By William Hindman
You know me as William Hindman on AccessD—an independent software consultant in the southeast US who specializes in developing database solutions for business problems. I use Access as my primary development tool for a number of reasons, but primarily for its installed base and rapid application development capabilities. I can put a viable solution on a client’s desktop more quickly and at lower cost than with any other development tool available.
The purpose of this column is to address issues that are important and/or unique to independent consultants, and not just Access database development per se, although many of the questions I get are from salaried or contract Access developers considering the move to an independent status. I’ll try to address one issue in each column, as well as respond to questions generated from previous ones. This column reflects only my personal experience, viewpoints, and opinions. It is not the voice of Database Advisors Inc or Many-To-Many, The Database Journal.
The most frequent question I get is about pricing, so let’s start there. Almost every new consultant starts on some sort of false premise—usually that they can do it cheaper, better, quicker, etc., than their competitors Unfortunately, most either don’t survive to file their first income tax return as an independent contractor or they become just another consultant living on thin margins. You can’t do it cheaper than your competitor. Most likely your competitors have a larger, more stable client base, significant physical assets, financial reserves, credit lines, and invaluable inside contacts. If you try to build your new software consulting business on cheaper prices, your established competitors will take you and your savings to the cleaner.
When I started out, I had just retired from a large multinational corporation. Although I had managed many software development, engineering, and proposal development projects, I had no contacts in the small business environment and no idea of what the going market rate was for my services. Admittedly, I got lucky —I started working with a Unix consultant who needed someone to keep his clients happy with their growing Windows’ needs. He asked me what I wanted and I told him I had been working for a salary and benefits package worth $45 an hour and didn’t really need to make that much, but had no idea what to charge. So he laughed and gave me my first real insight into the realities of the business.
Now I certainly understand that from the position of a salaried employee of a major, benefit-packeted employer, $45.00 an hour might seem up scale. On the other hand, an independent, US-based consultant charging $45.00 as his primary rate will go flat broke and be looking for a salaried position sooner than John Colby can jump on a multi-field primary. Every single consultant in my market area, billing at these unrealistically low rates has eventually gone out of business, and left his clients to suffer.
First, you need to stop looking at it from the perspective of how much you can charge and start looking at how much income you must have in order to not only survive but prosper sufficiently to make all the sweat, time, and effort worthwhile. While your expenses may differ in minor ways from mine, my US-based list includes FICA (taxes will come first), Social Security (the full 15.3% self-employed rate), personal insurance (health, life, etc.), business insurance, business licenses, business taxes, auto expenses, marketing costs, training costs, hardware costs, software costs, professional fees, personal draw/wages (you do need to eat and sleep), profits for reinvestment, retirement savings, and cash reserves (to cover that fixed price contract that took twice as long as you estimated).That’s my short list.
Second, as an independent software consultant, statistically you are doing well if your actual billable hours reach 50 percent of total hours put into your business. Non-billable hours include vacation, sick time, and training hours as well as those hours spent in planning, estimating, marketing, supervision, and taking care of all the other minutiae of running a business—as well as those inevitable times when you are between contracts. So you’d be doing very well if that $45 grossed $22.50 and netted $11 an hour.
My Unix consultant friend laughed his posterior off, went through the numbers with me, and said he’d bill $80 per hour for me and pay me $65 an hour. If it worked out he’d bump the rate up to $120 and give me $100. I thought that was outrageous—who was going to pay $80 an hour for me, much less $120? But the client didn’t even blink an eye.
Asking for market rate is the hardest thing to overcome when you’re starting out. I currently charge $80/up for Access/Office and as much as $120 for SQL work, and there is no shortage of referrals. There are MCSD competitors in the area who charge as little as $45 and job shops at $50-$85. When I’m questioned about my prices, I have no qualms in suggesting that "if price is your only consideration, by all means check out my competitors ...on the other hand, if your business is a major consideration, you will make money off my time and lose it on theirs ...check my references." Another line that will usually pause the conversation is "how much would it cost you to bring another contractor up to production speed on your program if I go bankrupt."
You will lose jobs to others charging lower prices, but you won’t lose money. Often, the lost client will call you six months later to ask how much you’ll charge to fix the cheaper developer’s mess. If you feel you have no other option than to deliberately under bid ("low ball") for some reason, lowball your time, not the rate—just to get a few clients on board. DO NOT LOW BALL your price or you will establish a precedent ceiling and that client will never pay you full price for later work.
I do however fully acknowledge the need to bring in those early clients. They are the heart of the referrals that will make you very profitable down the road, so figure the total price that would make you happy even if that equates to less than $10 an hour and then quote that price in terms of the higher hourly rates. In other words, if you think $500 is great for your first project, divide $500 by $80 to derive the number of hours (6.25) that you will invoice. The customer will be overjoyed with the low price and you’ll actually get paid for your work. More importantly, both of you have established a reference point for future work at the $80 figure rather than the $10 figure. If they are happy with your first project (and you will do anything to make them so) $80 an hour will be a negotiating point, not a surprise. The other benefit of reducing hours rather than dollars comes into play when it becomes obvious that you spent 40 hours, not the 10 hours they actually paid for without changing your price. At this point, you will have a lot of moral leverage in the next negotiation, and you can start earning a living.
I will lower my rates to $65 per hour for good, long-term clients that buy a minimum of 20 block hours per month and pay up front. Otherwise, my rate is $80 and the client pays it even while we discuss that rate. Don’t forget to include 15 minutes on your next invoice for the billing discussion. You can N/C (no charge) it if you want, but always make the client aware of all those little time periods that you give freely.
Keep in mind that my prices reflect my market and my cost of living, and adjust yours accordingly. Be realistic and don’t price yourself out of business.
If you have any comments, questions, or topic suggestions for the next issue, contact me at dejpolsys@hotmail.com.
William
Hindman©2001
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distributed as long as the copyright remains.