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20050105 Wednesday January 05, 2005

How do you become an independent consultant and get contracts? A friend recently sent me an e-mail looking for advice on becoming an independent consultant and specifically how to get contracts. I thought this advice might be interesting for others. The e-mail below is unmodified for the most part. He's an animator and does a lot of stuff in Flash, so this naturally has that twist to it. For Java Developers, just replace Macromedia/Flash stuff with Java stuff.

The best thing is to subcribe to the job mailing lists in Denver. There's a Rocky Mountain Internet Users Group and Macromedia Users group that would probably help you.

http://www.rmiug.org/html/email_lists.html

http://www.rm3ug.com

Then I would advise you to get involved in with a local user group, like the Macromedia one. Attend meetings, talk to people, see where they're getting their gigs. I go to the Denver Java Users Group on a monthly basis and now I have a lot of friends there. It was nerdy at first, but then I realized they all went out for beers afterwards and it's kinda cool now. If you volunteer to speak at one of the meetings, you'll probably get some leads from that. It's really all about networking.

The best thing you could possibly do for you career and new clients is to start a weblog. On it you can talk about what you do and how you solve problems. Tips and tricks kinda stuff. I put a lot of personal stuff on mine (www.raibledesigns.com) too. Ever since I started my weblog, I haven't had to do much looking. Often, I can just post I'm looking for a new gig and I'll get offers. I get 8000 visitors a day and around 2 million hits a month. It's the main reason I got my last couple of book deals.

Any other advice you might have for people looking to become independent consultants?

In general, I find independent consulting a lot more fun than full-time employment. The main benefits of full-time employment are Health Insurance and 401K Plans. Stock options are not a benefit in my eyes. I've yet to meet anyone who has made money off stock options as a full-time employee.

The main benefits of being an independent consultant are higher pay and freedom. An experience full-time Java Developer (in Denver) makes around $100K year. I've heard of companies hiring employees for $120K, but the most I've known anyone to make is $108K. On other hand, a contractor with only a year or two of experience can easily make $55/hour - or $110K year. Experienced developers get anywhere from $75/hour to $200/hour. That's right folks - $150K year to $400K year! For the higher dollars you often have to travel, which kinda sucks.

People that are full-time employees often like it for the benefits - health care and such. As a consultant, you get to see how screwed up our health care system is and pay for your health insurance out-of-pocket. I've seen folks pay anywhere from $250/month to $1000/month for health insurance. We've done both (the latter thanks to Corba) and I'm happy to say that we're paying $250/month now. United Healthcare, minimal plan - but we're still insured. What about 401K? As an independent, you often will establish your own company, and then you can contribute to an SEP plan. With a 401K, you're limited to contributing something like $15K/year. With an SEP, you can contribute up to $40K! Granted, you won't have any employer matching, but you can still plan for your retirement.

The one downside I've seen personally from being independent is I tend to find a lot of projects where I'm the development team. This is great at first since I can work remotely and don't have to attend any meetings, but I tend to miss the water-cooler talk and synergy that a team provides. With full-time positions, this can happen too, but it's rare. With full-time positions, you're likely part of a development team - and if you're lucky - one full of smart developers. One myth about contractors is that they often don't fit into a team full of full-time employees. Personally, I've found this to be a personality thing and have rarely had issues fitting in with full-time employees. The ideal situation is simply to work with smart people. In my career, working with people smarter than me has always been very lucrative to my knowledge base.

Working from home is not all it's cracked up to be. I've done it off and on for a few years now and I'd much rather go into an office at this point. When I work from home, dinner tends to be a just a "break" in my day and I go back to work after the kids go to bed. When I'm in an office, the work day ends when you leave. So how do you get the team-benefits as a independent consultant? The best way I've found is to work with a group of consultants on a project - where the whole team is contractors. You'll often share the same lifestyle and attitudes about your careers. Also, a lot of independent consultants tend to be smart - so you get that benefit.

The last thing I like about independent consulting is freedom. I had 4 months last year where I attended conferences, went on vacation or worked on Spring Live. Good luck finding that kind of freedom with a full-time gig. The higher rates allow you to take more time off to spend with your family - or just enjoy life in general.

If you're thinking about becoming an independent consultant, now is a better time than ever - especially if you live in Denver. The Denver JUG mailing list received more job postings last year than any previous year. From what I've seen, at least half of these are for contracting positions. Unfortunately, most of them are in the $40-60/hour range, but that's still good money.

Any feedback on why you think being a full-time employee is better is most welcome. Posted in Java at Jan 05 2005, 04:45:14 PM MST 21 Comments

Comments:

Great thoughts Matt. Allow me to follow up with some of my own thoughts.

Posted by Winston Rast on January 05, 2005 at 05:19 PM MST #

I've been freelance since early 2001 and I greatly prefer it to full-time employment. Some of the benefits I've realized include:
  • No office politics. My <em>least</em> favorite thing about being a wage slave.
  • Much higher salary.
  • Variety in projects. In the past year I've built large web applications, worked on in-car computers for a metropolitan police station and provided management consulting to a software development company, among other things.
Of course, there are some downsides. I routinely work 200-250 hours a month, and spend a large portion of time on the road. There is also a significant amount of risk involved, but the rewards are certainly there. The only additional advice I'd give is you have to network like crazy to find good gigs. For example, join your local chamber of commerce and talk to everyone. Network or no-work.

Posted by Nick Heudecker on January 05, 2005 at 06:40 PM MST #

I mostly agree with all the points so far (by Matt, Nick, and Winston). I've done both, and about 1.5 years ago I went back to being a full time employee. Prior to that I did consulting work for a couple years, although I must stress that it was a total of two jobs, and probably quite different than most gigs, so my experience is a bit skewed. But, some notes...

I think that consulting has the <em>potential</em> for higher pay, but it depends. It depends on many things, including whether you are a true independent contractor (i.e. you work corp-to-corp, or 1099), how well a full-time gig pays (this can vary massively depending on what industry, what geographic location, how stand-up the company is, etc.), how many hours you work/bill, how important various benefits are to you, etc. The <em>total compensation</em> can be competitive between the two, again, depending on the factors. My experience so far is that I'd made a higher "salary" or straight earnings as a consultant (especially if I'm able to bill more than 40 hrs a week, which is certainly possible if the employer allows it, or if you work multiple gigs simultaneously). But, when I factor in insurance, 401(k), legal plans, stock options, stock purchase programs (this can be a biggy if the stock is good), expenses, etc., a full-time gig can possibly be quite a bit better.

Part of the trick is what kind of consulting you do. Are you "just" a Java coder, or are you an enterprise architect doing complete system design and having the ability to charge say $150/hour or more? Yes, the same folks will make more in a full-time job, but it seems that the curve goes more exponential when you get into the real high end consulting gigs. For more of a "regular" Java coding job, I've seen rates for "senior" Java developers range anywhere from $45/hr to $100/hr, with a large part of that discrepency being geographic location (these are the rates I've seen in the Silicon Valley and Sacramento areas - Sac was a big drop).

Back to benefits. This can vary dramatically of course. But, my relatively limited experience, shows that benefits at larger software companies (think of big Silicon Valley names) is absolutely top notch, and better than just about any other company I've seen, with a few minor exceptions (Visa for example matches 401(k) like 4 to 1 or some amazing thing like that!).

My experience with stock options is quite opposite to Matt's. They've been very nice. I'm not wallowing in money I don't know what to do with or anything, but I feel very fortunate. The other one is stock purchase plans. Boy, if your company has a stock that tends to rise, these things are just stunning. Even if your stock is perfectly flat, you basically are guaranteed to make 15% (depends on what the company's employee price differentia is of course, but that's what it's been in my experience). As an example, our latest period (two periods a year) just ended, and I just about doubled my money. Can't beat that!

Moving on... As Winston mentioned, form an S-Corp, or similar, at get the proper insurance (liability; an umbrella policy is good too, etc.). Also, get a CPA, or similar to help you maximize (er, minimize) your taxes and to help in writing all sorts of stuff off, etc. This is really key, and factors in to that total compensation!

As Nick mentioned, the variety you get when consulting is one of the big benefits. This is one thing I miss for sure. I get variety in my current full-time gig, but not like you do when you're changing contracts routinely.

As for working at home, I have been doing that for the last 6 years now. I like it a lot, but agree that you do miss the social aspect, that water cooler talk. As it turns out, there are a couple of co-workers (my manager, and two of my teammates), who live in my area, and we've finally gotten approval to get a small office for ourselves. Some will use it more than others, but we'll have at least a few guaranteed days, and this will help a lot with the Agile processes we're now using heavily (try following things like Crystal Clear and similar processes and not being colocated, it's a challenge).

Lastly, back to money. Before you jump, do some looking around and check out what the consulting rates are like in your area, and/or for jobs that you would fit (assuming you'd be able to look in a wider geographic area). As said, it can vary heavily depending on what it is you do, and also what area you live in. I basically won't contract in the area I live in because the pay is almost half of what it is in the SF Bay area, or DC, or some other places I've done contracts. And also, if you've got specialties that are harder to find, or higher end (i.e. the "architect" type stuff), you can potentially demand a much higher premium (ya, start thinking those >$150/hour rates), then that may yield a much better picture.

Oh, and so why did I go back to full-time gig? Well, a) because I have a family (kid #2 on the way), and wanted more stability, and b) the particular company's compensation package is top notch (and I get to work from home), c) I liked the particular project(s), and d) I went back to working with some folks I'd worked with before.

Posted by Chris Bailey on January 05, 2005 at 10:10 PM MST #

> a contractor with only a year or two of experience can easily make $55/hour - or $110K year. But isn't that a bit misleading? If you're a 1099 contractor, $110k is your gross pay, not your net pay. You still have to pay your taxes, and Social Security tax ( which is doubled since your employer isn't picking up 1/2 the tab), or am I totally wrong about this?

Posted by Craig on January 06, 2005 at 08:52 AM MST #

You seem to be pretty lucky there in Denver. I used to work for a small consulting company and it was pretty darn hard for them to get any of us into a company largely because these companies (Sprint, Hallmark, American Century, etc) had preferred vendor lists that they picked from. With one exception, most of the work came as subcontractors or with smaller companies. So right now I'm back into the corporate mess, with an eye towards starting a software company soon.

Posted by Robert McIntosh on January 06, 2005 at 08:57 AM MST #

Excellent topic. To answer Craig's question, the $55/hr rates we've been seeing (at least around the Denver area) are all W2's (they with-hold your taxes). Anyone I know working now on a 1099 or Corp2Corp (you're responsible for taxes) is making at least $70/hr. This wasn't the case a year ago, but it certainly is now. I've been doing consulting/contracting for almost 4 years now and for me it all comes back to freedom, as Matt put it. As long as you're not living paycheck to paycheck (as unfortunately most people do) you can take off as much time as your sanity will allow. Most employers typically don't care because they're not paying you anyway (or so I've found). Oh, and as for health insurance, for me (married, no children, non-smoker, etc) a Blue Cross/Blue Shield PPO with a great deductible and good co-pay is $130/month (plus it's an expense of my s-corp, so it's deductible!). I pay dental out of pocket but it's usually a few hundred dollars/year at the most. And you'd be crazy not to get a SEP as Matt mentioned above. Again, health benefits are very compelling for a family of 4, but hardly worth everything else that comes along with being a FT employee (IMHO). One other BIG topic I wanted to draw attention to is the difference between Consulting and Contracting, especially for anyone seriously considering it. The majority of the jobs you see out there now on the job boards are for Contracting, or Staff Augmentation. That typically means you're a hired body to help out on a particular project rather than being considered a resident expert. As opposed to Consulting where the client genuinely cares what you think (in terms of architecture, technology, etc) and you're treated very well (obviously some Contractors are treated well too, but not as much in my experience). Obviously Consultants are paid more yet they have far more at stake as if the project bombs it's typically (or at least partially) your fault. I've held both positions and would absolutely prefer to Consult but sometimes it's nice to be out of the firing line and just be a 'developer' for six months or so.

Posted by Michael on January 06, 2005 at 09:12 AM MST #

Matt, I think you left out the most important factor in deciding whether to take the consulting route or not: your personality. Generally, an independent consultant has to be a risk taker, good at interacting with a variety of people, has to enjoy change, and (as you said) accept travel as part of the cost of doing business. You also have to have a fair amount of fiscal discipline - you've gotta sock money away for dry spells, and possibly taxes if you're not a W2, and also deal with things like health care. If you're this type of person, consulting may be the thing for you. The primary the factors I've seen are "risk taker" and "enjoys change". Consultants tend not to get 2-5 year contracts, it varies a lot but the steps tend to be a few weeks to 3 months to 6 months and then increments of 6 onths there-after. This means that you have to really like change - constantly seeing new technologies, new development environments, different corporate and technical cultures, etc. Some people thrive in this environment - they work best when they're hit with radically new projects on a regular basis. For other people, it drives them crazy. They may like being with a single team for a long period of time. They may enjoy building knowledge of a suite of projects in their company over a period of time. They may like being the crazy "old guy" who knows where all the bodies are buried, how the Swizzle Feed works, and to know from accumulated experience the best place to each lunch in the area :-) You have to be honest with yourself - if you don't enjoy constant change, you may be miserable doing consulting. The other side of the coin is risk tolerance. No full time job can really be called "risk free", there's no "jobs for life". But they give a measure of stability, a measure of guarantees. Even if your project hits a lull, you're still going to get a pay check. Independent consulting is very different - there are hot times and there are lulls, and you've got to plan for the lulls and be willing to take risks. A great deal of the higher rights doesn't necessarily go into things like health care, they go into the "rainy day fund". Smart independents sock away a percentage of their earnings today because they know sometime in the future - next week, a few months from now, maybe next year - a dry spell's going to hit. You have to accept that you may go for a few weeks or even a few months with little or no work. You may have to accept some really hacky low-paying jobs just to keep the cashflow up. Consulting is also much more sensitive to economic lulls - when a company's bottom line starts feeling heat, consulting dollars are the first to get cut. Again, just like with "enjoys change", you need a personality that can tolerate and manage risks. Consulting is not endless hours at $70/per that you pick and choose from as Matt seems to indicate. Sometimes you'll have so many possibilities that you have to turn some down. And other times you'll have periods where you can't give your services away. You've got to be the type of person who can tolerate this higher risk level, or again you'll be miserable.

Posted by Mike Spille on January 06, 2005 at 01:31 PM MST #

You know, this is both a critique of your blog idea and a compliment. Simply having a technical or professional blog is not enough. Your blog drives business to you because you spend time talking about the new technologies you're learning, the new projects you're working on, and have a clever way off offhandedly talking about the special expertise you have in Java technologies. In addition, you draw people to the site with a kind of educational outreach created by Equinox and AppFuse.

Then, people try to use your most simple version of a Java tool to do it themselves, realize how hard it is, and decide to go for the expert. So I think it's misleading to tell people all they need is a blog. Your blog and your angle are probably better than you realize. People would have to come up with a new angle or spend a lot of time developing a new one.

Posted by Daniel Talsky on January 06, 2005 at 03:46 PM MST #

I think on part of the discussion that is missing is the need for a good contract up front. My partner and I had a really bad experience doing some work for a company. He knew the head of the IT department and they needed a web based system to be used internally. We went to some requirements meetings and then got to work. We thought we did not need a contract because this company was supposed to be an upright company that would "do us right." I shoud of run away when I heard this. Anyway, we were working the project and delievering parts that they really liked. But, the scope kept changing, but the time line did not. I got frustrated and convineced my partner that we needed to get a contract with them. We wrote on up spelling out the scope of work and how changes whould be handled. They did not like it and sent it back with changes. We did this back and forth on the contract for over two months. They finally cancelled the project. When we started we were billing at $70 an hour and they where paying. When the changes started, we told them that this would push out the delivery time, and they said keep working on it. When the contract negotiations started, they no longer wanted to pay us at an hourly rate. To keep them as a customer, we agreed to a fixed price to finish the project with a concrete scope and then tried to define the change request process in the contract. They did not like the fact they would have to pay for their change requests. During this time, we also continued to work on the project so we could have it ready for delivery. Like I said before, they finally cancelled the project. But, then they wanted us to pay back the money they had paid us for hour hourly work. We said no way and they sued us. We spent some money on lawyer time and evently where advised to have our LLC file for bankruptcy. At the same time, we billed them for the remaining time they had not paid us for. That was a bill for $130,000.00. So, what saved us was that we had first set up and LLC before we did anything. Then, we represented ourselves as our LLC, not individuals. And, we also kept every email, note, and even taped phone converstions. When there lawyers found out what we had, they advised them to drop the law suit. The way it ended was we where out $130,000.00 worth of time, but learned a heck of a lot about contracts. So, how do you experienced consultants handle contracts? Do you just bill by the hour or bill on a fixed price for a fixed amount of work?

Posted by Gary Woodbridge on January 07, 2005 at 08:04 AM MST #

I just got done with a 3 month contract at $75/hour in downtown San Francisco for Java development doing a website on JBoss using Struts/Hibernate. At the time, I thought that was a low rate, but what I'm finding out now is that it was actually pretty high. When I started looking for another gig (in the Bay Area), I couldn't touch that rate. Most people were in the $50-$65/hour range. (BTW - this was all 1099 work.) So that's why I decided to go back to full time. I did some contract work in the dot com boom and was getting $100/hour - and that was before I really knew anything! But now it seems times have changed. I'm hoping to hone my skills a little more and then maybe try again later. Or, maybe I'll move to Denver. ;)

Posted by Paul Carter on January 07, 2005 at 10:18 AM MST #

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Posted by Neeraj Kumar on January 07, 2005 at 10:22 AM MST #

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Posted by Neeraj Kumar on January 07, 2005 at 10:22 AM MST #

Adding on to Paul Carter's comments... I work for a Bay area company, and have done, or have experience with consulting in the Bay area, Sacramento, and Washington DC areas. I think he's probably about right on rates. What I saw, which is over a year ago, was that I could get $80/hour in the Bay area for Java work without too much effort. But, in Sacramento, I was being told that $45/hr was what I'd get (for a "Senior Java Developer"). Almost half. Pretty big difference given that it's less than a two hour drive away. The contract I did in DC I was paid $75/hr (all my rates are/were 1099). However, where I work (full-time) now, we just hired a database specialist, who I think was $100/hr (although I believe some of that goes to the recruiter?0, and then we tried to hire an infrastructure architect, and that would have been at $150/hr (we also had a line on a guy at $100/hr, but the differences in experience and ability were pretty substantial, and thus in line with those price diffs). So, I go back to what I mentioned in my first comment, which is it may depend a lot on the exact nature of the job/how specialized the position is. There are tons of Java developers available (not necessarily all good of course ;), so that can have an impact. Also, check out Software Development magazines annual salary survey. That'll at least give you an idea in relative terms about how different geographic areas pay differently (i.e. typically Silicon Valley and New York city areas pay the highest, with the middle of the country paying almost half). Good discussion though, hopefully this all helps some folks looking to become consultants, or just starting out that can learn from experience.

Posted by Chris Bailey on January 07, 2005 at 10:56 AM MST #

Not to be a comment hog on this, but one last suggestion... The most frequently recommended book I've seen from very successful consultants is The Secrets of Consulting by Weinberg.

Posted by Chris Bailey on January 07, 2005 at 12:03 PM MST #

I think it would be really hard to go back to the corporate world after being your own boss for a while. The freedom spoils you. I enjoy the change. I enjoy being the entire technical staff for a project. You get to meet so many people and learn so many new tricks when you are changing you gig every 3 to 6 months. The travel really gets rough. Sometimes I don't know if I am coming or going.

Posted by Rick Hightower on January 08, 2005 at 09:48 PM MST #

You mentioned health insurance as a problem. I've had good experience with eHealthInsurance (https://www.ehealthinsurance.com/) -- it's still far higher than what I paid when I was a permanent employee, but it's far cheaper than COBRA and I've had no problems with my plan providers. The biggest problem I have with being a consultant is that my impact is always limited to the project I'm on. If the bug-tracking system is a perl script written five years ago that no-one knows how to replace, if there's no concept of a repeatable build or source control, then trying to spread knowledge around the organization has to come second to the project's needs. I consider a project to be a success when I've worked my way out of a job and the people there have the tools and skills to do everything I did there. Of course, it usually takes more than one project there to make it happen...

Posted by Will Sargent on February 03, 2005 at 12:15 AM MST #

Great topic! My view would be different from most of the people's postings here for 2 reasons. 1. Visa status, Working on H1B visa 2. Wanting to become an independent contractor. In my experience attending sales meetings and the user group meetings helps to build contacts, share thoughts and you might also find representatives from companies who probably are looking for smart people in certain technologies. I was a regular member of the websphere users group meetings in New York city. I made good contacts websphere users group, not all were helpful, but some were. I want to share an interesting experience. In one of the user group meeting, the head of technology from Pfizer was presenting about websphere portal. It seems like he was pushing this technology to the company and was very passionate of websphere portals, it seemed to me like he was looking for somebody to help him. I was able to jump on the opportunity and exchange business cards, at that time I was not an independent contractor and it was not legally possibly for me to be an independent contractor. So I shared this thought with my sales team at the company that I was working for at that time (a consulting firm in NYC) they just tool it lightly. But I will guarantee you, if I has a IT services company back then I would have grabbed on the opportunity and could have made at least $250,000. I realized that I could not become an independent contractor in USA unless I had to wait for 6 years to get my green card. I had no intention to get the green card for personal reasons. So, I finally build up contacts and move back to India and started a company "Ligature Software Pvt. Ltd.?, when I moved back I made sure that I had at least one client that would pay my bills. I was working for this client for 1 year when I was in USA, (I was in USA for 5 1/2 yrs) my billing was $70 per hours. I had brought this client to my consulting firm through my contacts, then my consulting firm wanted more $ from the client. So, I made a deal with the client, I will get the same work done for $30 from India and the deal was agreed upon. Now, I still have this client since 3 years, both of us are happy. Apart from that I enjoy working independently and managing a team of 4 people. Its feels great! Somebody put is very right; dinner is just a "break" :). Fortunately, I don't have to travel as most of my client deal with me on telephone. I think being an independent contractor and outsourcing and building the team outside USA is the right way to go. Its open economy and we have to capitalize on it.

Posted by Sridhar on February 08, 2006 at 12:56 PM MST #

Along the lines of eHealthInsurance, I found a site that was a little less commiting. The name is mtnhealthinsurance.com I was able to contact the owner. Who was very helpfull. i asked him some questions about beign in the business. He is also free lance but finds many of other insurance agents that will ruin his leads or jump in flooding the interested visitor. He blaims gmail.com because some of the ads that are displayed that are reletive to the messages sent back and forth to potenial clients.

Posted by Chris Osborn on December 17, 2006 at 02:23 PM MST #

Great Article, Thanks for the input.

Posted by Tapas Shome on June 24, 2007 at 10:51 PM MDT #

Matt, it has been three years now since you posted this. Any new insights to add since then? Thanks for the info btw - I am considering moving into this realm right now.

Posted by Jason McDonald on February 20, 2008 at 01:23 PM MST #

Great points. In fact, $55 an hour may be low, depending on where you live and what you do. Many independent consultants make $100 an hour or more. The key is to set yourself out so that you're not just a contract employee. As an aside, I run a website on becoming a consultant at Consultant Journal. Might be of interest to some of your readers. Cheers.

Posted by Andrea Coutu on August 13, 2008 at 04:32 PM MDT #

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