March, 12 2009
Contractor or Consultant? What Are You?
Posted by Liz Greene
Are you an independent consultant or a contractor? It’s more than just wordplay.
You made the decision to go out on your own – to break free of the corporate stronghold and try your hand at . . . independent consulting? Becoming a contractor? Freelancing? Did you make a conscious decision to label yourself one way or another?
While labels such as “contractor,” “consultant,” and “freelancer” often get used interchangeably, it’s worth it to step back and think about what they actually mean to you and your business.
A discussion on Twitter the other day led to the following distinction from @whitneyhess: “Consultant: a person who provides a strategic vision to a given project. Contractor: a person hired as a resource to perform a specific task .” [FYI: Now you can follow MBO Partners on Twitter: @MBOPartners]
Do you agree with Whitney’s definition?
At MBO Partners we tend to agree. Contractors know their job and how to do it. They are brought on to perform a specific task (or complete a project) that perhaps the client doesn’t have the knowledge or resources to complete themselves. But contractors can typically be seen as interchangeable. Let’s say for instance a company is hiring a Java programmer of a given experience level. When they go out in search of a contractor to fill that position, they know there is a specific skill set that all applicants should possess, and all candidates will pretty much fall into the same pool. Because of this type of commoditization, selection of a particular contractor may come down to cost. You can fight this kind of rate pressure while still remaining an independent contractor by differentiating your skill set into niche areas and growing in seniority and experience.
Now, compare this to a consultant. If a company is hiring to solve a problem, let’s say the streamlining of purchase order processing at a widget factory, the consultant they hire will bring a unique perspective to the table. Perhaps the consultant has worked exclusively with widget companies. Perhaps he or she has never worked with a widget company, but specializes in purchase order process optimization. This person cannot be commoditized and can leverage their knowledge, contacts, and skills in winning the contract (and getting the best bill rate). The key here is that they bring the value of strategic thinking, outside knowledge, and a depth of experience that can help the company solve a problem or move ahead in their industry, not just complete a task.
Meredith Little over at TechRepublic took on the topic of differentiating contractors and consultants and classified contractors, saying: “A contractor essentially acts as a temporary employee. The contractor works under the manager’s supervision, probably with other employees, to help complete part of a larger project. He or she is told what to do, how to do it, and when it needs to be done.”
Unfortunately, this doesn’t take into account some of the legal issues associated with working under these conditions. To me, that sounds like a misclassified employee. A person working directly for a supervisor on the client site who is being told exactly how to perform their job and is being treated the same way as the full time employees to right and left would likely be reclassified as a W-2 employee by the IRS. This is an extremely sticky situation that we tackle in much more detail on our 1099 Risk Blog. If that description sounds like you, you might want to learn more about misclassification and how to correct your status.
At MBO Partners, we love both contractors and consultants. In both cases, you’ve got independently-minded people who are taking charge of their careers. But there is a difference, and taking some time to really think about what category you fall into will help you with defining your business model and in better articulating your value to the client. Calling yourself a consultant when you are truly a contractor, or vice versa, may be a disservice to you and what you bring to the table. Not everyone wants to be a strategic problem solver. If you want to be left alone and code Java, that’s ok too. The idea is to make a conscious choice about how your services are positioned to your clients.
Once you’ve settled on your position, you can more accurately understand what you should be charging. Gene Zaino, President of MBO Partners, presented an interactive webinar about bill rate calculation in February, and the session was such a tremendous success, we're bringing it back. We'll see you there!
Independent Consulting Bill Rates: Figuring Out What To Charge
March 31, 2009
9:30-10:30 AM ET
Are you charging the right rates? Do you know your market value? How much do you need to charge to make ends meet? And what about the "value" you provide as a consultant? Calculating your bill rates, and knowing exactly what to charge, is a critical yet oft misunderstood aspect of running your own consulting business.
Join consulting expert Gene Zaino, CPA, President of MBO Partners, for this fascinating one-hour exploration of setting the right rates – you can’t afford not to! After the seminar, you will have the opportunity to set a one-on-one appointment with MBO and get up to three Cash Analysis estimates calculating the new bottom line for your consulting business.
Register online today: https://www1.gotomeeting.com/register/502442927
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Barbara Saunders at 06/20/2010 14:30:25
I think people often assumed that a consultant is "more senior" than a contractor. I don't think this is necessarily true. What a consultant must have that a contractor need not have are diagnostic reasoning abilities. To my observation, this is a knack and a basic orientation of mind. The person with a consulting mind who tries to be a contractor will often be frustrated as he/she will keep seeing system problems that he/she has no authority to solve.