at least $60 per hour.
Now that you have a more accurate formula for assessing the monetary aspects, there are some other things to take into consideration. As a consultant, you assume the
added responsibilities of billing clients and collecting revenues from them. Conducting these cash flow-related activities properly is paramount to your success. By understanding what is expected of you up front and by providing detailed documentation when you submit invoices, you greatly increase your odds of getting those invoices processed quickly. However, there will be times when your invoices are either disputed or simply not paid when expected. You must be prepared to handle these situations before jumping into consulting. Another thing to consider is the marketing aspect. You will probably not make it as a consultant if you wait for one assignment to end before looking for your next one. Marketing yourself is an ongoing task. As a consultant, you will likely not be as involved with social events, meetings, and other goings-on within an organization. You will not always be given the best assignments and best places to perform your work. In fact, many times, you will be given the worst assignments and worst places to perform your work. It takes a different state of mind to be a consultant. Some people are bothered by this lack of involvement, whereas others thrive on it.
So is it better to be an in-house programmer or an outside consultant? There are many factors involved in making that decision. If you understand what goes into being a consultant beyond the billable work, if you plan and budget your time and money properly, if you know how to sell yourself, and if you don’t mind people looking at you in a different, not always pleasant light, you may have what it takes to enter the world of consulting.
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