Foo - I need a consultation...

I've been sitting here racking my brain trying to figure something out when it dawned on me that I should bring it here.

I recently changed jobs. I provided some very unique manufacturing, lean, and IS type of services at my last job. In my resignation letter to my last employer I stated that I was willing to entertain doing consultant work for them after leaving. I left on very good terms.

Well they called. They want me to work on a project. They want to know my rate(s).

After looking around I think I am going to tell them $150/hr. I guess there are a lot of manufacturing consultants that charge $100-$150, and I figure that they would have to spend $20,000-$30,000 just getting another consultant to understand the circumstances surrounding their issue (we spent almost $100k just trying to bring a TPS trained Lean Sensei up to speed before). So I figured at $150/hr I would be a bargain.

I would need a new laptop (new one is my new company's).

What do you guys think? Are any of you consultants? Is there normally any other customary fees that I should look into asking for? They would set me up as a vendor in their system, but do I have to start a new business or can I just claim the income as a sole proprietorship - non business entity income on taxes?

I did some consulting with my old agency a couple of years ago, I walked into the negotiation with a firm figure in mind, the second I sat down and opened my mouth I doubled the figure...they met my terms without a second thought. The thing I learned is if you know you're giving them a bargain, then they know it too. Shoot for a higher figure and let them counter, you having nothing to lose.

Is it customary to bill hourly, or settle on a package amount for a particular task/job?

Is it customary to bill hourly, or settle on a package amount for a particular task/job?
It depends on the type of work you're doing, I was setting up and conducting mandated trainings so I put together a package price with an option to re-negotiate if they wanted to add more classes. I found I liked the idea of a "package deal" better so I didn't have to feel self concious about every minute I spent there. I'd been working there for ten years and knew I'd feel weird every time some former co-worker stopped in to say hello.

EDIT - Be sure to factor in the taxes you'll end up paying when they send you the IRS form at the end of the year.

Is it customary to bill hourly, or settle on a package amount for a particular task/job?

Negotiable based on the preferences of the firm and yourself. From a management standpoint, I would always prefer a fixed-cost statement of work as opposed to a open-ended hourly agreement - if I go hourly I want an estimate of the hours required included in the SOW for budgetary purposes. From a contractor standpoint, I'd want the hourly rate, but I'd have no problem with fixed cost if reasonable terms for additional expense are outlined in the agreement.

Also, remember that the rates charged by consulting firms are not the rates that the actual consultants they hire out make. One of the attractions of an independent consultant is that you can get them a bit cheaper than you would going through a consulting body shop. If I want to minimize risk, I'd pay the higher rate with an established firm. Being the known quantity that you are, there is minimal risk to them there, but because you're 'it' if something happens to you they have to start from scratch trying to replace you to complete the project, rather than just having a firm plug somebody else in.

My advice would be to price yourself just under the going rate the big firms are charging. I'd also highly recommend incorporating (S or LLC) yourself to protect your assets from liability.

The Community College in your area should have a small business development center (SBDC), you might want to set up an hour of consultation with them. They will know the rules in your state for consultants, and if you'd need to establish a business. If you do that you'll have a ton of taxes to pay, so be sure to explore this before you set a rate, the last thing you want is to end up working for less when tax, health insurance and other benefits are factored in.

Remember that you have value that other consultants do not have, you know their business VERY well. That is a selling point if they cough at your rate. Bill bi-monthly for the hours worked at their place or your home, keep an accurate log of all time worked. The SBDC should also have some sample contracts to use, this is important to get all details in the contract.

I agree with Chipcom. From a management standpoint I would want a fixed rate, (per previous poster don't forget your tax liabilities), a fixed rate works well for you also because it adds motivation to do the job quickly. If there are many hidden or unknown aspects of the project then hourly may be a better position. Fixed rate contracts can get messy and confrontational when renegotiating.

You have the advantage of being a known quantity. From what you said you left on good terms and you like one another...don't get greedy be fair and it could develop into a nice second income stream or additional networking/consulting possibilities.

If there are potential liabilities that you could be legally accountable for a LLC makes sense. If there isn't I would just be a sole proprietor.

Good Luck

I've gone down the LLC road a bunch of years back for my Locksmithing company. If I thought this was going to big a big time deal then I would definitely go down that road again. My issue is that it is fairly expensive (relative), fee wise, to set up and maintain. I think I paid $1,000-$2,000 the first year (of course back then it was a new style of business in that state, and only 2 lawyers in the town were even familiar with the requirements).

I don't think this will run into any liability issues, but it does have to do with designing a tool to allow them to manage production capacity....for those of you who have read some of my posts on manufacturing you might be familiar with my previous job and my "capacity management" responsibilities.

The project is severely open-ended. There is almost no way to put ones arms around it, or define an end. That's kind of why I am leaning towards the hourly rate. My only reason for looking towards utilizing a retainer or contract amount is that this organization can get really sidetracked. It's the total corporate "flavor of the day" scenario. If I got a set amount then I know I'd at least get something for my troubles.

The individual looking to pick up my services is someone I used to do a lot of projects for. He has a new assignment and is looking for some firepower. He's not afraid of spending money, and has a good political hand on the purse strings. What he is working on is probably doomed to fail. I know because I was supposed to head up the operational side of his team before I decided to leave. He's PO'd that the company "let me leave.":rolleyes:

I've been consulting for years now, and some things you ought to consider are:
1. As a consultant, no taxes or FICa are withheld from your check... it's up to you to pay these, and the FICA is the full 15%. These payments are due quarterly.
2. You have to move from filing a simple 1040 to adding a Schedule C, itemizing all your costs (equipment, travel, etc.) - this may cost you CPA fees.

So, you might want to factor this stuff into your price. I charge by the hour, some consultants charge by the day. That's up to you, and you would base it on the type of consulting you are doing. It sounds like you're keeping your new job, so if you'll be working for the other people in the evenings & weekends, an hourly rate might make sense.

As for how much to charge? If you were an employee, as opposed to a consultant, your cost to your employer is, on average, 30-40% more than whatever you're being paid. So, start with what your hourly rate would be, add 40%, and then, depending on how you feel about it, think about doubling it. So if you hourly rate at work is, say, $50/hour, add $20 (40%), for a starting rate of $70 per hour. double, $140 per hour charge.

As for how much to charge? If you were an employee, as opposed to a consultant, your cost to your employer is, on average, 30-40% more than whatever you're being paid. So, start with what your hourly rate would be, add 40%, and then, depending on how you feel about it, think about doubling it. So if you hourly rate at work is, say, $50/hour, add $20 (40%), for a starting rate of $70 per hour. double, $140 per hour charge.

FWIW, my firm aims for a salary multiplier in the range of 3 - 3.25. i.e. if you want to "make" $50 an hour, then you should be charging at least $150.

I haven't seen anyone mention this yet and maybe it's totally obvious, but you should also be billing them for every single expense related to your work. i.e. a Kinko's bill to print documentation, travel, etc.

...I haven't seen anyone mention this yet and maybe it's totally obvious, but you should also be billing them for every single expense related to your work. i.e. a Kinko's bill to print documentation, travel, etc.
Excellent point, I also had them write secretarial assistance into my contract. Since I went for a package price I didn't want to spend a bunch of time copying and filing training documents.

It hs been a long time since I did consulting but all the preceeding advice sounds good especially checking with the local business type school. Just one thing I haven't seen Chipcom and the others mention. That new lap-top bit. IN a word, No. That is your professional equipment, you bring it to the job or do without. It is up to you to provide your personal gear, having them provide it looks very bad. Now if the job calls for something like a Cray Supercomputer that is their problem. And they get to keep it. Sorry.

It hs been a long time since I did consulting but all the preceeding advice sounds good especially checking with the local business type school. Just one thing I haven't seen Chipcom and the others mention. That new lap-top bit. IN a word, No. That is your professional equipment, you bring it to the job or do without. It is up to you to provide your personal gear, having them provide it looks very bad. Now if the job calls for something like a Cray Supercomputer that is their problem. And they get to keep it. Sorry.

If the job is IT related, and special configuration is needed to enable you to have access to their system, I don't think that asking for a properly configured laptop is out of line. It might end up being a loaner though.

My company's engineering rates are about $150 an hour, so you are in the ballpark.

But I'll bet your overhead is a LOT less than ours!

Also...are you billing yourself as an engineer?

If so, you may need to have a Professional Engineering license for the state in which you practice.

http://www.nspe.org/lc1-how.asp

http://www.nspe.org/lc1-why.asp

Good luck!

Eubi, P.E.

No PE here. I have no intention of taking the PE exams. I would be billing myself out as an Manufacturing Operations/Systems Consultant. I wouldn't even put LEAN in the name for fear of being held to some cert.

Laptop - the one I mentioned I was getting is from my new job. I obviously wouldn't use that one.

All of the work would be done by me during off hours - most likely at home. I will need acces to their databases which they can setup through their VPN (managed by CyLowe97's company). They would setup my home PC.

Because of the relationship I am sure that they would be more than willing to provide me with a surplus laptop setup just like my old one when I was there. The benefit to that is that I could sit down and go to work, they would be responsible for maintenance, and I wouldn't have to go buy a laptop that I don't need for anything else.

My overhead is negligible. I would not be spending anything more. I was always comfortable doing my LLC tax returns, and figure that this would be a lot easier, but I was figuring that if this is small time I could probably just have the checks written to me, not even create a business entity, and then add the amounts to my return and make up the missing FICA, etc.

Any thoughts on that kind of a setup? (Great advice btw!)

It hs been a long time since I did consulting but all the preceeding advice sounds good especially checking with the local business type school. Just one thing I haven't seen Chipcom and the others mention. That new lap-top bit. IN a word, No. That is your professional equipment, you bring it to the job or do without. It is up to you to provide your personal gear, having them provide it looks very bad. Now if the job calls for something like a Cray Supercomputer that is their problem. And they get to keep it. Sorry.

You ain't bringing a personal laptop into most corporate environments...at least not if it's one I am running. If you need a PC and software to do the job, it will be provided by the company's IT department. If the company decides you can live with a desktop rather than a laptop, then you'll use the desktop and hope they provide remote access to allow you to work remotely when you want/need to.

If the job is IT related, and special configuration is needed to enable you to have access to their system, I don't think that asking for a properly configured laptop is out of line. It might end up being a loaner though.

+1. Plenty of my clients give me one of their laptops for use on their projects, rather than have me plug my own (which, often, isn't even allowed in the building) into their network.

I could see the whole "nothing other than one of our PCs" side of it, but this place is pretty laid back. It is still an extremely large corporation, but it's a manufacturing company...not an IT company...meaning that there is nothing of value to be taken electronically. If I was to inadventantly introduce something into their system it wouldn't get far. As a result they are very relaxed.

...but I can use it as a reason to have them provide one.

FWIW, many of the clients I was referring to are giant manufacturers of things that don't seem secretive or IT-sensitive at all (steel, industrial gas, water utilities for example.)

FWIW, many of the clients I was referring to are giant manufacturers of things that don't seem secretive or IT-sensitive at all (steel, industrial gas, water utilities for example.)

It's not just a matter of protecting company information assets, it's a matter of overall security. I don't want some bozo walking in with his personal laptop and infecting my network with lord knows what from a machine his teenaged daughter uses as much as he does - it happens too, a lot. I'm also not big on installing software licensed to the company on someone's personal machine. Also, for public companies, Sarbanes-Oxley requirements...not to mention HIPPA and others, depending upon your industry, are destroying laid back policies more and more every year.

Then there is the good ole Microsoft factor...joining someone elses Active Directory domain can give you headaches, not to mention having the domain security policies or software management crap shoved down your throat.

Seriously, the best bet for both you and the company is to have the company provide you with one of their machines, giving you remote access that you can use from your own machine at home.