7 ms·

Just a few random thoughts from ~10+ years of doing this. These are not ordered, as I've been out of this for the past few years. - Contracts, contracts, contr

by cik 4y ago

Just a few random thoughts from ~10+ years of doing this. These are not ordered, as I've been out of this for the past few years. - Contracts, contracts, contracts - Immediately stop all work when any customer doesn't pay an amount owed. There's a natural inclination to keep going, but this is a firm of pathetic cost fallacy. - Work with an escrow provider and eat the fees. You'll generally have a 10% non-collectable rate, until you work with an escrow provider. This can be lowered to 1-3%, meaning you stay far ahead. More importantly you reduce the time spent in administration, and running after customers. - Downpayments / upfronts are key. Any customer that is unwilling to engage in this practice, is a customer likely to not pay. - Maintain ownership of your code, if you can. True, consulting code has little value - usually. But sometimes, you can legally, reuse the same blocks, or segments across multiple projects. Your rate of return increases dramatically here. - Your name is your bond. When people learn they can trust you, even in just a handshake (remember: contracts!) they happily recommend you to your friends - Digitize it all. Do everything in your power, pay for every web service that makes sense, to reduce your overhead. I was incredibly happy to pay for receipt scanning (shoeboxes), book keeping / invoicing, and accounting (xero). Most people view this as an expensively monthly cost - which it is at the beginning. It will also, eventually cost less than an hour of your consulting time. Scale. - Never price at the top of the market. It's better to be 100% busy at 80% of the fee structure, than it is to be 50% busy, at 125% of the base rate.

sriram_malhar 4y ago
Good points, all except I went a different way on the last one. I charge more, specifically to keep 50% busy. One needs downtime. When you can deliver on time reliably and wrap it up nicely (documenting internals, design decisions, etc), you get repeat business.
tptacek 4y ago
I would push back on a lot of this. These seem like strategies to avoid getting ripped off by shitty clients, and I'm sure they work, but they're also a strategy to avoid closing business with great clients. Try to focus on the kinds of customers you won't ask for down-payments and up-fronts --- the kinds of customers who will routinely delay a full quarter or two on payables, and you'll put up with it, because they're paying for several people's salaries, and the people you work with there don't control the accounts payable people to begin with. It is absolutely not better to be 100% utilized. The math at the end of this comment suggests that the difference between 100% utilization and 50% utilization is marginal, but the real pricing difference you're playing with is probably something closer to 2.5x-3x the rate you think is competitive. It is better to be 50% utilized at 2.5x what you were making at the rate that had you 100% utilized. It's actually bad to be 100% utilized at all; if you are, you're treading water building your business. When you exceed 80% utilization, do one of two things: raise your rates, or start hiring.
- 8note 4y ago
  > Try to focus on the kinds of customers you won't ask for down-payments and up-fronts --- the kinds of customers who will routinely delay a full quarter or two on payables, and you'll put up with it, because they're paying for several people's salaries, and the people you work with there don't control the accounts payable people to begin with. Can't you just volunteer for these companies instead? If the need free work so they can get their employees to do something useful and pay for it, and you want them paying their employees instead of you as a contractor, you can be straight up about giving away your labour, instead of pretending that they're going to pay you as your customer If you're giving stuff for free on purpose, just give it away for free
  - tptacek 4y ago
    I don't follow. The companies I'm describing are likely to be your most lucrative clients.
    - 8note 4y ago
      Looking in from geophysics, 3/4 lucrative customers for the 1 non-paying is not sustainable. If you're looking for customers that don't intend to pay, is it 1/5 that end up paying well? 1/100? 9/10?
      - tptacek 4y ago
        I don't know who the "non-paying" customers are. Don't do business with companies that might not pay.
        chaosite 4y ago
        When you say "delay on payables", do you mean not paying you for agreed-upon already-completed work, or do you mean not giving you new work right now?
        4y ago
benjaminwootton 4y ago
Your points on not getting paid sound overly pessimistic. I’ve had hundreds of large clients. They are usually absolutely glacial to pay and totally ignore payment terms, but I’ve never had a debt go totally bad. Invoices have always been paid in the end. That said, regarding payments, my tip to the OP would be around negotiating down payment terms and chasing finance teams with the anger of 1000 suns if you need the cashflow!
- cainxinth 4y ago
  > Your points on not getting paid sound overly pessimistic. I agree. Late payment is much more common that no payment. Also, clients, unjustifiably or not, usually take umbrage at being asked to cough up what's owed. I give everyone a healthy grace period and send gently-worded reminders, but I won't stop working unless there is a material breach of contract or unless my reminder isn't at least responded to with a "Sorry we're late with your payment, we're working in it."
pjmorris 4y ago
> - Never price at the top of the market. It's better to be 100% busy at 80% of the fee structure, than it is to be 50% busy, at 125% of the base rate. I tend to favor this line of thinking most of the time. But sometimes I'd rather be 50% busy, and pricing is one way to influence that. It is worth understanding the power and purpose of pricing. My favorite discussion of pricing for consulting is a chapter in 'Secrets of Consulting: A Guide to Giving and Getting Advice Successfully', Gerald Weinberg. The whole book is a goldmine of useful perspective once you're past the initial round of setting up shop and making sure you are getting paid.
- larve 4y ago
  While I’m not in the consulting business per se, that book is a goldmine just about the topic of giving advice as well. Highly recommended (as is anything by Weinberg)
- ggwp99 4y ago
  Thank you for this book will look into it.
toss1 4y ago
Yes on all points, with an exception that solves two problems at once. Set a sliding scale of rates, based on how much they either commit to pay up front or pay timely over the past 6 months. In my shop it was a Service Plan, each one priced just under a common budget threshold. So a $9900 plan got a 5% rate discount, $24K 10%, $49K 15%, etc... (discounts not exact, make your own). If they pay that much up front, they immediately start on the discounted rate, if they just work up to it, they earn the step-down in rates as they pay bills on time passing each tier within 6 months. (Nothing wrong with using escrow too, but we never had it arise). the cool thing about this is that it provides an immediate answer to the inevitable questions about getting discounts — instead of client trying to beat you up on price, it becomes "of course, here's our discount plans, what works best for you?". I probably should have expected that, but it really surprised me at how thoroughly it banished those uncomfortable conversations. I was given a tip about this type of billing by a random guy in a hall conversation at a conference decades ago, and I wish i knew who it was to say "thank you", because that billing structure really paid off. Also, emphasize "Your name is your bond.". Absolutely key to be reliable. The world is way smaller than it seems, and being a trusted provider goes a long way, in ways you can never predict. It is far more important than any kind of being flashy.
reuven 4y ago
I totally agree with some of this, starting with the "your name is your bond." People hire you because they can trust you. Your reputation is your most important asset, more than your knowledge. If you're a reliable, honest, easy-to-worth with person, then clients will forgive your lack of knowledge. But if you're a brilliant jerk, then no one will hire you. And yes, stop work if a client fails to pay. It's so tempting to say, "Well, they're nice, and if I just do xyz for them, they'll pay." No, you've found a deadbeat client. Join the club. But there are other parts of this with which I'll disagree. Chief among them: Contracts are important, but I see them as a formality more than anything else. If I have to sue a client, then it's all over anyway; the time and legal fees won't be worth chasing. I work with people with whom I get along and (generally) have mutual trust. Also: I've consistently charged at the top of the market for the last few years. Some clients don't want to pay top dollar for Python training, but others do -- and the ones who do are the easiest to work with, who understand that they're spending a lot, but also getting a huge ROI.
tasuki 4y ago
> Never price at the top of the market. It's better to be 100% busy at 80% of the fee structure, than it is to be 50% busy, at 125% of the base rate. No way. I'd rather be 50% busy at 125% of the base rate.
jFriedensreich 4y ago
unless you have an own project you want to work on or open source project, in which case 70% busy at 100% market rate is optimal, you just work on your own project until the next customer comes along. one other point i would add here is that it is often good to have 2 parallel clients, you will have more freedom to say no to mistreatment from one and also less stress to have zero income when a project ends.
boring_twenties 4y ago
> - Never price at the top of the market. It's better to be 100% busy at 80% of the fee structure, than it is to be 50% busy, at 125% of the base rate. Wait, what? I'm an FTE, never been a consultant. But personally, I would be ecstatic to give up 50% of my income in exchange for 6 months off per year. Your numbers imply giving up only 21.875% of potential income, unless I'm mistaken. That seems like the mother of all no-brainers.
- ggwp99 4y ago
  To be honest i think that at first 80% is better in order to grow a portfolio and credibility in the industry, then the 50% is great. I don't think anyone would take the highest base rate at the beginning anyway.
Dork1234 4y ago
Where does one go to find an Escrow provider? This would be really helpful for me to know the money is at least there with projects.

by cik 4y ago

sriram_malhar 4y ago

Good points, all except I went a different way on the last one. I charge more, specifically to keep 50% busy. One needs downtime. When you can deliver on time reliably and wrap it up nicely (documenting internals, design decisions, etc), you get repeat business.

tptacek 4y ago

I would push back on a lot of this. These seem like strategies to avoid getting ripped off by shitty clients, and I'm sure they work, but they're also a strategy to avoid closing business with great clients. Try to focus on the kinds of customers you won't ask for down-payments and up-fronts --- the kinds of customers who will routinely delay a full quarter or two on payables, and you'll put up with it, because they're paying for several people's salaries, and the people you work with there don't control the accounts payable people to begin with. It is absolutely not better to be 100% utilized. The math at the end of this comment suggests that the difference between 100% utilization and 50% utilization is marginal, but the real pricing difference you're playing with is probably something closer to 2.5x-3x the rate you think is competitive. It is better to be 50% utilized at 2.5x what you were making at the rate that had you 100% utilized. It's actually bad to be 100% utilized at all; if you are, you're treading water building your business. When you exceed 80% utilization, do one of two things: raise your rates, or start hiring.

8note 4y ago
> Try to focus on the kinds of customers you won't ask for down-payments and up-fronts --- the kinds of customers who will routinely delay a full quarter or two on payables, and you'll put up with it, because they're paying for several people's salaries, and the people you work with there don't control the accounts payable people to begin with. Can't you just volunteer for these companies instead? If the need free work so they can get their employees to do something useful and pay for it, and you want them paying their employees instead of you as a contractor, you can be straight up about giving away your labour, instead of pretending that they're going to pay you as your customer If you're giving stuff for free on purpose, just give it away for free
- tptacek 4y ago
  I don't follow. The companies I'm describing are likely to be your most lucrative clients.
  - 8note 4y ago
    Looking in from geophysics, 3/4 lucrative customers for the 1 non-paying is not sustainable. If you're looking for customers that don't intend to pay, is it 1/5 that end up paying well? 1/100? 9/10?
    - tptacek 4y ago
      I don't know who the "non-paying" customers are. Don't do business with companies that might not pay.
      - chaosite 4y ago
        When you say "delay on payables", do you mean not paying you for agreed-upon already-completed work, or do you mean not giving you new work right now?
        4y ago

benjaminwootton 4y ago

Your points on not getting paid sound overly pessimistic. I’ve had hundreds of large clients. They are usually absolutely glacial to pay and totally ignore payment terms, but I’ve never had a debt go totally bad. Invoices have always been paid in the end. That said, regarding payments, my tip to the OP would be around negotiating down payment terms and chasing finance teams with the anger of 1000 suns if you need the cashflow!

cainxinth 4y ago
> Your points on not getting paid sound overly pessimistic. I agree. Late payment is much more common that no payment. Also, clients, unjustifiably or not, usually take umbrage at being asked to cough up what's owed. I give everyone a healthy grace period and send gently-worded reminders, but I won't stop working unless there is a material breach of contract or unless my reminder isn't at least responded to with a "Sorry we're late with your payment, we're working in it."

pjmorris 4y ago

> - Never price at the top of the market. It's better to be 100% busy at 80% of the fee structure, than it is to be 50% busy, at 125% of the base rate. I tend to favor this line of thinking most of the time. But sometimes I'd rather be 50% busy, and pricing is one way to influence that. It is worth understanding the power and purpose of pricing. My favorite discussion of pricing for consulting is a chapter in 'Secrets of Consulting: A Guide to Giving and Getting Advice Successfully', Gerald Weinberg. The whole book is a goldmine of useful perspective once you're past the initial round of setting up shop and making sure you are getting paid.

larve 4y ago
While I’m not in the consulting business per se, that book is a goldmine just about the topic of giving advice as well. Highly recommended (as is anything by Weinberg)
ggwp99 4y ago
Thank you for this book will look into it.

toss1 4y ago

Yes on all points, with an exception that solves two problems at once. Set a sliding scale of rates, based on how much they either commit to pay up front or pay timely over the past 6 months. In my shop it was a Service Plan, each one priced just under a common budget threshold. So a $9900 plan got a 5% rate discount, $24K 10%, $49K 15%, etc... (discounts not exact, make your own). If they pay that much up front, they immediately start on the discounted rate, if they just work up to it, they earn the step-down in rates as they pay bills on time passing each tier within 6 months. (Nothing wrong with using escrow too, but we never had it arise). the cool thing about this is that it provides an immediate answer to the inevitable questions about getting discounts — instead of client trying to beat you up on price, it becomes "of course, here's our discount plans, what works best for you?". I probably should have expected that, but it really surprised me at how thoroughly it banished those uncomfortable conversations. I was given a tip about this type of billing by a random guy in a hall conversation at a conference decades ago, and I wish i knew who it was to say "thank you", because that billing structure really paid off. Also, emphasize "Your name is your bond.". Absolutely key to be reliable. The world is way smaller than it seems, and being a trusted provider goes a long way, in ways you can never predict. It is far more important than any kind of being flashy.

reuven 4y ago

I totally agree with some of this, starting with the "your name is your bond." People hire you because they can trust you. Your reputation is your most important asset, more than your knowledge. If you're a reliable, honest, easy-to-worth with person, then clients will forgive your lack of knowledge. But if you're a brilliant jerk, then no one will hire you. And yes, stop work if a client fails to pay. It's so tempting to say, "Well, they're nice, and if I just do xyz for them, they'll pay." No, you've found a deadbeat client. Join the club. But there are other parts of this with which I'll disagree. Chief among them: Contracts are important, but I see them as a formality more than anything else. If I have to sue a client, then it's all over anyway; the time and legal fees won't be worth chasing. I work with people with whom I get along and (generally) have mutual trust. Also: I've consistently charged at the top of the market for the last few years. Some clients don't want to pay top dollar for Python training, but others do -- and the ones who do are the easiest to work with, who understand that they're spending a lot, but also getting a huge ROI.

tasuki 4y ago

> Never price at the top of the market. It's better to be 100% busy at 80% of the fee structure, than it is to be 50% busy, at 125% of the base rate. No way. I'd rather be 50% busy at 125% of the base rate.

jFriedensreich 4y ago

unless you have an own project you want to work on or open source project, in which case 70% busy at 100% market rate is optimal, you just work on your own project until the next customer comes along. one other point i would add here is that it is often good to have 2 parallel clients, you will have more freedom to say no to mistreatment from one and also less stress to have zero income when a project ends.

boring_twenties 4y ago

> - Never price at the top of the market. It's better to be 100% busy at 80% of the fee structure, than it is to be 50% busy, at 125% of the base rate. Wait, what? I'm an FTE, never been a consultant. But personally, I would be ecstatic to give up 50% of my income in exchange for 6 months off per year. Your numbers imply giving up only 21.875% of potential income, unless I'm mistaken. That seems like the mother of all no-brainers.

ggwp99 4y ago
To be honest i think that at first 80% is better in order to grow a portfolio and credibility in the industry, then the 50% is great. I don't think anyone would take the highest base rate at the beginning anyway.

Dork1234 4y ago

Where does one go to find an Escrow provider? This would be really helpful for me to know the money is at least there with projects.