As a New Consulting Firm Should I do Subcontracting
Published
Author: Matthew T. Grant, PhD
Matthew T Grant, PhD
Minister of Enlightenment
A Q U E N T
I am a seasoned marketing professional (with a specialization in international marketing.) I am building my own consulting business but I have been approached by another marketing/PR firm to do some subcontracting work. This seems like a great way to increase cash flow and get consulting experience while I continue to promote my own business. I am wondering whether there is an industry standard for compensating marketing consulting subcontractors. Is there a standard percentage of the hourly fee that is billed to the client that I could expect to be paid?
Answer
Subcontracting for another firm while getting your own consulting practice off the ground is a wise move on a lot of levels, as you point out. As far as getting paid is concerned, I’m not aware of any standard models and I think I would be suspicious of them if there were. Instead, I would encourage you to take this opportunity to think about the revenue structure of your budding practice and use that as a starting point for negotiating with this firm about rates.
The bottom line is, you know what your monthly costs are and roughly how many billable hours you think you should be able to log in a given month. From those two data points, you can come up with a basic hourly rate that will help you pay the bills and, ideally, put something in the bank. That rate doesn’t have to be set in stone, but, if you take a job for less, you need to be prepared to bill more hours (or charge other clients a higher rate) to make up the difference. Your fees can be flexible, but that flexibility will be limited by the inflexibility of your monthly expenses and your financial goals.
With a monthly rate in mind, you can tell this PR firm what you need to make in order for subcontracting to make sense. It’s up to them to build your cost into their markup, not the other way around. If, however, they won’t budge, or are offering you something lower, then you need to make sure that you are getting something (leads, guaranteed work, office support, etc.) in return for what you are giving up. You also need to lay the groundwork for raising your rates over time, since, once someone starts paying you a certain rate, they may expect to pay that same rate forever. You’ve got to make it clear that this is not the case.
Robert McKinney wrote:
Overall I would say Grant is correct. My consulting company specializes in pricing, and I suggest pricing be set based on the market value not your costs. Whether you're manufacturing wigdets or selling your services, customers don't care about the cost of your rent, utilities, etc. Customers care about the value they receive.
I suggest determining pricing using a value-based pricing methodology. Moreover, I suggest billing by the project if possible vs. by the hour.
Robert A. McKinney
Founder & Lead Strategist
The McKinney Group, LLC
Robert.McKinney@McKinneyStrategicManagement.com
Posted on : 6/10/2008
Stuart Atkins wrote:
I fully agree with Robert McKinney. I, too, am just building my own consulting company and find some clients in the hourly mentality and others requesting project based fees. Value-based, project fees give the client a set limit they can budget for and encourages better time efficiency on the consultant's part. From an ethics standpoint, billing by the hour may encourage some to "take their time" on projects. Billing by the project is best for both parties.
Stuart Atkins, Owner, Atkins Marketing Solutions
Stu@atkinsmarketingsolutions.com
Posted on : 7/2/2008