This is part three of a three-part guest post to Executive Update contributed by Kenneth J. Cole, a career coach and search consultant. Ken welcomes your comments and queries at kennethjcole@aol.com.
If you are a C-level executive considering consulting work while you look for your next job, here are some things to consider:
Cash Flow is King – There is a saying in consulting you might want to remember, “We live by the roast turkey principle – first, we eat the meat, then we eat the bones. Finally, we eat the feathers." With 30-some-odd years at this, I can speak with some authority that I've eaten at least my share of feathers.
If you are jumping into consulting, you might want to warn your spouse or significant other about what you might call "the consulting lumpy cash flow." This is a serious issue, and many consultants will fail even though they are great consultants because of the uncertainty of bizdev and getting paid. Remember you also are your own credit manager and will need to put on a black hat from time to time to deal with collections – this is as certain as gravity. There will be breaks between projects where you are staring into space, with no income and no prospects (again, as sure as gravity). Not everyone can handle that (and even if you can, can your partner?).
Setting the Right Rates – What to charge? Holtz says consultants should charge two to two-and-a-half times the rate an employee would be paid for the same work. There are several critical factors that cause consultants to need to charge more for the same work as an employee, e.g. picking up both sides of FICA, providing your own benefits, liability insurance, and most importantly, to compensate yourself during consulting breaks. You also need to consider the costs of taking yourself out of the job market while you are consulting. I suggest you get Holtz’s book for a comprehensive list to help you defend your fee schedule.
For what it's worth, Accenture charged an average of $180 per hour for management consultants and $126 per hour for technology consultants in 2009. I've seen posted rates of $2,500 to $3,000 per day for partner-level work.
"Project" pricing may offer a better solution for you. That allows you to avoid the apparent lofty hourly rate. One of my individual clients was able to negotiate long-term overrides on deals he was able to help the client close during a consulting assignment. As Gerard Nierenberg famously told us, "You get what you negotiate.”
Here’s an example from my own consulting practice. For several years, I had a search partner who was my technology alter-ego. He had retired from the U.S. Navy where he had served as a "boomer" captain, and held a Master's degree in nuclear engineering. He could handle just about anything tech-related that we could encounter. We were making a pitch for a search for a Director of Engineering at a global telecommunications company. The VP asked if we could really find an individual with the qualifications they wanted, and my partner smiled and replied, “Piece of cake!” I kicked him hard under the conference table. On the way out, my partner said to me "Cole, I know I screwed up big time in there, but before I break your neck, tell me what I did so I'll never do it again?" I said, "Don't ever tell a client what we do is easy. Roll your eyes and tell them "That's going to be really hard, but you've picked the right people and we can do it for you.
Prospecting and Bizdev – Remember selling consulting services is like selling insurance – you'll run out of family quickly. I often include a consulting prospect/target list for a client’s chosen field as part of my basic consulting package for senior executives. If you're going to jump into the consulting field, do it rigorously, not ad hoc. You can get started using a service like Dun & Bradstreet’s Zapdata. These tools can help you identify early-stage companies, and public/closely-held, financially-stressed companies, as well as providing information like the usual SIC, sales by dollars size, and geographic sorts.
If you plan to get serious about consulting, I strongly recommend getting the best book ever written on solo consulting, How to Succeed as an Independent Consultant by Herman Holtz and David Zahn, published by John Wiley & Sons. This book is literally worth its weight in plutonium to anyone interested in becoming a consultant.
