Don't get the wrong idea, I had a lot of information when making the move to full-time consulting. I read article after article about how to be a great consultant and I spoke to many friends who had already made the leap. I had both the technical experience and soft skills required to at least give it a shot. However no matter how much I read or listened, there was going to be PLENTY I didn't know or understand, making for several surprises and lessons down the road.
Many of us have seen the sexy side of consulting. Watching a consultant finish the work week on Thursday can make any salaried employee jealous. And if the salaried employee is unfortunate enough to compare his pay stub with a consultant's invoice, the staggering difference in hours and income (fewer hours and more pay!?!?!?) is utterly shocking.
Fewer of us have seen the not-as-pleasant side of a consultant’s occupation. While the invoices are for more than a pay stub, the consultant absorbs most of the overhead related to his or her work. They have to use that 'huge' invoice to cover health insurance, retirement, more taxes, equipment, travel, and any incidentals that come up relating to the job. Squeezing the consultant on the other side is the non-billable hours. Business management, invoicing, collecting, classes, contract discussions, and travel planning can really bog down the week. And of course all holidays and vacations are off the clock. Watching all of the negatives add up makes that 'meager' salaried pay stub look pretty good again.
I knew going in that overhead costs in both time and money would be significant. What came as a surprise was how significant they would be. When researching the topic, it was impossible to find even soft numbers that other consultants experienced. So I'll offer some of my own very general numbers:
Health Care: $3,000/year (premiums for a mediocre high deductible plan)
Equipment/Tools: $7,000/year
Travel/meetings/tax & law professionals: $5,000/year
Retirement: 5% (what good employers usually contribute)
Additional Self-Employment Tax: 7.5% on AGI
26 Holiday, sick, and Vacation days: 10% of billable time lost
Time Spent on Paperwork (Contracts, Gov't, Tax, Accounting, etc..): 10%
Time spent on marketing, education, and searching for clients: 20%
Given these numbers, in order for a consultant to make the same as an engineer with a $75,000 salaried position he or she would have to invoice around $100,000 for spending 24 hours per week on the project. That's a billable rate of over $80 per hour (100k divided by 1248 hours) just to match the salaried position. And this is without offering any financial consideration for the consultant's risk (e.g. unpaid invoices), expertise in one specific area, or less-secure employment status with the company.
More surprising than the differences in nuts-and-bolts discussed above are the behavioral shocks that my new career had in store for me. I quickly found that clients come from the most unexpected places. I'd like to think that I 'sell' my services, and therefore I am in control of what opportunities I have. Not exactly. All but one of my clients have come from random places and introductions. Fortunately, I have no problem relinquishing the feeling of control and finding comfort with serendipity instead. Plus I appreciate the constant reminder of what moms tell their kids, “Be kind to everyone, not because of who they are, but because of who you are.” Understanding the random nature of finding clients comes as a particular challenge given the next consulting surprise: separating work and play.
I was amazed to find that the business side of my mind tries to get into everything I do and everything I think about. All day every day; it can be maddening. Having my mind always on the business is not just annoying, it can begin to degrade personal activities and relationships if not kept in check. I annoy myself when talking to friends and thinking, 'I wonder if the guy he is talking about needs a EE for that project...' and then thinking, 'This dinner conversation is going to land me a client! Even better, I can write this whole meal off!' Thoughts like these inevitably change the tone of what was only moments ago a friendly dinner. Despite experiments with distractions like exercise and alcohol, I have yet to find a way to turn off my working mind. I'm starting to think that it is impossible to run a small business without it at least churning in the background. However I have developed the skill of recognizing when my mind drifts into the business-realm so I can change the topic, asking “Do you have any plans for vacation this year?” or “How have the ladies/men been treating you lately?” Both questions almost always solicit a non-work and interesting response!
The final unexpected consequence of consulting came from spending much more time alone in my home office. The Oatmeal articulates this point well in one of my favorite comics. I am a very social person (hence the ability to get clients), but I did not realize how much I value the bond one forms with a person working towards a goal like a completed project. If I had to pick one thing I dislike most about consulting, it would be the solitude. Finding a place to work with other consultants and meeting friends for lunch is a great start, but the best solution I've found is to work at the client's location when possible. Working in front of customers provides more pressure to consistently perform, which is a great way to get the most from your day. Plus, having others witness your successes makes them oh so sweet.
If I knew then what I know now, would I make the same choice? No question. Not because I think it is universally better for everyone, but because my personality fits so well in the role. I love the freedom, the need to push and perform during every billable hour, and the variety over both the long and short term. I've adjusted to the inconsistent nature of my work, and I'm happy to work all weekend if it buys be a couple days in the mountains without the crowds. Maybe the risks will start to bug me once children get in the mix, but until then I'm happy!
