For an engineer, consulting can be a viable alternative to having a full time job, especially living in a city like Boston. But how do you accomplish this lifestyle? And how much are you worth?
Let’s say you would have a starting salary of $75,000 working full time at an engineering company (that’s a great starting salary; don’t let Microsoft skew your view of what’s reasonable). That equates to approximately $32.50 per hour (divide salary by 2000 work hours/year). If you work more than 40 hours per week, as salaried jobs often require, it’s less per hour. But a salary usually comes with stability and benefits, which should be factored into the package. You know that you’ll be making the same amount of money each month and that you’ll continue to make that amount unless you quit or get laid off. Let’s use this amount per hour as our reference when we talk about charging for consulting work.
Often Olin students or alumni are presented with consulting opportunities, whether from Babson students, other entrepreneurs, or basically anyone looking to get some engineering work done without hiring someone full time. We know we can do the work, but how much should we charge? As we calculated before, our hourly rate with a $75,000 salary is $32.50. At Microsoft, maybe it’s $50. But consulting doesn’t come with benefits or stability, so you should charge more. Setting your hourly rate is not about how much you need to charge to support yourself on ramen noodles; it’s about how much your client needs your work and how high the demand is for engineers who do consulting (especially in software). Your client probably expects to pay $80-100 per hour, and there’s no need to charge less than that. If payment is deferred (meaning the entrepreneur won’t pay you unless they get an influx of money) or the job needs to be done quickly, your rate should be higher. A job for deferred payment is only worth it if you gain significant marketable experience and a great reference for later opportunities. Don’t take compensation in equity alone for your consulting work unless you’re a co-founder of the company and you want to be in that role. Startups will be thrilled if you are willing to do work for deferred payment (they might never have to pay you) or equity (they never have to pay you directly), but don’t get caught in that trap if you’re trying to support yourself on consulting work. There are many other potential clients who will pay $80-100 per hour.
If your dream is working only 20 hours per week on a hodgepodge of other people’s projects and living in the city, then working as a consultant may be a great lifestyle for you. There are several Olin alums who do this. Consulting can also be great to do on the side if you want to build broad experience. If you charge $80 per hour (for software development, you’ll charge more), you can work 20 hours per week and make a “salary” of $80,000 per year, albeit without benefits and stability, which is roughly equivalent to that $75,000 salary with benefits we described earlier. However, finding enough clients with enough stability to guarantee a steady 20 hours per week is tough.
What are the other drawbacks? Sure, you choose your own schedule, but often your constraints are set out from day one. It won’t be fun design work unless you’re working with a very early stage company, and those jobs pay less or only pay in deferred fees. If you prefer doing this sort of consulting work, get creative with compensation. In my case, I sometimes do engineering work in exchange for business work that helps me run my company.
What does it take to be a consultant? You need to be able to figure things out when your boss doesn’t know the answer. This might entail a support network of friends you can ask if the work you need to do is slightly over your head. You will need to solve open-ended problems, and explain to your boss why the tight constraints she laid out are physically impossible or extremely costly. You will constantly deal with tradeoffs between different variables, checking back with your boss frequently to make sure you understand the priorities. Above all, you need to be able to seek out people who need your expertise. If this sounds like work you would enjoy, go for it! There are plenty of entrepreneurs in the area who would love to work with you.