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How to become an independent IT consultant

Matthew Heusser | Oct. 23, 2015
The risk may be high, but the rewards can be even higher. Here are some practical tips for making the leap from employee to independent IT consultant.

For more on fixed-rate pricing, consider Alan Weiss's Million Dollar Consulting is about growing a consulting practice to seven figures without hiring billable employees, or his other book Value Based Fees

Budgeting money, budgeting time, planning the business 

Part of my going independent was based on a mistake. I took a look at my expenses for the past year, averaged them, and came up with a weekly minimum earning statement, which was a good step. I had been freelancing at night for years, doing consulting, training and writing, and had saved about $20,000 U.S. dollars. If I cut my expenses to the bone, I figured I could make just enough income from the freelancing alone to get by – although I'd be eating beans and baloney and nothing would go into retirement. 

I did the math wrong. 

I forgot about health insurance and taxes, which came out of the check for the day job before I ever saw it. 

The $20,000 cushion plus the freelancing income provided me at least a year of runway; all I needed was a month, for Lanette to give me a call, and another month and a half to get onsite. 

So budget. It is kind of important. 

When you’re looking at expenses, I suggest three family budgets – a to-the-bone budget, in survival mode; a normal budget, that includes retirement, emergency savings, saving for a new car, computer, repairs and so on. You might also consider an “everything goes swimmingly” budget that gives you some time on, say, a cruise ship once a year. If business picks up and you suddenly get busy, you'll also need some time away. Create these budgets based on the amounts of money you are actually spending and historic trends. People like presents at Christmas, and heating bills are higher in the winter. 

Then there is budgeting your time. In Secrets of Consulting, Jerry Weinberg suggests that consultants bill at five times survival rate. After all, you'll need to spend one fourth your time marketing, one fourth doing administration and paperwork – you need to reserve some time to rest. That leaves about one-fourth your time to do billable work – plus you want to save some for lean times. If you aren't comfortable with those rates, Jerry suggests that perhaps consulting isn't for you, and it might not be. Freelancing and contracting tend to have much lower hourly rates, but provide more hours and longer assignments. An employee typically runs 2,000 hours per year; a freelancer or contractor might bill 1,500-1,800, a true consultant might bill 800. That makes for a huge difference in pay rates. 

 

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