Basics of Consulting

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eddot98
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Basics of Consulting

Post by eddot98 » Fri Dec 06, 2019 7:50 pm

For the past 9+ years, I have worked part time for a contractor after a 36+ year engineering career in a State Highway Agency. I am a licensed Professional Engineer, the only one in the company. I started as a half time employee with the contractor and, since 2014, my hours were reduced to a guaranteed 4 days a month at an increased rate of per hour. I am an employee of the company, so I only pay an employee’s share of Social Security and participate in the company’s 401k plan. The 401k has a good match, so that if I contribute $6000, the company contributes $3600. That’s the maximum. This is my only employment currently.
For some reason, the current management is changing the terms of my employment starting in 2020. They will raise my hourly rate and keep me as an employee, but won’t guarantee any number of hours. If I do get assignments, the maximum amount of work would be 4 days per month. That situation is unacceptable to me as who would agree to be “on call” for a month with no guarantee of any pay in any given month.
My question for the group is: if a company were to retain an engineering consultant (or for that matter a legal firm) that they may or may not need every month, what is the usual custom for payment in order to have the consultant ready if needed? If I wanted to make a counter offer, what would be a reasonable? Should I ask for a retainer of, say, $1000 per month regardless of the amount of work assigned a month. Should the retainer be counted against the first hours of work performed?
I’m not sure that I even want to continue working for this contractor after such an offer, but if I want to, I would like to be able to negotiate from a position of knowledge.

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yangtui
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Re: Basics of Consulting

Post by yangtui » Fri Dec 06, 2019 8:15 pm

How is your relationship with them like? What kind of leverage do you have? How replaceable are you?

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CAsage
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Re: Basics of Consulting

Post by CAsage » Fri Dec 06, 2019 8:22 pm

What are your goals? How flexible would this "on call" be - as in, if you were given a task, could you complete it when convenient for you within a reasonable time (like a week or two, not immediate or urgent). If you could sort of take it or leave it, enjoy the work and don't care about the money, it might work. You could try it for a while... or start looking into finding more companies that might need you that you like better. This would be a good time to have your network in place...
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eddot98
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Re: Basics of Consulting

Post by eddot98 » Fri Dec 06, 2019 8:48 pm

yangtui wrote:
Fri Dec 06, 2019 8:15 pm
How is your relationship with them like? What kind of leverage do you have? How replaceable are you?
I have had a good relationship with them until now. There are very few people with my level of experience in my field, but it appears that management doesn’t want or need it. My position basically involves developing and delivering presentations promoting the company’s products. I feel that I am being bullied into taking their terms or walking.

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eddot98
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Re: Basics of Consulting

Post by eddot98 » Fri Dec 06, 2019 8:52 pm

CAsage wrote:
Fri Dec 06, 2019 8:22 pm
What are your goals? How flexible would this "on call" be - as in, if you were given a task, could you complete it when convenient for you within a reasonable time (like a week or two, not immediate or urgent). If you could sort of take it or leave it, enjoy the work and don't care about the money, it might work. You could try it for a while... or start looking into finding more companies that might need you that you like better. This would be a good time to have your network in place...
My goal was to continue my employment as it was. The work would be somewhat flexible, but the idea of being on call and not getting called and not getting paid for being on standby is unpleasant.

tesuzuki2002
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Re: Basics of Consulting

Post by tesuzuki2002 » Fri Dec 06, 2019 8:53 pm

eddot98 wrote:
Fri Dec 06, 2019 8:48 pm
yangtui wrote:
Fri Dec 06, 2019 8:15 pm
How is your relationship with them like? What kind of leverage do you have? How replaceable are you?
I have had a good relationship with them until now. There are very few people with my level of experience in my field, but it appears that management doesn’t want or need it. My position basically involves developing and delivering presentations promoting the company’s products. I feel that I am being bullied into taking their terms or walking.
... walk? Unless you really want to stay.

The benefit of being a Boglehead is that most of us can walk away from any job and be just fine....

ndpage
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Re: Basics of Consulting

Post by ndpage » Fri Dec 06, 2019 8:57 pm

Customary in my sector of government-related consulting (transportation, economic, and safety) is that freelancers and sole proprietors are expected to operate at about a 75-100% overhead rate. So if your salary is $80/hour, you would be billing at $140-$160/hour. If you are moving to a 1099 or a professional services subcontracting situation, are they expecting you to be exclusive totally, exclusive on projects they bid on, or non-exclusive? Note that if you're a PE, and you are a subcontractor, you may be expected to provide your own liability insurance. That's one reason you'd be at a higher rate, others include selfemployment insurance, having to provide your own computing platform, etc.

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eddot98
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Re: Basics of Consulting

Post by eddot98 » Fri Dec 06, 2019 9:01 pm

eddot98 wrote:
Fri Dec 06, 2019 7:50 pm
For the past 9+ years, I have worked part time for a contractor after a 36+ year engineering career in a State Highway Agency. I am a licensed Professional Engineer, the only one in the company. I started as a half time employee with the contractor and, since 2014, my hours were reduced to a guaranteed 4 days a month at an increased rate of per hour. I am an employee of the company, so I only pay an employee’s share of Social Security and participate in the company’s 401k plan. The 401k has a good match, so that if I contribute $6000, the company contributes $3600. That’s the maximum. This is my only employment currently.
For some reason, the current management is changing the terms of my employment starting in 2020. They will raise my hourly rate and keep me as an employee, but won’t guarantee any number of hours. If I do get assignments, the maximum amount of work would be 4 days per month. That situation is unacceptable to me as who would agree to be “on call” for a month with no guarantee of any pay in any given month.
My question for the group is: if a company were to retain an engineering consultant (or for that matter a legal firm) that they may or may not need every month, what is the usual custom for payment in order to have the consultant ready if needed? If I wanted to make a counter offer, what would be a reasonable? Should I ask for a retainer of, say, $1000 per month regardless of the amount of work assigned a month. Should the retainer be counted against the first hours of work performed?
I’m not sure that I even want to continue working for this contractor after such an offer, but if I want to, I would like to be able to negotiate from a position of knowledge.
The company wants to use me as a consultant when it’s convenient for them and not pay me when they don’t use me. That’s not acceptable to me. My question is, when entities have a consultant that they use when necessary, do they pay them a retainer to be available when required? I want to make a counter offer, but I need information to do so.

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beyou
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Re: Basics of Consulting

Post by beyou » Sat Dec 07, 2019 9:49 am

Not sure it matters what is “customary”, all is negotiable.
From your stated counteroffer, seems you are more concerned about lack of steady payment than inconvenience. If so make your proposal as-is.

Do you have other options ?

Dave55
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Re: Basics of Consulting

Post by Dave55 » Sat Dec 07, 2019 9:57 am

You could counter their proposal and ask: "Would you consider this compensation plan for me in 2020"? (That is, the compensation plan you desire). I did consulting in other fields, and was compensated for "being on call." If you can't live what they "demand" or are willing to give you, I would walk. Sometimes they will reconsider after you walk and come back to you, but don't count on it.

Dave

rterickson
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Re: Basics of Consulting

Post by rterickson » Sat Dec 07, 2019 1:19 pm

With your level of experience, I would contact some of the engineering firms that do a lot of highway work in your state and gauge their interest in opening a "branch office" in your city.

livesoft
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Re: Basics of Consulting

Post by livesoft » Sat Dec 07, 2019 1:35 pm

I think it would be unusual to be paid a retainer. I have done consulting in a small way for over 40 years. I've never been paid a retainer to wait for a call. Yes, you can ask for it, but I don't think it is customary. Basically, when someone wants to use my services, they tell me what the scope of the job is and I quote a price. It could be a single number or it could be hours worked which I will estimate for them and cost/hour.

If I was in the company's shoes, I would not want to pay someone while they were not working. It's a sweet deal if you can get it, but perhaps they find less value in it than before. For instance, if you are making presentations that means to me that you are selling the company and/or their services to people. If they are getting no jobs because of what you have been doing lately, then there is even more reason not to ask you to sell things for them. If they have now built up a reputation in the field for what they do, then would not need you to provide that reference for them in the way they paid you for it before. Or perhaps now they will have another employee make the presentations and sales.
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Shallowpockets
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Re: Basics of Consulting

Post by Shallowpockets » Sat Dec 07, 2019 2:03 pm

OP, you are right. They have changed the terms to suit them in every way. No output by them, but you are there for them, when they want. Way one sided.
Tell them that you will not be on call like that. That as of now you are free and clear from obligation. But, it will be OK to call you and discuss any upcoming work. For which you will be paid at 3-4x your previous rate.
After all, who else would they call? If they had someone else they would be using them now.
Exercise a position of power.
What’s to lose on your end?

momvesting
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Re: Basics of Consulting

Post by momvesting » Sat Dec 07, 2019 2:17 pm

I think the big question is how much flexibility they offer in this arrangement. If there is little to no flexibility in the dates of the work and the presentations and/or little notice is given, then I think you are right to expect some sort of retainer. If, on the other hand, you have the freedom to choose which assignments you want, when the presentations will be, and what days you will work to prepare the presentations, then I don't think you have much basis to ask for a retainer.

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Re: Basics of Consulting

Post by cadreamer2015 » Sat Dec 07, 2019 2:33 pm

If you are willing to walk away from their proposal, I would counter with an offer of a retainer relationship for something more than 1 day per month but less than 4 days equivalent. With the retainer fee credited toward any work they give you during the month. Let's say your retainer is 1 day per month equivalent. The don't give you any work, so they just pay you your retainer. If they give you 2 days of work, they pay you for the 2 days with no retainer charge. If they give you .5 days of work, they pay you your retainer.

How much time do you spend checking emails with the company, keeping up with things that are going on? I figure I spend the equivalent of about 3 or 3.5 days per month doing this in my consulting arrangement. Of course they send me 30-40 emails per day, most of which are useless, but which I do need to look at to determine which are useless and which I might need to do something with. I bill this time to my client. I would personally not take a retainer for less than 3 days equivalent, but then I'm ready to pull the plug at any time.
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RickBoglehead
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Re: Basics of Consulting

Post by RickBoglehead » Sat Dec 07, 2019 2:35 pm

I would find the company's proposal ridiculous. Basically, they want high priced talent at their beck and call for pennies, i.e. they're only paying for time used.

I had one client like this, they paid me for 2 days a month whether they used me or not. They would use me to sell the services because I knew more than they did about certain things, then not use me with the client, who had bought into the solution thinking my expertise came with it. That ended within a few months.

I don't know what you charge, but getting a day here or a day there isn't worth the bother, unless it's local and you can be there in 30 minutes and ready at a moments notice. I was flying places and it took time to prep, time to travel, etc. Not worth it.

Most of the time when a company cuts a deal that is very advantageous to them, such as this, it's time to walk.

If they want you "on demand", you could go back with an hourly rate that is much, much higher. I had one prospective client who asked for one day of consulting, because he wanted a "brain dump". I said that I don't do brain dumps, I work with partners to improve their bottom lines. He insisted on a quote for a brain dump, so I gave him a quote for one 8 hour day, with 50% paid prior to my travel day, and the other 50% payable when I walked in the front door of their business. And the rate was equivalent to 2 weeks. He said no... :twisted:

When people ask me why they should pay me what I ask, I explain about the client who hired me for project A, then on day 2 asked me if I wanted to go see a facility that was unrelated to my project. I agreed, and saw an opportunity and went back and told the SVP about it. He laughed and said it would not work. So I went to see the CEO about it and he, being unfamiliar with the industry, asked me how sure I was that it would work. I told him that if he funded it fully, and it did not work, he could not pay me for the first month of my 3 month contract. He agreed to do it, SVP was po'd, and the idea I found brought in 90% of that year's profit, and was reoccurring profit and grew each year. I got a call a year later from a different SVP who thanked me for his bonus, all from my idea, and a few years later brought me back for a cakewalk project for a big fat fee.
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Re: Basics of Consulting

Post by flaccidsteele » Sat Dec 07, 2019 3:20 pm

eddot98 wrote:
Fri Dec 06, 2019 7:50 pm
My question for the group is: if a company were to retain an engineering consultant (or for that matter a legal firm) that they may or may not need every month, what is the usual custom for payment in order to have the consultant ready if needed?
Out of curiosity, why haven't you negotiated a retainer agreement after all these years?

IMO retainer > hourly billing > salary

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cheese_breath
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Re: Basics of Consulting

Post by cheese_breath » Sat Dec 07, 2019 3:43 pm

Forty five years working plus however much time it took you to get your license, you must be over 65. State your terms and retire if they don't meet them.
The surest way to know the future is when it becomes the past.

simas
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Re: Basics of Consulting

Post by simas » Sat Dec 07, 2019 5:07 pm

cheese_breath wrote:
Sat Dec 07, 2019 3:43 pm
Forty five years working plus however much time it took you to get your license, you must be over 65. State your terms and retire if they don't meet them.
+1

Just tell them what you want, write it down, and if they say no pursue other options. if you are destitute and haven no other options, then sure, it is what it is and look for something else. whether what you want is negotiated as retainer, minimum hours billed a week (so I continue to have your laptop and turn it on from time to time to have your IT push security updates to it), or something else , is irrelevant. I

yes, I would not agree to hold my availability for a client that does not pay me for that. I could be in a middle of a different commitment, working with higher value/higher return relationship, etc.

on the other side of person hiring consultants, I see many different models - I have people who I get for $70/hour but it is planned and budgeted for a year in advance so I know what they get paid and they know it and this is (nearly) guaranteed. Essentially staff augmentation. I also have consultants that I use on time and materials basis that charge $368 rack rate that I pay which may be an day in specific week, nothing for a while, or a 10-16 week project depending on specific need - all through SOW and SOW change orders. there, my flexibility and their commitments are essentially in the rate I am charged. both approaches have their places and both work.

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Bogle7
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Re: Basics of Consulting

Post by Bogle7 » Sat Dec 07, 2019 5:30 pm

1. Tell them you want to be 1099.
2. Add up last year's income (gross + their share of SS + 401k match) and divide by 48 (12 months / 1/4). Now you have your monthly retainer.
3. Your 1099 rate should be 2-3X your W2 rate.
4. Create a written contract. There are plenty on the InnerTubes®.

If they balk, well then, I presume you have enough FU money.

P.S. Once I had enough money, I went from "one more month" to firing my largest customer (80% of revenue) with zero notice on a Sunday and then going on vacation the next day. I did not answer the phone.
Last edited by Bogle7 on Sat Dec 07, 2019 9:31 pm, edited 1 time in total.

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cheese_breath
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Re: Basics of Consulting

Post by cheese_breath » Sat Dec 07, 2019 8:29 pm

Based on their attitude I suspect they have someone else (younger and less expensive maybe?) who they think can do the job. But if they can keep you on the string just in case without making any commitments themselves that's even better.
The surest way to know the future is when it becomes the past.

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ClevrChico
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Re: Basics of Consulting

Post by ClevrChico » Sat Dec 07, 2019 8:54 pm

It's likely nothing will change regarding your hours. Management is normally terrible at estimating hours. I'd give it a try and see how things work. If it's not good, leave.

Bad on call is having to report to work within 15 minutes and working for hours, possibly all night. This doesn't sound like bad on call.

I wouldn't rock the boat with a retainer.

NewMoneyMustBeSmart
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Re: Basics of Consulting

Post by NewMoneyMustBeSmart » Sat Dec 07, 2019 9:47 pm

eddot98 wrote:
Fri Dec 06, 2019 7:50 pm
My question for the group is: if a company were to retain an engineering consultant (or for that matter a legal firm) that they may or may not need every month, what is the usual custom for payment in order to have the consultant ready if needed?
One thing I've done in the past is offer an initial tranche of consulting that is at a discounted rate whether it is used or not; with a higher rate for unused.

Let's assume your standard rate today is $150/hour. I'd offer 40 hours per month at $100/hour pre-paid and used or unused, or $4,000. That way they feel they are actually paying for something they can use; even if they don't.

This has worked well for me, until they really don't need me when they let me go, or when they need me a lot and they ask to contract for more hours at the same rate.

flaccidsteele
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Re: Basics of Consulting

Post by flaccidsteele » Sun Dec 08, 2019 12:41 am

ClevrChico wrote:
Sat Dec 07, 2019 8:54 pm
I wouldn't rock the boat with a retainer.
The retainer ship sailed decades ago

msk
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Re: Basics of Consulting

Post by msk » Sun Dec 08, 2019 1:15 am

From an employer's point of view. Nobody is indispensable. Any one of us can drop dead today, but the world will go on. There is always a consulting firm somewhere ready to take up urgent business, at a price. You are basically a one-man consulting firm and the employer senses that their need for your particular consulting is going lower, hence they offered a higher daily rate but with fewer strings. They can probably get another, multi-men consulting firm to replace you. But you are more convenient and a known entity. IMHO no chance of a retainer. But of course everything is negotiable. Simply state a new daily rate that you will find acceptable, keeping in mind that the employer is forecasting less need for your services. Be prepared for nil calls for months at a time. The employer is assuming that you have multiple clients, but you do not seem to. Very weak negotiating position. If you need the income, start chasing for new clients. Yes, my assessment is gloomy :oops:

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vitaflo
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Re: Basics of Consulting

Post by vitaflo » Sun Dec 08, 2019 1:16 am

eddot98 wrote:
Fri Dec 06, 2019 9:01 pm
The company wants to use me as a consultant when it’s convenient for them and not pay me when they don’t use me. That’s not acceptable to me. My question is, when entities have a consultant that they use when necessary, do they pay them a retainer to be available when required? I want to make a counter offer, but I need information to do so.
I've been a full time consultant for over a decade, and as other people have said, it's all negotiable. There's no "right way". That said I've dealt with this a couple ways.

Time = money, so in my experience there are a couple ways to do this. One is that you are put on retainer and paid for your time whether they use it or not (in your case, 4 days a month). Doing this means they are first in line. You must give them that time when they need/want it. You can't say "no".

The other option is not to be on retainer but also have no guarantee you are available. If you sign on to another project and they suddenly want you to work...tough luck. You're busy, they need to find someone else or wait.

I've done both, they work well, you just need to lay the ground rules beforehand (get a contract signed). As for what to charge, 2x your hourly salary minimum.

Also, don't be afraid to walk away from a bad deal. Many contractors are afraid of losing a gig but a bad gig is worse than no gig.

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eddot98
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Re: Basics of Consulting

Post by eddot98 » Sun Dec 08, 2019 7:26 am

Thanks for all the replies. First, I currently only work for this company and that’s all that I want to do mostly to keep myself sharp and connected with my profession, but not under these new terms. Second, I do not need the money. Third, I feel like they are bullying me into a lousy commitment or that they are trying to make me resign. The Management Team has recently been given broad authority by the owners to run the Company and I feel that they see a way to cut some costs.
I have given up the retainer idea and will submit a counter proposal that not only keeps the same terms, but also seeks a raise in my hourly rate that hasn’t been adjusted for inflation in years.
I expect that this will be rejected and I will walk.

vveat
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Re: Basics of Consulting

Post by vveat » Sun Dec 08, 2019 8:39 am

In our company we use external consultants - very experienced in the industry people who will be used rarely but at a generous fee. The demand is unpredictable - often means coming to a meeting or responding to some emails, and this is not expected to be any main source of income, rather a complementary for them. A few are used just a couple of times a year, other more often.
While I am not in HR and don't know the exact arrangement, their daily rates are very high, they bill any travel time, and if they are pulled into a longer assignment there is a discussion whether they can do it and the time commitment. I.e. we don't expect them to be "on call" and take every assignment.
So if you can see a way to treat this as complementary source of income, and you are not obliged to take on everything they want, this may be another way to look at this arrangement. Of course, given that you have been fully employed until then, it may mean effectively retirement with side income.

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Re: Basics of Consulting

Post by Herekittykitty » Sun Dec 08, 2019 9:06 am

Are there other companies for whom you could work part time or intermittently such that would meet what you are looking for? How about their competitors or clients - might they be interested in your services in such a way that would meet what you want?

If so, is there a downside to seeing what might be arranged with them?
I don't know anything.

livesoft
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Re: Basics of Consulting

Post by livesoft » Sun Dec 08, 2019 9:41 am

eddot98 wrote:
Sun Dec 08, 2019 7:26 am
Third, I feel like they are bullying me into a lousy commitment or that they are trying to make me resign.
You have mentioned this a few times. We don't know what management is thinking. From my side of the internet, I can see it differently. I'll give an example from my own experience.

Decades ago, my company hired someone retired from pharma who knew everybody in the industry. He was hired because of all the people he knew in pharma, government, and academia and all the doors that he could open for our sales reps. He was extremely well paid such that some VPs complained about it. One might even think of him as a lobbyist. He made our company more visible and his reputation certainly rubbed off on our company and increased its reputation.

But then time passed and his contacts retired or died from their positions in pharma, government, and academia. His name didn't mean anything to the younger, up and coming leaders in our industry. His presence and presentations did not lead to money coming in like it used to. It was long past time for a changing of the guard. Furthermore, he wasn't having any fun anymore and realized the writing on the wall, so he left. He wasn't rainmaking anymore nor bringing in money to the company so that the company could pay him much less the overhead for keeping him around. He certainly didn't need the money.

If you want to stay sharp and connected with your past life, then teach at the local community college.
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Elysium
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Re: Basics of Consulting

Post by Elysium » Sun Dec 08, 2019 10:04 am

The basics of consulting is to get work and get paid for it. That's simple as that. If someone is not giving work then they are not paying. Moreover they don't need your services, except as a backup option. It's like I may need to call a plumber from time to time, but I don't put him on a retainer. The flip side is that, when I call the plumber may not be available since I do not commit hours to him.

In your case consider that you need to look for other clients if you like to do this work for other clients and have marketability. If you don't need the money then I don't see the problem, just tell them you will be available when they call only if your schedule allows it, but cannot commit to it since they are not committing to fixed hours either.

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eddot98
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Re: Basics of Consulting

Post by eddot98 » Sun Dec 08, 2019 2:42 pm

livesoft wrote:
Sun Dec 08, 2019 9:41 am
eddot98 wrote:
Sun Dec 08, 2019 7:26 am
Third, I feel like they are bullying me into a lousy commitment or that they are trying to make me resign.
You have mentioned this a few times. We don't know what management is thinking. From my side of the internet, I can see it differently. I'll give an example from my own experience.

Decades ago, my company hired someone retired from pharma who knew everybody in the industry. He was hired because of all the people he knew in pharma, government, and academia and all the doors that he could open for our sales reps. He was extremely well paid such that some VPs complained about it. One might even think of him as a lobbyist. He made our company more visible and his reputation certainly rubbed off on our company and increased its reputation.

But then time passed and his contacts retired or died from their positions in pharma, government, and academia. His name didn't mean anything to the younger, up and coming leaders in our industry. His presence and presentations did not lead to money coming in like it used to. It was long past time for a changing of the guard. Furthermore, he wasn't having any fun anymore and realized the writing on the wall, so he left. He wasn't rainmaking anymore nor bringing in money to the company so that the company could pay him much less the overhead for keeping him around. He certainly didn't need the money.

If you want to stay sharp and connected with your past life, then teach at the local community college.
I was in a similar situation as your pharma guy, but although some of my contacts have moved on, many have not. I still know the Chief Engineer, the Technical Services Director, the Materials Bureau Director, the Maintenance Division Director, and some Regional Office personnel at my old agency. Plus I am still well known in the industry in our state (and nationally) and if anyone has a question on who to contact in my old state Highway agency, I know how to figure out the area of the Department to contact.

Regarding your suggestion on teaching at a Community College, that’s too structured for my life style.

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