Derik Whittaker

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Making the jump back to Consulting

For about the past year or so, I have been thinking about jumping back into the consulting game, but this time as an independent.  I was a consultant for about 5 years a while back and had a lot of fun, but the one regret I had was that in 5 years, I was really only on 2 projects.  When I got into consulting I had hoped I would bounce from project to project, technology to technology, but that did not happen.

So after nights of deep thought, I have decided it was time to give it a go.

I thought I would list out a few of the different thing that I thought about during my months of debating.

Deciding Factors (for me)

  • Independence
    Like most people, I have always aspired to be my own boss.  Since I don't have any 'good' ideas for a software product, and I am really not willing to quit my job to open up a small business.  Going as an independent is the next best thing.

    I get to choose my rate (depending on market conditions), I also get to choose the types of projects I work on (again, depending on market conditions).  By being able to be in charge of this, I am essentially my own boss.
  • Change of pace
    No matter what you do for a living, you are bound to get in a rut after a while.  For me, this is now.  I still love writing code, but lately I have been in that development rut that I know so many of you have experienced at one point in time.

    By going solo, I am hoping that the change of pace will bring me out of my rut. 
  • Market conditions
    I live and work in the greater Chicago land area.  And currently the .Net development market is great.  The appears to be a large quantity of jobs, and not enough talent to go around.

Things to think about when deciding on your rate

When ever you are thinking you would like to go independent, there are a few things you should consider.

  • Do you need medical/dental insurance?
    For me, I don't.  My wife works full time and I am able to get all my insurance benefits from her via her company.
  • What about a 401k program?
    If the company you work for has a great 401k program, you will be giving that up.  For me, my current employers program is pretty bad.  There is no guarantee matching, and I don't vest anything for at least 3 years. 
  • Who much time off do I want each year?
    As an independent, you do NOT get paid for time off.  So sick time, vacation time and holidays are free.  For me, I am rarely sick, and I am willing to take vacation/holiday without pay, so not a big deal for me.

For some good links on how to determine your rates check out these links.
- A Guide To Information Technology Consulting Rates
- Independent Consulting and Back Office Services
- Consulting Rate Worksheet

Here is how I came up with my rate

Step 1
Choose a target billable rate - for this demo we will say it is $65 an hour (going rate in the Chicago land area).

Step 2
Determine your current hourly rate.  This is your salary divided by 2080, total number of 'work' hours in a year.  Now you have a baseline for what you make now, including benefits.

Step 3
Now that we have our rate, we need to determine how much all our expenses are going to cost and subtract them out.

  1. 401k matching - lets say your company will match up to 3k a year (and you get the full matching).  At 3k a year, this is worth $1.44 an hour off your billable rate.
  2. Health insurance (cost if you had to buy it own your own) - lets say you need to cover you and your family, this could cost you about 5-6k a year.  At 6k a year, this is $2.88 an hour off your billable rate.
  3. FICA (Social security and Medical tax) - As a employee, your company will pay 7.65% for you, while you pay the other 7.65%.  So, at 7.65%, this is $4.97 an hour off your billable rate.
  4. Vacation/Sick/Holiday time - I assume that I am going to take 3 weeks vacation, 2 weeks holiday time, and 1 week sick time.

Step 4
Time to figure out your 'actual' rate after expenses
65 - 1.44 (401k matching) - 2.88 (Insurance Cost) - 4.97 (FICA) = $55.71

So, that $65 number is really more like $55.  So, if your salary rate is not at least $10 an hour less then the 'actual' consulting rate, I would say that it is not worth the effort.  For me, I don't have to worry about insurance (on wife's plan) and my company does not have any matching, so the only subtraction I have is the FICA expense.

So my actual rate calculation is really
65 - 4.97 = 60.03

Thoughts for the future

So, I guess the real question is, will this work out?  Who knows.  I have a 6 month contract (technically, it is contract to hire) to figure this out.  Maybe at the end of my first contract I will really love my client and take the hire option.  Maybe I will like client, but still decide to stay as an independent.  Maybe I will decide that I don't like the independent thing and go back to work for a company.  Who knows. 

The one thing I do now is this, if I don't give this a try, I will never know.

Till next time,


Posted 12-10-2007 8:33 AM by Derik Whittaker
Filed under: ,

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Comments

Michael Eaton wrote re: Making the jump back to Consulting
on 12-10-2007 10:16 AM

Being an indy can be tough, but I don't think you'll regret your decision.  The biggest piece of advice I can give you is don't assume projects will last as long as you think.  Keep the pipeline full, especially toward the end of the year. :-)

Good luck!

Derik Whittaker wrote re: Making the jump back to Consulting
on 12-10-2007 10:47 AM

@Michale,

Thanks for the advise.  At this point, I don't really have any expectations.  Going to kinda go with the flow.

DotNetKicks.com wrote Making the jump back to Consulting
on 12-10-2007 12:33 PM

You've been kicked (a good thing) - Trackback from DotNetKicks.com

expresso wrote re: Making the jump back to Consulting
on 12-10-2007 12:34 PM

Lets not forget another possible reason.  Moving to consulting because you're sick of the politics, shitty ways of doing things, no process, etc.  You can move on if it sucks.

sergiopereira wrote re: Making the jump back to Consulting
on 12-10-2007 8:20 PM

Derik, good luck. I read this with a lot of interest since this is becoming a more and more attractive option for me too.

PartialClass wrote re: Making the jump back to Consulting
on 12-11-2007 2:19 AM

well, wat i like being consultant is that u get chance of travelling and change projects just in timely manner.

In job, u have to se the same office and place for ages.

Although im on job, but i migt be doing consultancy in future ( might be wid derik ? ;) )

Brendan Tompkins wrote re: Making the jump back to Consulting
on 12-11-2007 11:29 AM

A very easy calculation I've always used is to double your rate, to compare it to an equivalent salary position.  SO your 60/hr rate for example is about the equivalent of a 120K/ year full time job.

I'm a consultant, and love it!  Looking forward to your posts on this journey.  

Also, in case you're not aware, the Individual 401K plans are out of this world.  You can really sock away some cash and lower your taxable income with one of those.  

Derik Whittaker wrote re: Making the jump back to Consulting
on 12-11-2007 12:06 PM

@Brendan,

Yea, the 401k stuff rocks.  I really like the idea i can put away up to 45k a year.  

The one thing i did not take into account is the FUTA and SUTA taxes (unemployment taxes).  But these are only for the first few thousand on your income.

Based on my early projects, i am going to be able to stock away a ton more (about 1500 a month) into my 401k and not lower my 'take home' from today.

Gavin C. wrote re: Making the jump back to Consulting
on 12-12-2007 1:09 AM

Hi Derik...

Good luck with the move. While contracting is great there are good and bad points (as with everything in life). The main hurdles I've struggled with and still struggle with are:

- Sometimes you are forced to do work that you would not necessarily be happy to do if you were a perm... and there is no one to complain to... this was a big mind shift for me.

- Perms get all the opportunities and nice work... I guess this is their compensation for not getting paid as much!

- There can be a certain snobbery that perms have over independents and some love to highlight this divide.

On the upside you are taking more control of your financial destiny and future… you are no longer a dev/DBA/etc but are an entrepreneur :)

Good luck!

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on 12-20-2007 7:28 AM

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