How do we convince great contractors to join us as consultants without matching their day rate?

This is a really common occurrence. "We've used a contractor on one of our projects, and she turns out to be a superstar. Her UX / Java / BA skills are superb, the client loves her, our team gets on really well with her, and we'd love her to join us as a permanent consultant.

The only thing is she's on a contractor's day rate. Which frankly, we can't match as a salary. Not only because we can't afford it, but also as it's so out of kilter with our permanent staff members. Frankly, though, we're tempted to hire her anyway, even at that rate if we can't convince her otherwise."

I hesitate before answering this question, because there's actually one to be answered before that. Which is whether it is a good idea to hire her at all. Don't expect that a great contractor would always make a great consultant. There are some pretty fundamental mindset changes that need to happen.

Is it always best to hire a great contractor?

Summary

I'm going to cover these three things in this post:

  1. Why hiring her at all may not be a good thing. There are a number of factors which may make a full-time consulting job the wrong fit both for the contractor and for you.
  2. Why you shouldn't match her day rate as a salary. Breaking your own salary structure to fit around a contractor's expectations always has much bigger detrimental consequences than the positive ones of an additional recruit.
  3. What the pros and cons are for a contractor switching to a consultant. If the contractor is willing to see the benefits of consulting, and you believe they will be at least as good a consultant as they are a contractor, then here are the key points to discuss in terms of benefits of joining a consultancy.

As a quick aside, please note that nothing I'm going to say here is to denigrate contractors, or working with them on projects. We did it a lot, worked with some excellent ones (and some less than excellent ones), and would have struggled to grow to the £40m+ consultancy we got to without them.

Why it's not always right to recruit an excellent contractor as a permanent consultant

Pre-Conditions for hiring a contractor as a perm

I'm going to assume that the following conditions are satisfied. Because if not, then you probably shouldn't be looking at hiring them as permanent at all:

  1. You have a consistent need for this contractor's skill-set. Meaning she's not just a great contractor for a skill you don't regularly get asked for.
    • Unless you're planning to grow in this area and have the cash flow to support recruiting in advance.
  2. You have insufficient capacity in this area. Meaning bringing her on board won't bench your existing consultants.
    • Unless there's also an issue with your existing consultants not being up to scratch in this area, in which case you have a separate item to address - how to better enable your existing consultants.
  3. You're growing in a way that bringing contractors on board makes sense. Meaning that you're still maintaining the right number of contractors as a buffer in line with your strategy.

There are nuances to the above, but broadly, I'm assuming that all three are true. We'll dive into each of those areas in future blog posts.

Reasons why it might be wrong to hire THIS contractor as a perm

Even if all the conditions above hold true, there are a number of reasons why hiring this contractor as a permanent consultant might still be the wrong thing.

A "typical" consultant needs to have a different mindset to a "typical" contractor. This is often quite simply because the requirements from a contractor are usually different to those from a consultant. You need to be sure that either your contractor already has this mindset, or feel confident that she can comfortably adopt it. Don't underestimate this - many truly excellent contractors I've known haven't been able to make the switch.

Specifically, some key different modes of thinking your contractor may need to adopt include:

  1. To prioritise adding value higher than her own bill rate and extensions.
  2. To think in terms of the overall project delivery rather than her own specific part.
  3. To think and act within the context of a whole consulting team, rather than herself.
  4. To prioritise time to improve and expand her own skills, rather than become indispensable in just one.
  5. To actively share her expertise and knowledge as a means to self-development rather than to try to compete on the basis of hoarding them.

In addition, clients typically expect contractors to be more concerned with output than outcome, while the expectation of consultants is precisely the opposite.

Value First: Rates and Extensions Later

I am billing therefore I am partner.

To put it bluntly (with apologies for assuming the stereotype of the contractor - they're by not means all this way inclined), I'm hoping that the contractor you're considering isn't overwhelmingly obsessed simply about her day rate and keeping her engagement going as long as possible. As a consultancy, your over-riding concern is to add value with your client, and your pay comes as a consequence of doing that well. So a consultant's priority should be on adding value to the client first, rather than on extracting more billing out of them.

Focus first on adding value well, and the billing, extensions, rates and so on will follow in line. Focus on billing, rates and extensions first, and adding value second, and they will all suffer.

Focus on Project Delivery AS WELL AS Personal Performance

Your second consideration flows directly from this. It is that consultants think in terms of the overall delivery and the value it creates, as well as their own specific role. Your client's primary concern is that the whole project delivers. If it does this, then they're less likely to be concerned about specific individuals. That said, consultants who are under-performing in the client's eyes may well taint their view of the project overall, and potentially distract from the bigger picture.

So when your consultancy or agency is engaged by a client to deliver a project, your consultancy's performance and that of the overall project are almost inseparable. That means your consultants engage accordingly. They are constantly looking to improve the overall project delivery, as well as their own performance within it.

Great contractors do concern themselves with the overall delivery of the project. But because the client's expectation of them is more about their individual performance, they will tend to prioritise this a lot higher than the totality of the project.

Being a Part of the Consulting Team

CommentYourCode

Each consultant in your team is representing themselves, the entire consulting project team, and your company. That is very different from your contractor, who typically represents herself as an individual. The responsibility is significantly bigger, and most contractors don't think in those terms simply because it's never been a requirement. That extends from being on time, to looking out for other team members, to understanding when an issue needs to be escalated within the team rather than going directly to the client, to understanding the nature of the commercial relationship between your company and the client. All of these are considerations that typically a contractor has not had to deal with.

So for instance, if an issue arises on the project, a consultant looks for how to protect the project and overcome the challenge. The consultant escalates within your own consulting team, and collaborates on finding the best way ahead for the project. A contractor, on the other hand, may instinctively be more concerned with how to protect their role (and billing) first.

Long Term Career Motivation

Some of the longest-serving contractors are long-serving because they've developed niche skill-sets which are hard to replace. Often, it's in an older technology or domain which few are learning any more, but which client legacy systems depend on. They define their career based on a depth of skill in a shrinking area. This is the exact opposite of your consultants, who most likely are, or should be, defining their career based on forward-looking skills that will redefine your clients' businesses.

Now the scenario I've described for a contractor, although not uncommon, is not the most prevalent. It does however show a typical motivation, which is to create indispensability based on niche knowledge and skills, rather than on the basis of continual value add to clients.

Sharing Rather than Hoarding Knowledge

Related to the previous point, it is in a contractor's interest to compete on the basis of knowledge and expertise that she alone has. In a market where she's competing with other individuals, the greater her personal relative advantage in terms of skills and knowledge over other contractors (or in-house staff), the more likely she is to succeed in terms of fees and extensions as a contractor.

A consultant should be motivated differently. Consultants need to become natural knowledge sharers, and need to see that it issharing rather than hoarding that will progress their careers.

Note that this depends on your prioritisation of knowledge-sharing over hoarding within your own company.

Specifically:

  • Consultants need to share their knowledge with other consultants to improve the overall capability of your teams. Their reward will come from enabling your teams, rather than incapacitating them by hoarding. (And it is your responsibility to create an environment where this is the case - more in another post).
  • Consultants also need to share their knowledge with your clients. You need to empower your clients while continually shifting your own capability upwards and adding value on the basis of being ahead of the curve.
  • Consultants will also need to share their knowledge with external communities. This will not only enhance their own careers, but also your company's reputation.

All of these are challenges that a great contractor may face in the transition to a great consultant, and you need to bear them in mind before deciding whether to undertake the effort of trying to bring them on board.

And the longer she's been a contractor, the harder it's likely to be to adopt new mindsets.

Why Not to (Even Try) to Match her Day Rate

So if you've read the above, and are still convinced it's worth the effort to bring her on board, then a new challenge begins. In many ways, this is a self-resolving challenge if you're prepared to stick to the following principle:

If you need to offer a salary that matches the day rate for a contractor to come on board, then the fit is wrong either for you, for the contractor, or more likely for both.

In other words, if the only way to bring her on board is to match her rate, and assuming that's a day rate that's higher than a consulting salary at her level, then save yourself the effort.

There are two main approaches to salary structures. That is if you've got a salary structure in place rather than paying what you can get away with / what it takes to get someone to join or stay. The more traditional one is to have salary bands for levels of consultant. A method being increasingly adopted is to recognise that you may have superstars at any level, and to pay them accordingly - the "10x coders get 10x pay" approach.

Regardless of which approach you take, you shouldn't break it for your contractor. First, it would run against your principles (hopefully). Second, even if it doesn't, and word gets out (which, believe me, it always does), you will create unnecessary friction amongst team members, unnecessary pressure on the new joiner, and unnecessary pressure on all your salaries to head north. All of these will make for a less happy, and higher churning, workplace.

Your consultant may need you to match that rate. It's not unreasonable to assume that she's at a place in her life where she needs it. If that's the case, then I would strongly suggest you continue your relationship as client / contractor rather than break your salary system.

However, if she doesn't have that immediate financial need, then you can start the last stage of discussion - namely why it may make sense for her to take a cut in terms of hourly rate for enhanced security, prospects, and a different way of working.

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The Pros and Cons of Remaining a Contractor or Joining you as a Consultant

Contractor Fees or Consultant Salary

So a recap as to why we're here. Each one of the following points its own can be a killer - insurmountable, and therefore a reason to stop this particular conversation.

  1. You've decided that your company's growth plans can afford to switch a contractor to a consultant;
  2. You've decided that her skills (or aptitude) are ones that your company needs in the future, and where it makes sense to recruit more;
  3. You've agreed with her that there are a number of approaches and attitudes to client engagement that need to look more like a consultant than a contractor, and are confident that this change can be made;
  4. You've identified that there is a fit in terms of career progression and knowledge sharing between the way she views the world and the way a consultancy does;
  5. You've agreed that you cannot pay her a full-time salary based on her existing headline hourly rate, and she accepts this and is still wanting to know more...

Now the conversation turns into what the relative benefits of being a consultant are over and above being a contractor. Much of this depends on what kind of a consultancy you've created, but typically they would involve the following.

Professional Development

As a contractor, precisely because she may be known as a "SQL Developer" or a "UX specialist" or a "Photoshop guru", it may be nigh-on impossible to break out of this straight-jacket. If that's all she wants to do, then that's fine (and you probably shouldn't be having this conversation). However, if she does want to break into adjacent areas to increase the value she adds, then it will be very hard to do so without taking a career (and income) break.

In a consulting environment, however, your consultants should have the opportunities for professional development through training, mentoring, and on-site engagement while still being salaried. It is in your interest that they have rounded and deep skills, and you have the capacity for each consultant to do so.

Formal Training

You will (or should) be providing your consultants with the ability to undertake formal training. This may be in courses, on-line, in-house, or self-guided. In all cases, not only will the training be paid for (and structured), but she will be paid her normal salary while getting the training.

On-the Job Training

By virtue of working within a team, there will be the opportunity for her to get more on-the-job training. A well-profiled project team should always give people the opportunity to increase their skills in a live environment while still maintaining quality of delivery.

We always used to ask our teams to share their learning objectives as a part of project initiation, and so create an environment where they can help each other achieve those while still delivering. This is impossible to do as a solo contractor.

Knowledge Sharing and Peer Interaction

She will be working alongside other (hopefully) intelligent, ambitious and experienced consultants, both within a project context, and more broadly within the consultancy. If you've created the right environment for knowledge sharing in the consultancy, she will have opportunities to learn from (and teach) her peers in a way that is way beyond anything achievable as a contractor.

Mentoring

You may have a formal mentoring environment in place. This would give her an opportunity for direct guidance and benefit from someone with deeper experience, as well as giving her the opportunity to do the same for someone with less experience than she has.

More Interesting Projects

You will be proactively trying to win projects that are more interesting, have higher impact, and which you have some control over shaping. If you do your job well, then your ability to land these kinds of projects is much higher than hers as an individual contractor. Aside from making work more interesting, this will also impact her professional development.

Team Work

Consulting is a team game: contracting is a solo sport.

She will be joining a team, and will be an integral part to it. She will be able to contribute to, benefit from, and enjoy being a part of something bigger. Don't underestimate the value of this - some of the longest and deepest friendships, as well as professional relationships, are developed in the heat of ambitious client delivery work.

Income Security

When the project is over, she will still be paid until the next one comes up.

When client budgets are constrained, solo contractors are often the first to go - she will no longer be in that boat.

When she is sick, her salary will still be paid.

When she's on holiday, her income will not stop.

Add to that the fact that she will have the opportunity to continue her professional development as above while being paid and not on client work.

Benefits

If you have private health insurance, pensions, gadget allowances, or anything of the sort, clearly these should be mentioned. Also if there is a participatory options or stock plan.

But It's Not All a Bed of Roses

Don't be ignorant of the benefits of contracting, as these may well be very important to your contractor. These would include:

  • Per hour rate. This is the biggie. A high hourly wage can be very seductive, and you're unlikely to match it. Clearly, it is for hours worked only, so time to train, sick leave, holidays and so on aren't paid, and this will reduce the headline hourly rate.
  • Flexibility. The ability to go off for 3 months around Thailand once off a contract without being tied to a 4 or 5 week holiday is a significant perk. Increasingly, though, companies are looking to offer these kinds of perks, but it's not a given.
  • (The illusion of) choice. Contractors are always able to turn down a contract. In theory. Note that usually, especially if money is an issue, it is very difficult to do so, unless they know that another one is practically in the bag.

And finally... If you've recruited her through an agency, you need to check your terms with that agency, as there most likely will be a fee to be paid to the agency if you take a contractor onto a permanent role. As a rule of thumb, the longer you've had her contracting with you, the less that fee should be.

All in all, it's not a straightforward scenario to move someone from contracting into permanent consulting. Before heading down that road, you should seriously consider whether it is actually a better outcome to have her as a contractor who you know and will come back to when needed rather than trying to force her into an ill-fitting consultant role.

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Comments

  • Mohan
    September 11, 2016

    Pardon me for not reading the entire article and for being bold. I lost interest after about 30% into the article. I think you have all the wrong assumptions and stereotypes (you admit to some degree) about contractors. I’ve been in both consulting (permanent role) and contract work and majority of contractors always put their client’s needs first before worrying about day rate or extension. Those small number of contractors who put their day rate / extensions first don’t last long enough to see their extension
    You are also wrong on the assumption that contractors don’t add value to the totality of the project and they focus on their specific assigned tasks.
    In my opinion no one is indispensable. No matter what niech skills you may have.
    However, I do agree with you that contractors and consultants have a different “fit” for the role and need to be motivated differently. My observations are contractors perform well at the edge of their “comfort zone” (or even out side of it) while consultants tend to perform well within their “comfort zone” (not all, there are exceptions)

    My experience is that contractors become great contractors not because they don’t share and make themselves indispensable (all the reasons you stated above) but because they value the Client’s needs first and contribute to the project in their own capacity. When there is not enough work or there is no value add in the work they do, they are the first to leave the company and find the next challenging project at a different company – at least that’s what I do and may of my colleagues do

    Thank you

    • Iyas
      September 11, 2016

      Thanks Mohan for your comment. My point is to challenge the default assumption I’ve seen many consultancies make that a great contractor should make a great consultant. Sometimes that’s the case, sometimes it isn’t. So I list a number of factors that a consultancy may wish to consider before making that assumption and engaging in a recruitment exercise.

      That’s not to say all considerations are valid of every contractor. At no point do I assume that all contractors are ‘x’ any more than I do that all consultants are ‘y’. Indeed, I would disagree strongly also with your assertion that most consultants tend to perform well within their comfort zone – certainly not the ones I employed, and if any consultancy finds that the majority of its consultants do operate only well within their comfort zone, then the consultancy needs to look at its own value proposition.

      There are great and poor contractors, and great and poor consultants (and consultancies for that matter). I’ve worked with all those permutations. Client expectations of contractors and consultants are usually different, and that may attract different personalities, and will drive different motivations and behaviours. That’s not saying either is right or wrong, better or worse, but that they are different, and you can’t assume that one can easily flip from being one to the other. So the key message is to think it through rather than assuming that a great contractor would de facto make a great consultant.

      Thank you again for reading (part of) this and your comment (based on reading part of it). And I’m delighted that you always look to add value – that is precisely what I advocate for consultants, contractors and anyone not even in this game at all!

You're among friends. Any other ideas or feedback on this?