More companies are deciding to bring on consultants rather than full-time hires.  The list of reasons varies but includes:

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  • Budget constraints, contractor or consultant dollars can be allocated differently from staff budgets on a P&L.
  • There are no benefit costs like healthcare and vacation.
  • The project has a definitive start and end date.

Regardless of the reasons, the contractor/consultant role is on the rise.  So how do you negotiate your first deal?

I’ve been asked numerous times:  What’s typical?  The reality is that no two situations are the same and negotiating a deal takes full knowledge of the situation.  Here’s a list of the items I’ve seen that have been negotiated.  Keep in mind that any one of these items could be a deal breaker in one situation and a nonissue in another.

PAYMENT

Hourly – Simple, straight forward.  For your benefit, agree on parameters around how many hours for how many weeks or months. Create a scope of work (SOW) to outline what you will be working on, how many hours it will take, and what the end result will be.  You should create a SOW regardless of your payment structure.  The SOW is an even more critical tool if you are working off site.  Build in a check-in meeting to discuss your progress and how the relationship is working and keep it separate from the details of the project.

Day Rate – Be careful on these if you are working less than five days a week for the same client.  Monday can easily turn into some Tuesday follow up, and Thursday clarification and Friday prep for the next Monday.

Weekly/Monthly – This can be for any amount of time, five days a week down to one.  Be careful in the calculations and be sure to track if it’s less than full time.

Project Based – 1/3 up front, 1/3 half way through, and 1/3 on completion – the frequency and amount can vary depending on the length of the project.  Be very clear on the scope of work and what you must deliver and when to collect your pay.  Be sure to have your client sign off on the plan before you start work and don’t be afraid to call them on it when they deviate.

Retained – Be sure to be specific about how much time you are going to allocate and be ready for fluctuations.  Think like a lawyer and start tracking your time. I’ve seen folks sign retainers expecting 25 hours a week and when reality sets in it’s more like 40. Tracking your hours and results gives you leverage to negotiate your money up or your time down.

ON-SITE OR OFF-SITE?

This depends entirely on the client and the situation.  There is a balancing act.  If the client is fine never seeing you, make a point of getting face to face on some type of schedule. Being in the office will help extend your project and also potentially uncover other business opportunities.  It will also help you understand the landscape and should help eliminate surprises.

GURANTEED PAY

Agreeing up front on payment for a length of time even if the work goes away isn’t unheard of.  This is easier to negotiate if you are committing to full-time work for a client as it takes you out of your job search.  If companies aren’t willing to guarantee a duration you may want to scale five days a week back to four so you can keep your job search active.

CONVERSION TO FULL TIME EMPLOYMENT

Under most circumstances companies won’t guarantee this but it’s worth having the conversation. When to have the conversation depends entirely on the details of the situation.  If you know early on it’s a possibility talk about compensation, it’s the most common reason company and consultant can’t come to terms.

NONCOMPETES

Take these seriously. In my experience most companies are fair and are willing to talk about and change the terms of a noncompete.  If the noncompete is lengthy and technical, find an attorney.  Noncompetes can be used as a negotiating tool in your favor for guaranteed pay.

TRAVEL

Be sure to have this conversation up front.  Travel costs add up and you don’t want to be waiting 60 days for reimbursement.  In some cases companies will charge you an early pay penalty.  That means that if the company pays you sooner than X days from invoice date they take from 2-8% off of the total invoice, add that to your interest rate, and it has a real impact.  If these policies are in place you want to adjust your rate so you don’t end up losing money if you are floating the travel costs.  It’s not uncommon to charge for your travel time.  Some companies will have a policy already in place and others will negotiate.

To reiterate, every situation is different.  If you think I can help you negotiate a contract feel free to drop me a note I’m happy to provide my perspective.