So you are about to hire a consultant on your project… or was it a contractor? Which is it anyway? Does it matter?
I've done a lot of contracting over the years. I've done my share of consulting too. My clients haven't always made the distinction as to the nature of the service that I've provided to them. They were just happy to have me there helping them to succeed.
That said, I would still argue that it is important to make the distinction and once made, it's important to understand your needs before you start hunting for a resource.
So what makes the difference between the two? I would argue that the following are three key features to understand about the engagement: the level, length and rate.
Level of Engagement
Who is the potential resource going to be reporting to? Are they working with a line manager on the delivery of a solution or are they working with a VP level or higher to assist in key decision making? In other words are they being engaged to actually do work or to advise about the doing?
If they are engaged to actually do the work under the direction of someone else, they are likely a contractor. These engagements tend to be well defined with clear deliverables and relatively low risk. Contractors tend to be on the hook for what they are doing but not necessarily why. They can deliver a high quality piece of nonsense and not get blamed for the waste of money.
If the resource is engaged to assist management in determining what needs to be done and how, they are likely being engaged as a consultant. These engagements tend to be more open ended with a broader scope of service and are relatively high risk because consultants tend to be on the hook for the why's and the how's and the when's. If a high quality nonsense solution is delivered, the consultant will be looked to for the blame if they advised that it was a bright idea to deliver it.
Length of Engagement
While it is possible to engage a consultant over the long term, it is more typical to see a consultant engaged for a short period or a series of short periods, for example, a couple of days a month to sit on an advisory board or a couple of weeks at one time to audit an environment and make recommendations. Consultants tend to hop in and out
and their engagements tend to be measured in terms of days or weeks. Employees tend to have a vague idea of who they are but rarely get to know them personally.
A contractor could be engaged perpetually or as long as they can get away with not being construed to be an employee for tax purposes. Because length breeds familiarity, they are often treated like other employees and there are times that their colleagues don't even realize that they are contractors. Contractors often find themselves in a weird sort of limbo where they feel like a part of the company when work is needed and separate when the bonus cheques or christmas parties are being planned.
Because contractors tend to be brought on for longer terms that are measured in months or sometimes years, they tend to be engaged at a relatively low hourly or piece rate. This is because the contractor is willing to give up on rate in order to gain the stability of guaranteed hours over several months. The client on the other hand, can get away with charging less because the work is well defined and therefore lower risk and the skills needed tend to be more commoditized. It is only when the contractor is being brought on because of a highly specialized skillset that they would be paid something akin to consulting rates.
Consultants on the other hand are paid a much higher hourly rate because they are taking on so much more risk. Often consultants have many years of experience and are willing to take the risks associated with providing advice on strategic direction. They create contracts that protect them as much as possible from poor results but in the end they are assuming more risk even if only to their reputation should things go awry. Also because they are being engaged for shorter periods of time and would need to service multiple clients in order to be engaged on a full time basis, they charge a higher rate in order to mitigate against the risk of downtime.
Which is better for the client?
If you are fairly deep into your planning and you gave a good idea as to what needs to be done and how long it will take, you can engage a contractor to deliver the work as an employee would.
If you are early in your strategizing and need assistance in figuring out which path to take, then engage a consultant for a few days or weeks to get you sorted out. Structure the engagement so as to minimize time spent gathering information and make sure that the consultant's rather expensive time is not wasted.
Contracting is safer, easier and less interesting for the most part. If an independent contractor can develop a relationship with one or more recruiting agencies, it does not take long to have a steady stream of contracts to work from. This work tends to be more secure than consulting and a contractor can make plans for the future because they have a better idea as to where they will be in 6 months.
The downside to contracting is that you will take a lower rate and perform less challenging work in trade for relative security. Unfortunately you will often be embedded deeply enough into a client as to have to put up with the office politics without receiving healthcare benefits, training or paid vacation.
Why do it? Why not simply be an employee? It is true that a contractor can structure as a business and therefore write off many expenses and realize tax savings that an employee cannot but the answer is often simpler than that. Often there is just no choice in the matter. Companies aren't investing in employees like they used to. They prefer the low maintenance and relative expendability of a contractor. In this economy, you pretty much take the work that you can get.
Welcome to the 21st century.
If you have a niche skillset or are a senior manager or former executive who has many years of experience, you tend to have something to offer to a broad base of clients and you should consider consulting. By managing several client relationships at one time, you can save your clients' money by spreading your expertise around and you can generally rise above office politics with little difficulty.
Consulting risky in that you don't have a guaranteed set of hours to bank upon until you build up your client base but the rewards are high once you establish yourself.
If you are nearing retirement and wish to be engaged in a more part-time way, consulting is definitely for you.
In order to succeed as a consultant, you have to hone your sales and marketing skills. You need to establish yourself by drawing upon the network of contacts that you have developed over the years and also by learning to create new ones. You can always tell a consultant by how many LinkedIn connections or Twitter followers that they have. Consultants tend to do things like teach, blog or speak in order to draw in clients or to productize their advice.
It takes a lot of effort and expertise to establish yourself as a busy consultant but the rewards are indeed great if you manage to do it!
I hope you found this to be helpful.
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By S. Rosalind Baker, BSc, JD, PMP, Pragmatic Project Manager