Consultants Chime In Please...

Coach Patrick

I have been approached to consult for a wealthy family that owns a bunch of patents, some in the training / coaching space. I have the inside track on it, but they still want me to put together a synopsis of what I do (easy) and they want to know my hourly rate (not easy). 

Assuming money isn't really an issue for these folks, any advice for me as to how to structure / propose a rate for my services? I have done quite a bit of consulting back in the day, but I also enjoy getting paid. I'd appreciate any input you have. 

THANKS!

Ps if you want to comment and ARE NOT a consultant, that's cool...maybe just mention that when you specify I should be paid in wheelsets. Or something. 

Jorge Duque

Hey Coach, there are three ways you can approach this depending on what they are expecting from you:

1. If its just an advisory role I would go on an hourly rate 
2. If its a specific project with clear goals and objectives I would charge a project fee
3. If its something that will require more time and where you are helping to build a company or so, then I would go with a mix of advisory fee + success fee or advisory fee + ownership interest

Call me if you want to discuss further.

JD

Coach Patrick

@Francis Picard You must be Zwifting to not have input....

@Tim Sullivan As a patent lawyer...I expect something from you!!!

Anyone else???!!!

scott dinhofer

I thought that Jorge's approach was the right one. 

• regardless of what you think about money and these folks, the worst negotiations are with millionaires and up the food chain.
• I am thinking our mutual friend Bill Overbay would have better insight on how to guide you as he has surely hired many consultants as an investor. I would ping @larry pfeffer on this as he is a big 4 consultant like @francis picard
• The important thing is not getting into a black hole on time and getting swallowed up, you do have a FT business in which you are now the only principal...
• my $.02, and I am not billing as a consultant, but work as an executive coaching consultant and have bid on projects in that world. 
• if you think i could be additive to your pitch/team for the consulting work, I'd love to have that conversation.  

Coach Patrick

All, thank you. I have consulted in the past and am constantly involved in interesting projects, only now folks seem to want to pay me for it.

Next up is a day-long meeting with Nike's Innovation Group over a new youth sports initiative with a community twist...please don't tell them I don't know what I am doing!!!

  

Paul Curtin

Great points from Jorge and Scott.  Regarding the rate itself, that's always tricky.  Once you give a rate it can get "shopped around" -- someone will always do it cheaper.  For coaching triathletes, you'd establish a rate to be comparable to someone like Mark Allen.  Assuming this is consulting on how to actualize these patents into a viable business, that puts it closer to Bain & Co. rates.  If you need someone to come up a number for you, I'm the man.  $250 per hour

Getting to contract is another challenge.  Consider starting with a fixed block of hours to cover a 1-month time period -- put start and end dates in it -- they can use up to xx hours per week (if you need to cap how much time you can spend on this).  After the contract ends you'll both know how to structure the next deal

Francis Picard

Few things, as you know I work at KPMG and its our world to deal with that.. funny to see that I worked in the exact same office for almost 3 years with @Larry Pfeffer without knowing him. - small world

my views on that are :  

1) If they are wealthy, they are used to pay a premium ONLY if you can prove that you are bringing value to the table and not stuff they can find by googling on the internetz. That's the way I go to justify my bills, get paid quickly and they come back asking for more services and if the project goes out of scope you can get paid for without troubles.
2) I would personnaly and I never commit to a fixed fee for a project, be sure that the scope is well document into the engagement letter so that if it goes out of scope both parties are covered. People can be good to sell you that the project will go smooth... but if that was the case they wouldnt hire you right?
3) if they want to pay "fix" amounts, try to go by phase and document it - see 2)
4) as for the amount per hour, I would say you probably know more than I do about your market, so I guess you have to be confident and also be confortable to defend your fees, dont be scare they might try to negotiate.. dont forget they are wealthy and negotiate is a lifestyle for these people.
5) If you plan that you will need to incurr out of the pocket expenses, be sure that its not silent in the engagement letter
6) I dont know rules in RI about sale taxes, but thats something you need to look into it in case you need to charge them sale taxes, as such you dont stuck with a potential liabilities and all the earned money is required to pay taxes.
7) if its to build something, taking a portion of the fees in equity might be interesting if you are confident
8) also be firm and have it written in the engagement regarding the payment calendar, some people wish to only be billed at the end of the project - if often happen when I am working on specific transaction and the sellor only wanna pay when the cash is moved.

Finally I know @Jeremy Behler is on the "client side" so he might bring you another perspective.

if you go ahead and if you wish I can review the engagement letter if any and give you my comments

William Crawford

I agree with everything @Francis Picard said above. I am a litigation attorney and deal with this issue on a regular basis. I would add that you want to set your payment term at 30 days. If they have an issue with your billing or you have an issue with them paying you, you want to know as soon as possible. It is much easier to resolve the disputes early rather than dealing with issues at the end of the project.

The importance of a clear and complete engagement letter cannot be overstated. Parties to a contract rarely expect to have issues and disagreements down the road so they gloss over or omit important points. Fast forward to a meeting with an attorney and they are left saying "I did not think that was important" or " I did not read it carefully." You can save a lot of headaches (and money) later by dealing with potential issues while everyone is on good terms and eager to come to an agreement.

As for the hourly rate, I do not know enough about the situation to comment on the amount. However, as a general rule, if you are good (and we know you are) do not be afraid to quote a rate that recognizes your talent. They can always find someone to quote a lower rate, but they cannot find someone that can duplicate what you can offer. 

scott dinhofer

per @Francis Picard's comments on the premium rate. I would go for the premium rate and in your conversation on the matter acknowledge that it is a premium and then segue right into why you are worth the premium. A fancier version of "you get what you pay for." if these people are that good, they will want and pay for the best.

Bill McKinney

How much did I pay you back in the day?  One option would be to take that number and at least triple it because you've got 3X the years in the space and EN is much bigger.  In terms of going rate, I've hired a bunch of solo corp strategy consultants recently, and the going rate for a relatively experienced (10+ years out of bschool w/some experience at a top tier firm) seems to be $3-5K/day.  For partners from said firms (say McKinsey) it's more like $4-5K/day, but you generally only hire them if you're doing an interim senior leader or need a day or two of real expertise.  I'd say you should ask for AT LEAST $2500/day (I would do/day vs. hourly if it were me and don't bill by less than half day...the hourly thing is a trap).

Tim Sullivan

I will just reiterate the clear and concise engagement letter.  In addition to payment terms of no more than 30 days you may even ask for payment upon receipt of the bill.  

Fixed fee may be hard unless you really understand what is required. I do some fixed fee work but both sides understand what they are getting. I always give an estimate for the project so there is no shock when the bill comes.  I do agree with asking for a premium rate.

Many unknowns at this point so hard to say much more.

Coach Patrick

ALL - Many thanks.  This has been super helpful. Where were you when I had to write a proposal for  @Bill McKinney 

Rest assured that I will not be neglecting my duties. Rather, I enjoy the different type of work as well as trying to be a little strategic about building a resume for the future.

Thanks again! I’ll keep you posted on the outcome

Francis Picard

building a resume for the future... hmm doesnt that mean EN closing ?

Coach Patrick

Wow. No it means Coach P is smartyPants when you all decide to take up golf and Triathlon is no more. 

Paul Hough

I work in the services industry as a senior pricing analyst.  We set prices typically based around 1880 hours per year plus wrap + fee.  The indirect wrap includes the fringe to cover holidays, paid vacation, mandatories like FICA etc.  And so.  Consultants, however, don't work 1880 hours.  They tend to evaluate how much time they would consult vs prepare and adjust the rate up accordingly.  E.g., a consultant might only work 1200 hours per year so their rate needs to be 1880/1200 higher than a full time employee rate.  So the starting point for your calculation is what would you expect to make if you did the same work full time, then adjust accordingly.  Your OH and G&A should be pretty low since you work out of your home, but there might be some costs.  Fee should be risk based, but perhaps 8-10%.

Jeremy Behler

@Coach Patrick I just sent you a text.  Feel free to reach out.....I'm on the buy side of many consulting agreements every year and can give you my 2 cents.