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Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

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Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#31

Post by patio11 »

tocomment wrote: post #29

Ok, let's do a concrete example. All of this seems very hand-wavy to me. Scenario: A client asks me to do support and maintenance on an internal accounts receivables tracking app. How do I justify asking 300/hour or whatever you guys are suggesting? How do I give them substantial business value from that?

How much time is wasted on accounts receivable every month? What's the average fully-loaded cost of their employees tasked with AR? What's the percentage of uncollected invoices?

What happens if we cut the time wasted by 10% and bring in one or two extra invoices a month? Oh, we just made you several hundred thousand dollars in the first year? Interesting. What is that worth to you?

"I'll write up a document explaining the plan, but in broad strokes, we're going to work on the user experience so the team spends less time fighting this tool and more time being effective in chasing receivables. Also, we'll build a new workflow which automates the early stage of receivables collection." (I would start thinking "Automated emails or Twilio replacing a human employee doing either is pure win in the early stages of collection" but you're the guy in the client's office, figure out what they'll except.)

Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#32

Post by patio11 »

deadbea7 wrote: post #9
patio11 wrote: post #2

Happy to answer questions, to the extent possible. This dovetails quite a bit with the Ramit Sethi interviews earlier, but is largely about the mechanics of businesses as they get away from the solo consultant stage. There is some very important math in there for folks looking to expand by hiring. (Copious hat tips due to Thomas for much of the advice here. Except the bad stuff, that's mine.)

How do you charge if onsite presence is required for an engagement? This could either be due to a client requirement or you need to do interviews with developers for an architecture/code review. Should you add a separate line item for travel + lodging expenses or just bundle it together with the consulting rate? I feel like you're at a disadvantage if the client can see that you're more expensive compared to local ta…

"I'll follow your standard procedures for expensing business travel." (Hat tip for Thomas -- this line has totally resolved every discussion I've ever had about this issue.) nYour more desirable clients do this all the time. At many places it is budgeted out of an entirely different pot of money than your salary.

Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#33

Post by patio11 »

bdunn wrote: post #27
Silhouette wrote: post #15

Just as a minor PSA: I get that certain consultant types around these parts are always saying "raise your rates", and I get that a lot of people who work freelance do undercharge and often significantly, but the advice has very limited value unless it has some sort of quantifiable element attached to it. Otherwise, with due respect to those consultant types, it sounds a lot like "We're obviously smarter than you, bec…

I am in a VERY low-tech, slightly rural area where the median income is somewhere north of $30k a year. In no way does that affect my pricing, and I charge more than most Bay Area consultants. My method is pretty simple: understand the client's business, get to the root of why they're thinking they need Project X, and then only proposing solutions that have a high likelihood to return a positive investment (this some…

Like Brennan, I live in a VERY slow-tech, more-than-slightly rural area. That isn't my pricing anchor, though.

Suffice it to say that I was charging a rate many American engineers my age would have been (too) happy to take when I started out, and my most recent rate is 7.5X that, and in a few months I'll be putting 10X on proposals and winning a similar percentage of them.

Lawyers who made their last client millions attributable to a two week engagement probably do better than me, but the typical lawyer working for my clients didn't do that recently, so without knowing anything about their rate card I'm going to assume it's below mine.

We're really not just blowing smoke here.

Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#34

Post by adrianhoward »

Your paycheck is, occasionally, a burnt-offering to the gods of Trusted Third Party Opinion, just like it is sometimes a magical talisman against Blowback If This Goes Sour.

Worth it for that line alone. There's a special art in being the one who gets the idea through purely because you're a third party and not the internal person/team. Some of my happiest gigs are when I've ended up getting paid to teach management to listen to the team and implement their suggestions. Everybody wins ;-)

Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#35

Post by tocomment »

patio11 wrote: post #31
tocomment wrote: post #29

Ok, let's do a concrete example. All of this seems very hand-wavy to me. Scenario: A client asks me to do support and maintenance on an internal accounts receivables tracking app. How do I justify asking 300/hour or whatever you guys are suggesting? How do I give them substantial business value from that?

How much time is wasted on accounts receivable every month? What's the average fully-loaded cost of their employees tasked with AR? What's the percentage of uncollected invoices? What happens if we cut the time wasted by 10% and bring in one or two extra invoices a month? Oh, we just made you several hundred thousand dollars in the first year? Interesting. What is that worth to you? "I'll write up a document explaini…

Very interesting.

So if their system is already highly optimized, or it's a small company so any gains wouldn't translate into large amounts of money, you'd suggest to pass on the opportunity?

Also, what happens if you improve the UX and make new workflows but the profits don't materialize for some reason? Would you not get paid?

Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#36

Post by patio11 »

tocomment wrote: post #35
patio11 wrote: post #31

Earlier quoted context omitted.

How much time is wasted on accounts receivable every month? What's the average fully-loaded cost of their employees tasked with AR? What's the percentage of uncollected invoices? What happens if we cut the time wasted by 10% and bring in one or two extra invoices a month? Oh, we just made you several hundred thousand dollars in the first year? Interesting. What is that worth to you? "I'll write up a document explaini…

Very interesting. So if their system is already highly optimized, or it's a small company so any gains wouldn't translate into large amounts of money, you'd suggest to pass on the opportunity? Also, what happens if you improve the UX and make new workflows but the profits don't materialize for some reason? Would you not get paid?

I prefer working with companies where I can create value versus in companies where I can't. If your small company thinks their internal one-off AR system is important enough to hire a dev for, that should be worth Serious Money (TM) to the company. If it isn't, tell them "Look, you trust me to deliver wins for the business. This engagement isn't a win for you. If you absolutely need that system worked on, I can recommend someone for it. But let's talk about somewhere where I can make you a couple hundred thousand dollars: ..."

Would you not get paid?

No, of course you get paid. The client bears all execution risk. That's why, when you make them 10 million, they get the vast majority of that 10 million. If clients expect you to shoulder downside risk then they should expect you to capture much of the upside. (Here's words I like: "Well, if you expect me to bear the risk for this project, I want to share equitably in the rewards, too. My sense of equitable is that if I'm responsible for doubling the company's sales I should end up owning half the company. Or, you know, you could just pay my rates.")

Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#37

Post by adrianhoward »

So if you’re dealing with, say hypothetically (not a client), Bank of America, you will not budge the Bank of America purchasing department, because they just don’t care

ProTip: Make friends in the purchasing department and learn their rules. There are often ways to game the system...

For example: Some may have a global rule that they must take advantage of any discount greater than N% on the invoice if it's just a case of moving the payment date. Offer an N+1% discount for payment up front to that department and you will automatically have payment up front. Suddenly your cashflow looks much happier ;-)

(edit: Also - you never punish people for late payment. You reward people for early payment. Of course the numbers may look the same either way ;-)

Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#38

Post by Alan01252 »

mluiten wrote: post #26
Alan01252 wrote: post #13

Earlier quoted context omitted.

Good point! Thanks Tom. I assumed it was for one person but now you've mentioned it, that is probably for them both. In which case I guess it's less extreme on my brain.

From http://thunderboltlabs.com/hire : "Development is $277 an hour per developer. Technical work is done in pairs." Ouch. It looks like they've got the skills and marketing figured out. I think there's a great lesson in there for all of us freelancers.

Wow, consider my brain melted. I guess the next question is, how busy are these guys?

Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#39

Post by adrianhoward »

Silhouette wrote: post #15

Just as a minor PSA: I get that certain consultant types around these parts are always saying "raise your rates", and I get that a lot of people who work freelance do undercharge and often significantly, but the advice has very limited value unless it has some sort of quantifiable element attached to it. Otherwise, with due respect to those consultant types, it sounds a lot like "We're obviously smarter than you, bec…

Let me try and spin the "raise your rates" advice in a different way - since it's a piece of advice I give pretty often too.

It's not necessarily due to undercharging that I advise folk to "raise your rates" - it's because it's a fantastic client discovery mechanism.

You want clients who pay more. The clients who pay more tend to get more value from your work.

So at any point the clients you have that are willing to pay more are generally better clients (for you and for them). So if you raise your rates and only support those clients you get a set of better clients who are going to be happier with your work, and give you more money.

Those clients, in turn, allow you to find similar good clients. Through recommendation and marketing for those clients. So you grow your set of good clients.

You'll then find a subset of those will be willing to pay more - because you provide more value for them.

Repeat. You will find that some of the work you do changes radically - at least in the way you sell it - during this period.

Raising rates isn't (just) about extracting the most money from your clients as possible. It's a way to help you find the clients who you will serve best - and because of that they're more than happy to pay you more.

To answer your end questions (and this is a little bit unfair since this is the second time I've started my own consultancy so have probably moved through the levels a bit faster this time - and I have a very strong idea of where my value-niche is).

If normal hourly is $x to $y - then I very deliberately started at $y just under 2.5 year ago (I very much do not want the clients who want the cheapest possible solution - learned that lesson ten years back ;-).

Currently my effective hourly rate (I don't actually charge by the hour any more so clients never see that number) is about what my day rate was when I started - so about 1:8, 1:9... something like that. Looking back with 20:20 hindsight I could have made that transition quicker if I'd been braver.

After a conversation a little while back I have discovered there are people doing similar stuff to what I'm doing with a slightly different kind of client for about five times what I'm charging. This is being actively addressed ;-)

Re: Kalzumeus Podcast 3: Growing Consulting Practices, with Brennan Dunn

#40

Post by adrianhoward »

patio11 wrote: post #32
deadbea7 wrote: post #9

Earlier quoted context omitted.

How do you charge if onsite presence is required for an engagement? This could either be due to a client requirement or you need to do interviews with developers for an architecture/code review. Should you add a separate line item for travel + lodging expenses or just bundle it together with the consulting rate? I feel like you're at a disadvantage if the client can see that you're more expensive compared to local ta…

"I'll follow your standard procedures for expensing business travel." (Hat tip for Thomas -- this line has totally resolved every discussion I've ever had about this issue.) nYour more desirable clients do this all the time . At many places it is budgeted out of an entirely different pot of money than your salary.

That's interesting. I've been playing with not charging expenses and adding an appropriately sized chunk on my overall price. Generally this seems to go down well with some variation of a "neither of us want to waste time arguing over what my max meal bill should be" line.

I like avoiding two separate sets of price negotiations.

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