Open Insights 18 – The Cost of Consulting

In This Issue:
1. Feature: The Cost of Consulting
2. New Audio Interview Series
3. Current Reading
4. Lightweight Humor
5. Miscellaneous
6. Past Issues
7. Technical Articles
8. About Heavyweight Internet Group

1. Feature: The Cost of Consulting

I spend a lot of time with prospects, networking, exchanging ideas, and also fishing for new projects. Some of that time is spent on the phone, some at networking events, seminars, and conferences, and some just at lunches. Business as usual you say, right?

In a recent conversation and negotiation over costs for a project, a prospect expressed one of her concerns to me. “Well, I shouldn’t have to finance your lunch dates with other clients…” Now one might take this in an adversarial way, but of course she was merely expressing her interest in keeping costs down on her end, and what she preceived to be a lack of fairness in overall cost. But one thing it made me realize is how there is often a lot of miscommunication, and misunderstandings over the cost of consulting. So that got me thinking about this month’s newsletter.

I’ll start by talking a bit about some of those costs, hidden ones, and obvious ones, and then speak of some hidden benefits of hiring what at first might seem to be a more expensive resource.

Consulting can be a mixed bag in terms of business, and profit. There are ups and downs of the business cycle, and many activities that don’t directly contribute to income. One is keeping skills up to date, which involves following online forums, reading the latest books on the subject, attending and speaking at seminars, and generally being involved in the technical community. As a fulltime employee, that is a natural part of day-to-day activity, and mixes in with your weekly salary as an expected overhead. As a consultant however, those are dreaded “unbillable hours”. Writing this newsletter is another example of unbillable hours, as are phone calls and prospecting in general. In fact of the many aspects of consulting, including accounting, marketing, sales, networking, prospecting, negotiating contracts, billing, maintaining professional skills, and writing code or administrating a system, only the very last two are billable! Unbillable hours are a huge cost in consulting, but benefits, such as 401k, and health insurance are a few additional ones. Each and every one of those costs has to be captured, and encapsulated into an hourly rate, in order to simply be in business. If the money coming in doesn’t equal the costs, you simply won’t be in business for very long. It simply won’t work.

From the perspective of a prospect considering taking on a consultant for a project, it may still not be obvious why this all should concern them. I spoke with a hiring manager once who told me, there are lots of folks out here who will work for $30/hr, students, parttime freelancers, and people looking for a second income. He was right, I’ve met a number of these folks myself. I think they fall into two categories, (1) those for whom consulting is not their primary income and (2) those who are testing the waters, trying to get clients by underselling themselves. The former category of people unfortunately won’t make your business a priority for them, since the income isn’t a priority. And the latter group will inevitably not last long in consulting because they haven’t recognized all of the hidden costs. Take that $30/hr, multiply 40 hours, and 50 weeks (2 weeks vacation is yet another overhead) and you come out with 60k. But that doesn’t account for higher taxes, health insurance, and 401k, and make what businesses estimate to be a 20-25% cost on top of salary. So 80% of that is 48k, and that’s assuming you bill out every hour of every week of the year. More likely it’ll be around 75% of those hours, bringing you down to an equivalent salary of 36k, which is certainly not much of a salary by New York City standards. Take a salary of 90k as a base in NYC, with overhead figure 113k cost to the company, continue with our optimism and figure 75% of the year’s hours are billable, that’s 151k divided into an hourly rate and you get $75/hr.

From the perspective of your business, if you need someone for a quick one-week project, it probably doesn’t matter. In that case, assuming they can execute on what they say, cheaper is probably better. So what do you gain from hiring a resource that at first simply seems more expensive? You get projects done quicker, and anticipate more of the roadblocks, and hurdles in advance. You get peripheral benefits from years of experience, recommendations, opinions, and you get reliability. A consultant who’s been in business for ten years like we have, you know is going to be around after they finish the project. You’re going to be able to turn to them if something goes awry six months or three years down the line. You’ll also get the benefit of their network of contacts, and industry connections, foresight, and perspective.

In the end we’ve found clients pleasantly surprised by what they got for their dollar, at the close of consulting projects. You as a business, must be savvy, and factor not only an hourly rate but also how much time the project will take, whether all the cracks are filled in at the end. Ultimately you want to be sure your new bridge can stand the test of time.

2. New Audio Interview Series

We’ve started a new series of audio interviews or podcast that you’re sure to enjoy. In our first one, we talk with Paul Vallee, Founder and President of Pythian Group, about their use of Open-source technologies in the enterprise, and why they’ve taken the reigns to maintain a Perl to Oracle library called DBD::Oracle. Click here for more.

Do you use Open-source technologies in your enterprise? Would you like to talk about your experiences, and business successes? We’d like to hear from you. Email me at shull@iheavy.com

3. Current Reading

A testament to blogging, each and every one of the authors we mention here has a blog!

Collapse by Jared Diamond
Jared Diamond, famed author of “Guns, Germs, and Steel” points his attention to various human civilizations from history, and discusses what we can learn and apply to our present day environmental and geopolitical problems. Also read Diamond’s blog

Tipping Point by Malcolm Gladwell
Also the author of Blink, another bestseller, Gladwell discusses various social phenomenon which exhibit a tipping point. He talks about the word of mouth phenomenon, mavens, networking, social connectors, and how size impacts the affectiveness of working groups. This is a superb book, for its excellent no nonesense writing style, and focus on issues of relevance to all of us, especially in business. You can follow Gladwell’s ideas regularly at his blog.

Never Eat Alone by Keith Ferrazzi
Keith Ferrazzi takes a fascinating look at networking. Some of his deep insights include “don’t keep score”, “build it before you need it” and “social arbitrage”. I even managed to see him speak at the 92nd Street Y, and I highly recommend his book. He also has a blog Never Eat Alone. Keith also has a 15 point tip sheet called “Conference Commando” which is very good. Search google to find a copy.

We’d also like to bring your attention to Paul Beelen’s Advertising 2.0 Whitepaper. He discusses RSS for syndication of your content, as well as word of mouth advertising on the web, and how blogs are having such an impact. This is very good stuff for anyone running a business on the web.

Tom Peters is one of those famous and insightful people, that always sparks some new thinking when you read his materials. Check out his 111 Ridiculously Obvious Thoughts on Selling.

Have you started using Linkedin, or are wondering how to better manage your network of contacts and associates? Read Keith Ferrazzi’s howto Tools of the Trade: Linkedin

If you’re a blogger, you may be curious how to earn some income from all your hard work, and original content. Here’s a great way to get started Tag, You’re It! Leveraging Tagging For Your Blog

Lastly, I would recommend taking a look at Virtual Handshake by Teten and Allen. The entire book is available for free download off of their site!

4. Lightweight Humor

Here’s a funny one from the Onion CEO’s Success Credited To Unbelievable Handshake!

5. Miscellaneous

We’ve submitted an article to a great site called Change This. Change This is all about optimistic visions for the future, in technology, politics, social change, and business. We would really love your support. Simply follow this link and click the “Vote” button. That’s it.

6. Past Issues

Issue 17: Secrets Of The Interview
Issue 16: Success In Juggling
Issue 15: Marketing About Technology
Archive: Past Issues

7. Technical Articles

Oracle9i + RAC on Linux/Firewire: click here
Migrating MySQL to Oracle: click here
MySQL Disaster Recovery: click here

8. About Heavyweight Internet Group

In a nutshell, Oracle. Everything related to and surrounding the database
technology we specialize in, but specifically setup, admin and tuning of Oracle
technology. I have 10 years experience with Oracle, wrote a book on the
technology, and write and lecture frequently. I’m founder and senior
consultant of the company. In capacities where your company might hire
Deloitte, AIG, or Oracle Consulting we can bring the same level of service
and experience, at about half the price. Simple equation.

Visit us on the web at www.iheavy.com.