KnowingYourMarketWorth

I'm an independent contractor. I go out, get requirements, do design, make UML designs, sit down and hack out code, test it, and then have it deployed to the live environment. A typical project will be around six months.

Here is my problem: I don't know my market worth. I rarely have other contractors to interact with, and don't know where'd even find people doing the same stuff I do in the Bay Area. I've negotiated what I thought were good rates only to find later that I was ludicrously cheap, and I've tried higher rates and been told I was being completely unreasonable.

It seems like this rate disparity has something to do with word of mouth. The people I've worked with in the past, or people who are associated with them consider me cheap. Recruiters and random companies consider me to be expensive. I've tried telling recruiters and random companies that I'm really, really good. That doesn't seem to work so well, and they never contact my references to find out.

I've tried offering a small first contract at a reduced rate, but that doesn't work so well for clients: they have needs that have to be met now, and can't free up funds for a "starter" project. I've also tried directing people to my blog for technical work so that they can see for themselves what my code looks like.

At first this looks like a high class of problem: after all, I have people who are only to happy to hire me doing work I find easy to do. But I'm not really learning new skills, and I don't feel like I'm challenged enough. I've tried maximizing on some skills I recently picked up, but I have even less idea about what to charge in that sphere than I do ordinarily.

I've picked up Janet Ruhl's book. It's very informative, but the sample size is so small that I don't know how valid it is or how seriously I should take it. There's a "rule of thumb" method that says you should divide your equivalent full-time position by 1000 (i.e. if a full time position is $110K, you should be paid $110 p/h) but I don't know how valid that is either.

Anyone have any tips? I feel like I can't be the only one with this problem.

-- WillSargent

Will, you're not the only one with this problem. I guess my first advice (self-serving though it may be) is to get a copy of my "Secrets of Consulting" and read the chapters about marketing yourself and setting a price on your head. Then get back to me. You're exactly the type of person I wrote the book for, and many consultants have told me it helped them very much in situations such as yours. - JerryWeinberg 2005.09.23

Will, I'm one of the consultants to whom Jerry's book has been helpful. I'll second the recommendation to go read that chapter. (I recommend you then do yourself a favor and read the rest of the book.) Please share your responses here !

In addition, I have a bit of feedback: I'm not sure I understand what your goal is. Make more money ? Acquire new skills ? Take on more challenging work ?

All of that, of course. - JimBullock, 2005.09.28

LaurentBossavit 2005.09.27

One part of the problem here, Will, is that there are several kinds of things being offered as services:

Think of the contracting companies as "brokers." This clarifies their contribution and place on the food chain. Also their contribution to the commodity being brokered, and so on.
Some, few folks put together specialty organizations that are managed / run maily in aid of the folks who do the actual work. More like a joint medical practice than a job-shop. Examples are things like The Atlantic Systems Guild, Object Mentor, Net Objectives, McConnell's Constux & similar. These folks have a brand name, which allows them to engage differently.
Another slice is independents with large brand names and essentially solo practices. These folks are too lazy, to cussed, or both, to work with a staff of like minded folk. There are quite a few of them around here. (Arguably, I am one of them - both lazy and cussed.)
Fourth variation is as a solo practitioner or independent, working more with a recognized commodity skill. "I'm a Java / OOP guy." Any number of "work from home" references can walk you through setting fees and similar if you are in this game.

In addition to Jerry's advice of price setting, two other useful takes on consulting are found Peter Block's Flawless Consulting and David Maister's Managing the Professional Services Firm. Block has an excellent breakdown on what you are actually offering, which helps frame the pricing discussion. Maister talks about the "shape" of a consulting organization - I have named four shapes above - and how this impacts compensation, career path and the offer made to clients. This is all background to help frame your thinking (& mine.) Then you apply some of Jerry's approaches, especially "the law of least regret", and you can come up with a rate that works for you. If you are asking about "market worth" I wonder if there is not some regret involved in your fee setting, or anticipated in fees you might set.

I have used the "law of least regret" in both contracting gigs and so-called full-time employment. It worked well for me. Took a dicy job and got pushed out a year later but I asked for enough up front that, while I don't like these people much, I'm OK with the chance I took. In the event, pretty much every unknown in the deal broke the wrong way. Knowing up front what I didn't know, I charged for the risk.

On the other hand, the gig I just concluded was in many ways under priced. But, I hadn't built a product in years. There was some pretty hard-core domain knowledge to be gained (also with the gig before this one.) The offer of doing line & transition management came after an assessment gig, so had a flavor of wondering if I could actually pull off what I had just recommended. And I was bored.

In the end, the market that matters is the one between you and your client. The rest is information.

-- JimBullock 2005.09.28 (I can be bought - not cheap.)

I do have SecretsOfConsulting, but it's more about the implications of pricing rather than the discontinuity in rates I see. Also, the book is specifically about consulting, rather than contracting. One of the rules in the book is "Spend 1/4 of your time doing nothing" -- given that the shortest implementation gigs I have are around a month, the nature of my work is different from described in the book. I can't spend one day a week getting exposure: there are times in a project when I'll be working flat out for a month, sometimes in a different state.

Having said that, the "raspberry jam rule" strikes a chord. I have a few very good clients in a niche field (the ones I've worked with in the past and their immediate contacts), and outside of that range I'm not well known. According to Jim, I would fall into categories 3 and 4 at once, and I'm charging cat3 rates for cat4 clients.

Which is frustrating, because theoretically that shouldn't matter. There is a vast disparity between the rates involved between consulting firms, the consulting wing of a vendor, an independent contractor, and a broker/body shop. And yet, I don't see the skillset they're asking for to be all that different. If you have the skills and have references that can back you up, does it really matter that much that people have heard of you before? (A rhetorical question.)

I think another part of the problem is that I'm trying too much at once. Looking for gigs outside of my usual client base, trying to leverage a different skillset with a different rate that may not be settled on by the marketplace (there are so few Macromedia Flex projects out there I'm not even sure where to look) and trying to do this as an independent consultant without the contacts or resources that a consulting firm would have. It's hard, it's confusing, and it doesn't pay as well.

I have "Managing the Professional Services Firm" as well. It's a very interesting book that explains much about the system (although it uses lawyers rather than engineers). It's too bad that software architects never make partner.

Just bought "The Contract and Fee-Setting Guide for Consultants and Professionals" and will see if that makes any difference.

-- WillSargent 2005.10.05

Will, I take issue with your assertion that you don't have any time to market yourself. You have weekends, and evenings--and, there's nothing to prevent you from making your month-long contracts have a provision for a weekday day free now and then. Let's face it, if you don't market yourself, you're taking a big risk of getting the wrong work, getting no work, paying a big chunk to someone else to maybe get you work, etc. Failure to market yourself is the number one cause of consultant (call it contractor, but it's no different) failure.- JerryWeinberg 2005.10.05

In talking about marketing strategy with a couple of friends I got reminded of something that I kind of knew. Whatever it is that you choose to do about marketing, that is your marketing strategy. I was bemoaning my lack of a web-site, conference attendance, even business cards. For the last couple of years I've been getting all the business I need or want by referral, without these things. My oh-so-insightful friend reminded me: "This is your marketing strategy." Duh.

While I don't spend a lot of time writing brochures, I spend a tremendous amount of time before, during, and after my paid gigs, to ensure that the people I work with understand the results. How much of this is "marketing?" Quite a bit, actually.

I think the trade-off between marketing and "paying work" needs to be a conscious choice that works for you. Some folks have endless energy for communication and self-promotion, hitting every conference you can name. I swear some folks working in "technology" have a publicist. I don't try in those ways. Which leads to the other observation - the marketing that works for you won't be the marketing that works for me, or for Jerry, or for anyone else. One kind of marketing that I know doesn't work - trying to sell something you don't really want to offer, via marketing you are not comfortable with.

-- JimBullock 2005.10.06 (Is this what I want to do about this?)

I understand what Jim is saying much better than what Jerry is saying. I think I may be confusing marketing with advertising, or Jerry's idea of marketing is different from mine.

I do have a website. I've had a number of clients whose first contact with me was several years ago, when they d randomly and found my blog a source of useful information. I've tried to write one useful/interesting post a week for the last few years. And I'm working on getting business cards and a fictitious business name, etc.

But classic marketing (AFAIK "calling around and asking people to spread the word that I'm free") can be very unpredictable. I wish I could clone myself, because I seem to get calls in fits and spirts. A couple of weeks will go by without anything, and then five people will call me in a day. Then comes the next issue, which is determining which call is most likely to turn into real work. Do I pick the no-risk, long-term client, or the unknown client who could potentially turn into a good strong source of work, but doesn't have funds released for his project yet?

A bunch of my work also comes through referrals, word of mouth, past clients. This is what I'm used to as marketing, but that's something that only works in a field I'm already established in. I think that my issue is that I don't know how to "break in" to a new field.

And as far as communication and self-promotion... ayyayay. AYE is the only conference I go to, and even then it doesn't take very long to get confused and then exhausted by all the people, and the reason I go to AYE is to get BETTER at communication. It can be incredibly uncomfortable talking to people I don't know and realizing I have no idea what their names are or whether I had the same conversation with them two days ago.

-- WillSargent 2005.10.08

"I understand what Jim is saying much better than what Jerry is saying."
I don't hear that very often. Gonna print that out and frame it on the wall, I think. - jb

Maybe I can translate a bit, since I'm in the understandable zone for the moment. When I hear this:

" . . . the shortest . . . I have are around a month . . . I can't spend one day a week getting exposure: there are times in a project when I'll be working flat out for a month . . .

That can sound a lot like: "No time for marketing activies." I think there are at least three ways out of "no time for marketing."

Everything you do can have a marketing payoff. This is my main technique.
Manage your engagements so that you have time for something else, also.
Maybe you want to try the Travis McGee approach and split up your time in larger chunks - say weeks or months vs. one day a week.

I am suspicious that it is very hard to succeed in consulting unless what you consult about somehow calls to you. For me, the paying work is part of a larger objective, vs. the other way around. I end up doing things that have marketing payoffs simply by indulging myself whenever I get relief from the time spent with clients. "One quarter" seems to track with my experience. Maybe you want to look at what you can do, enjoy doing, and perhaps inevitebly end up doing when left to your own devices. See what of that can count as "marketing."

-- JimBullock 2005.10.08 (I can explain maketing because I hate doing it . . . )

I wish I could clone myself, because I seem to get calls in fits and spirts. A couple of weeks will go by without anything, and then five people will call me in a day.

That's the two states of the consulting business--too little work and too much work. There is no state of just enough work. Therefore, you have to do such things as putting money in the bank (which I consider part of marketing because it changes your attitude)

Then comes the next issue, which is determining which call is most likely to turn into real work. Do I pick the no-risk, long-term client, or the unknown client who could potentially turn into a good strong source of work, but doesn't have funds released for his project yet?

This is a sales question, not a marketing question. Marketing gets you prospects. Sales closes (or denies) those prospects. So, choosing among various prospects when you have limited resources is a sales question, and definitely one you should ask yourself before you're faced with the question. Of course, if you have only one (or none) prospects, you don't have to bother making the choice.

Well, referrals from clients will not only be useful in the fields you're already established in. Why? Because people are much more worried (though they may not say so) about you as a person, not you as a specialist.

But, yes, you have to do some different kinds of work to break into a new line of work. The first thing you do is try to make a conversion. For instance, in a client where you've done A and done it well, look around and see if there are places where they need B (your new thing). If you find a B-slot, put yourself forward for it--don't make them guess, because they'll probably have you pigeonholed. This is the easiest way to start, and once you done it once or twice, you now can present yourself as experienced in B, with references.

AYE is definitely an overwhelming experience, for me, too. I just take it all in, as much as I can, ask people their names (and to wear their badges), apologize if I repeat myself, and remind myself that this is much, much, much better than being underwhelmed. - JerryWeinberg 2005.10.09

Will, I've been thinking of what I consider marketing activities and what you mentioned above. Here are all the things I do that I consider marketing:

Blog Stuff:

write in my blogs
comment on posts in other people's blogs
link to other people's blogs

Individual writing

write articles (usually showing a good idea and implying I'm the one they should hire to get this good idea :-)
write papers
write books

Networking

speaking at local professional societies
participating at local professional societies on the board/in some volunteer capacity
speaking at local conferences
speaking at international conferences

I almost never call anyone--well, for marketing purposes.

You could choose from activities like these (or some of these), do them for 8 hours a week, and become much better known, which will allow you to hike your rates. -- JohannaRothman 2005.10.27

Updated: Thursday, October 27, 2005