I want my two dollars!

June 11, 2009 8:14 AM

I need advice on charging fair fees for IT consulting work.

My husband started an IT consulting business where he goes into small businesses or someone's home and helps them determine their computer needs (hardware and software), does installation, sets up routers, networks, servers, etc. and troubleshoots problems. He's very knowledgeable but is new to some aspects of this industry, so he takes it upon himself to learn as much as he can before going to a client's location. There are a couple of scenarios he can anticipate coming up and doesn't know how he would charge the client. One would be when the client asks him to do something that my husband hasn't necessarily done before but is confident he can do, although it may take him a little longer than someone with more experience. He knows that if he's learning as he goes he should not charge the client for all of his time at the site, but wants to charge a fair rate for his work. How can he determine his rate for this situation? Is there some resource that might give the average amount of time it should take to complete X job? The other scenario is when he's troubleshooting an issue and initially misdiagnoses the problem. How common is this? How do you handle the charges when this happens? In some cases it could be because he's not as experienced with certain issues, but I'd think that even experienced consultants go through this from time to time. Do you only charge for the initial diagnosis and work? We are located in the DC metro area, if that helps at all. Any advice, suggestions or resources you may have would be greatly appreciated.

posted by Nathanial Hörnblowér to work & money (8 comments total)

I don't know that this is exactly applicable, but may assist... I am an independent programmer. When I am asked to do something that is unfamiliar to me, I usually discount the number of hours if the code I create is reusable for other apps. So standard hourly rate for customizing, implementing and testing the code + a halfsy for the meat of the code, no charge for the investigating and writing the modules if they are to be re-used elsewhere.

Example:
Someone wants me to create something in an semi-familiar language and I estimate it would take 10 hours to create, 2 hours to test & implement.
I charge the 7 hours.

Also: misdiagnosis. Make a solid agreement that allows for a contract re-bid should the work to be performed differs significantly from what is initially understood (and is spelled out in the contract). Then eat all hours spent on barking up the wrong tree IF they are willing to accept the new terms/estimate based on the new diagnosis.
Such as:
Estimate and contract for 10 hours on problem X.
Work 3 hours on problem X then realize it is problem Y.
Re-bid contract at 10 hours for problem Y.
If they accept the contract for problem Y you only charge those new 10 hours, if they do not - you charge them the 3 hours.
posted by babsomatica at 8:35 AM on June 11

No one can know everything. That's why effective IT contractors belong to professional associations and pay dues, as well as keeping paid subscriptions to professional support channels like TechNet for MS products. Some software and hardware vendors even offer tiered support contracts that get first line support contractors directly to second level vendor product support personnel. Such resources should provide you with far more effective troubleshooting and remedial advice, and if you are paying for such services, and using them effectively, you should spend a lot less time "poking around" and be therefore justified in charging for fair amounts of diagnostic work, outside your main line specialty.

If you engage your second level tiered support channel after only an hour of fact finding, and learn through them that what you thought was problem X is really more likely to be Y, you're entitled to charge for that hour, because it was necessary to meaningfully engage your second level tiered support line. Giving clients "free" consulting hours to learn your craft on their systems is no bargain, either for you or your client, and "learning by doing" is rarely the best way of solving novel problems.

Effective IT generalists know how to refer problems to specialists, and engage product support resources effectively. They save their clients time and lost productivity by returning systems to service quickly and reliably, using best practices. Therefore, there are fewer situations where billing reductions are a necessary accomodation.
posted by paulsc at 9:48 AM on June 11 [2 favorites]

In my role, I buy IT services.

Ideally we ask someone how much it will take to do Statement of Work (SoW) A. They come back and say SoW A will take XX hours, because of this and that. They tell us their rate. We discuss the accuracy of this. We do the math XX hours * $/h rate and get a total, called a Not to Exceed price.

Getting the hours right is the contractors responsibility. There is the real # of hours it takes to learn/solve the problem and there are the hours you propose to the client. As a client, all I care about it is the hours you charge me for and that you will get it done on schedule. I don't care about the real hours, that's your problem.

We then agree that the contractor will do everything within the SoW for the Not to Exceed price and put that on paper. If they get the work done quicker, they get more profit. If it takes more time, they eat it.

If the scope of the SoW changes, we do a formal Change Order that stipulates exactly what more is to be done and how much more it will cost.

What I never want is an open Time & Materials arrangement where the contractor is not bound to complete work on schedule or where we are on the hook for underestimation.

Hopefully that helps.
posted by Argyle at 10:05 AM on June 11

Having been on both sides of the desk in this situation (doing exactly what your husband is now doing, and with about the same level of mastery - very competent, but not a master), I am much more comfortable with the Statement of Work or formal estimate model.

In one of my first gigs I charged just time and expenses and it totally dragged out because all of the hard drives in the building needed to defrag. Very time consuming. I felt awful charging the full time, but being dumb and inexperienced, I did it anyway. This led to very uncomfortable conversations with the client and I probably lost a lot of word of mouth business from this.

My advice would be to make a best guess and agree with the client on that "Not to Exceed" price, and stick with it.
posted by bluejayway at 11:39 AM on June 11

Bluejayway - a follow up question. My husband feels badly about charging clients for time when the system is rebuilding or he's simply waiting for an installation to finish before he can move on to the next task. Sometimes he can find something else to work on while he waits, but other times he just has to wait until it's done. I tell him that it's not like he can go out and work for another client during that 30 minutes he's waiting for the installation to finish, so he is justified in charging for that time. Does that seem reasonable to you? He and I both know that part of his hesitancy is simply inexperience and not feeling "qualified" to charge the rates he charges. He does charge about half the going rate of a more seasoned consultant, and his clients usually know he's relatively new to this type of work. But no one has ever complained or disputed an invoice.
posted by Nathanial Hörnblowér at 1:34 PM on June 11

Nathanial, your husband is going to have to get over feeling guilty about charging people. That's the very first step in becoming a successful consultant.

Yes, he should see if can do something for the client to fill in the time. If he can't find anything, charge away. Otherwise, he's going to have to vastly raise his rates to deal with the fact that he can "only" bill 50% of the time, with the rest of the time going to "waste" due to the inconvenient time-slices the actual work fills up.

In my experience, his hesitancy is likely to lead to clients feeling nervous or exploited. A confident attitude will get him paid better, and due to human nature his clients will be happier.

Argyle, for my part as the consultant - I like simple time and materials contracts. However, if someone is going to ask me to sign a "not to exceed", then I raise my hourly rate by 25% to cover my risk, paid 50% in advance. I'm up front about this. My true variance is usually only about 10% plus or minus, but I feel that removing *your* risk should cost you something. My clients seem to be OK with it, I'm generally booked solid a couple months in advance (as an e-commerce implementation specialist).
posted by Invoke at 10:00 AM on June 12

Hello from a fellow DC-area IT consultant.

I tell him that it's not like he can go out and work for another client during that 30 minutes he's waiting for the installation to finish, so he is justified in charging for that time. Does that seem reasonable to you?

Completely reasonable. I feel that if I'm onsite, you're getting billed for it. But to echo BJW, there is a difference between billing for time to download a patch, or a long software sync thats part of completing a given job and billing for time spent watching a defragger or manually running windows update.

He does charge about half the going rate of a more seasoned consultant

I'd bump that up some. If you have an almost 4 hour job, I think it's better to charge $100/hr for 3 hours than $70/hr for 3.75 hours. Seems like you're cutting them a deal even though it's more in your pocket.
posted by anti social order at 10:12 AM on June 12

Thanks to everyone who responded. Invoke, I will say that my husband is always confident around his clients - it's only when he gets home and is preparing the invoice that he is hesitant. And none of his clients have ever disputed an invoice. I know that as more time passes he will feel more confident and I hope he'll raise his rates, but in the meantime it's good to hear advice from both sides of the situation.
posted by Nathanial Hörnblowér at 6:50 AM on June 18