
How to run a small consultancy / freelancing business - jacquesm
http://jacquesmattheij.com/be-consultant
======
jacquesm
Hello there HN'ers sitting on the fence or already working as consultants or
freelancers.

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.

------
mahmud
My lesson: Price even the jobs you love.

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.

~~~
patio11
Price communicates value.

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.

------
DarkShikari
Here's what I've learned, for the case of dealing with small jobs for small
clients (which in my experience is a very "long tail" of contracting jobs):

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.

~~~
jacquesm
> 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.

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.

~~~
Periodic
Also, if you build this into your contract it gives you an out. I've known too
many people who were perfectly willing to sign up for a fixed payment job,
thinking they were overestimating, only to find out that the specs were too
vague or there was too much rewriting such that it took more than twice as
long as expected.

This sounds like a nice compromise.

------
pxlpshr
This is a great writeup, very thorough. Experience/knowledge aspects aside,
professionalism seemed to be the common trait that separates the <$100k from
the >$100k consultants. If you're easy to work with, communicative, and
_responsive_ — you'll never have a problem finding work. Self discipline seems
the big barrier for a lot of people, and after awhile the work-from-home gets
lonely.

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.

------
tptacek
I liked it. Another good one:

[http://www.gyford.com/phil/writing/2006/10/26/a_beginners_gu...](http://www.gyford.com/phil/writing/2006/10/26/a_beginners_guid.php)

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.

~~~
jacquesm
Hey there Thomas,

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.

~~~
tptacek
Here's another great reason _not_ to lower your rate:

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.

~~~
pbhjpbhj
This is why it's sometimes better to go free than charge a low price.

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!

~~~
jacquesm
Arts is a tricky area. I started out on the bridge between arts and software
and I've learned that that is charity work.

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.

~~~
pbhjpbhj
It finally happened, I agree with you entirely, though I'm sure we can find
something here to argue about - erm, web design isn't art .. discuss.

------
thaumaturgy
Nicely done. I bootstrapped a consulting business, and ended up learning many
of the lessons in this guide one way or the other. (Usually the hard way.) I
don't usually find much value in write-ups like this, but this one matched my
experiences pretty closely.

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.

------
pchivers
The title of the document is not correct English.

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".

~~~
jacquesm
No idea who voted you down for that, I explicitly asked for feedback :)

Anyway, thanks for the suggestion, I've updated the title.

~~~
Periodic
From the original title I might have thought of it more as, "To be a
consultant or not to be a consultant?" which is a question I've struggled
with.

------
wynand
I'll join the chorus and say that this is great stuff, jacquesm.

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.

~~~
jacquesm
Ok, I'll do that, give me a couple of days to get it done.

~~~
natrius
The irony is rich.

~~~
jacquesm
Yep.

But it _will_ be done in a couple of days (2 days == couple), I guarantee it.

------
tocomment
Where does it tell you how to get customers? I always saw that as the biggest
obstacle.

~~~
jacquesm
ok, here is a first draft of what works for me, I'll be fleshing it out
further still.

[http://jacquesmattheij.com/be-consultant/finding-keeping-
cus...](http://jacquesmattheij.com/be-consultant/finding-keeping-customers)

~~~
tocomment
Very good. How did you decide whom to offer referral fees to? How did you
decide the amount? How did you approach people with the offer?

~~~
jacquesm
I offer a referral fee to anybody that brings a job from a customer that I do
not yet have a billing relationship with.

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.

------
mattiss
Hey jacques, great article! I am thinking about making this jump soon, but am
wondering how to be proactive in finding customers? It's one thing to drop a
line to all of your contacts saying that you are a freelancer, but how does
one actively go out and find jobs?

~~~
jacquesm
Hey Mattiss, I've added a page for that, called 'finding and keeping
customers'.

------
leftnode
This is a great guide, and I truly thank you for posting it. I'm in the
process of building my own small software business/consultancy, and one of the
questions I have is how to find and keep customers. This really, really helps.
Thanks!

~~~
tptacek
Go to meetups. Find ways to give presentations. If there aren't appropriate
meetups in your area (or the area where your target market works), _start
them_. If you can't start a meetup, you'll probably have a hard time marketing
a company anyways.

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.

~~~
leftnode
Definitely! I presented my PHP framework at a meetup a year ago, so its time
to go again to give some more talks on sites I've used to build it and go from
there. I also spent this weekend setting up my blog and thinking about all of
the articles I want to write.

I just got my first customer, so I'm happy things are going well so far.

------
msb
Great writeup. I love that you are evolving it as the HN discussion grows.

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.

~~~
jacquesm
I pay about 500 euros annually for this, that includes my personal tax
filings.

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.

------
hooeezit
Man, you hit the spot with the article chain! Your advice is way better and
concise than many books I've read. I second tptacek's comment about Liability
Insurance. I needed it 6 months into the process. Thankfully, General
Liability is all I needed, and the process wasn't so painful.

------
jacquesm
Comments on the pages are now enabled, that way if you want to critique a
certain section you can do so in the most relevant spot.

------
raheemm
This looks really great! Thanks for doing it.

