Getting Started as an Independent Contractor

by MLombard on ‎09-03-2014 11:58 PM (10,202 Views)

In the engineering business, we sometimes have needs for which we need temporary solutions. An unexpected surge in orders requires more design help. That can include the quantity and type of the work. Maybe a new marketing direction requires new engineering skills that your company hasn’t developed or hired in permanently.

 

For eight years prior to joining Solid Edge, I worked as an independent mechanical engineering/industrial design contractor, and even while I had a job working at a reseller, I spent a fair amount of that time doing project work that they contracted me out for.

I initially started contracting because I couldn’t afford to keep working my day job any longer.I get asked from time to time about how to get started as an independent contractor, so I thought I might write up something on the subject.

 

Just as a disclaimer, I'm only sharing my experience here, not offering legal or financial advice. Refer to important questions to appropriate professionals. Whew.

 

When I quit my job to start working on my own, my former boss (who was a salesman) asked me how I was going to market myself. My answer sounded pretty cocky, but if you can’t answer this way, then maybe being an independent is not for you. I said “If I have to market myself, I’m in the wrong line of work.” What I meant by that was that I had waited to get started until I had a lot of potential customers who knew me and knew my work. The only marketing or sales I would have to do would be to let them know I was available. After about a month, I had a steady flow of work coming in through my email address and phone. Even through the recession, there were only a couple of gaps more than a week long where I didn’t have anything to do. Even independents need vacation now and then.

 

You’ve got to have an audience that knows you and your work. I got to know all these people by working in tech support, sales, training, doing everything I could to meet new people and help them with their problems, and do a great job. If you say you’ll call them back, call them back. You have to build a reputation. You might have to start by giving some things away. Maybe write a up a best practice document, or a specialized license management guide and give it out to several customers. You want to be known as easy to work with and someone with a lot of skill.

 

You also have to have something to offer. I know this sounds obvious. If you are “just” hardworking or trustworthy, that’s a great start, but it’s not enough. On the other hand, an MBA isn’t what folks are looking for in a mechanical designer either. You need to have some technical knowledge, and preferably, some sort of specialty that they don’t have locally. When I started contracting, I had two things to offer: I was able to do complex surfacing in a mid-range CAD product, and I understood enough about different plastic molding techniques to be able to talk to the people designing the mold.

 

The nice part of having a specialty above just straight mechanical design is that you can charge more. You’re not fumbling around trying to learn things you should already know, so you can get the required work done faster. Doing surfacing and plastics work, I charged $75-100/hr. People who were doing drawing conversion work were charging $25/hr. The difference is that every freelancer out there is looking for 2D conversion work, because it’s easy to do, easy to quote, and when it comes available, there’s a lot of it. Make friends with people with related specialties, so you can refer maybe a stress analysis specialist, or someone who is a mechanism genius, or someone who is a CNC specialist. A little networking with people with related skills is always a good thing.

 

Here’s the part about setting a price. You can’t just work backwards from what you think should be making at a full time job working for a company. You have to add stuff like office space, furniture, computers, software licenses, equipment, maintenance, phone, internet, insurance, taxes, vacation time, and other business related but non-billable tasks. If you set your rates too low, people won’t take you seriously, and you won’t be in business long. If you set them too high, you won’t get hired again.

 

Another thing about setting your rates too low. Unreasonably low rates are going to attract a certain kind of customer that you might not want. I found this out the hard way by just getting swamped with a lot of work I wasn’t interested in when I was charging a low rate. The situation sorted itself out when I raised my rates 50%. This might sound crazy to you unless you’ve been there. But imagine if you mowed lawns for $5. You’d get a lot of calls. Too many. At $5/lawn, you’ll be making about $2/hr for as long as you live, which won't be very long. In the end, that’s not good for anyone. You might have to charge $50/lawn just to break even for all your equipment, the time it takes to arrange appointments, and the ability to pay yourself say $20/hr. If you want to give yourself insurance, and days off, and save for retirement, maybe you have to charge $75/lawn.

 

Companies understand the cost of doing business, and they understand that the lowest bidder is not always the best bargain. So don’t undersell yourself.

 

There are a few things you need to be prepared for if you want to become an independent. First is that it can be lonely. You spend all day with just you and the computer. You might talk to others on the phone, or via email, or skype, or however you communicate, but face-to-face meetings are expensive. If you’re not the kind of person who can stand your own company for days at a time, this might not be for you. Also, you might find that as an independent, you never really have any time off. You’ll find yourself working nights and weekends. This can be tough to manage. Don’t let your job as a freelancer become your social life. You still need to go fishing, see movies with friends, marriage, kids, etc, your life is still important.

 

And before you make the jump, you should probably talk to an accountant, an attorney, and maybe a professional insurance specialist. There are some decisions you need to make about taxes, incorporation, and protection against lawsuits, should you be so unlucky. Also, you should be aware that for some types of design, you may be required to have a professional engineer’s license. If you are working as a contractor, the company hiring you should manage that, but just be aware of this.

 

If what you really want to do is manage people, being independent is probably not for you. An alternative that might work is starting an engineering service firm where you hire several folks. This is a whole different set of skills, risks, etc. that I won't address here.

 

When you get rolling, some jobs will be long (weeks, months), some will be short (days). You may never meet some of your clients face to face. Make sure to handle expectations up front. Some employers will want to handle all of the paperwork/legalities up front, and some may be entirely informal about the process. Sometimes you will have to quote by the job rather than by the hour. You need to make sure that your needs are addressed, so if you want to impose a minimum down payment, then you need to say that right up front.

 

There may come times when you don’t get paid. This is more likely if you are working for smaller organizations, or even individuals. I hesitate to give any advice in this situation other than to tell you that it may happen. This will be one of those situations you may want to discuss with a lawyer or accountant. I worked for a lot of inventors, who had the tendency to have some day job other than product development, so I ran into this a fair bit. Over the course of 8 years, I got left holding the bag for 3 separate jobs – one never intended to pay from the beginning, which I could only see in hindsight. Another could not define the scope of the project, so it was put on the bottom of my priority list in a busy time. And another was a great customer who was using me as a subcontractor. They got stiffed by the end customer, and passed that treatment on to me.

 

And finally, remember that there is a wide range of possibilities in mechanical engineering and product design. Especially when times are thin, you might think of a wider range of work than you would normally do. For example, I would sometimes take on 3D scanning work. And I supplemented my income by doing some writing, and even ran a website that made money from advertisements. Sometimes diversifying is the right thing to do, but sometimes focus might be the right thing. That’s another decision that you have to make yourself.

 

Not every day is going to be a barrel of laughs, but in general, if you’re not having fun doing this type of work, you might be doing it wrong.

 

Come back for the next episode, where we look at hiring contractors from the point of view of the company doing the hiring.

Comments
by Valued Contributor
on ‎09-04-2014 03:13 AM

Awesome experience sharing ! I'm sure many identified themselves on these scenarios. As I did.

 

Thanks for this.

BR

Flavio Hilario

by Phenom
‎09-05-2014 08:49 AM - edited ‎09-05-2014 08:50 AM

Matt, Good article Matt.

 

I have only one thing I disagree on: " Make friends with people with related specialties, so you can refer maybe a stress analysis specialist, or someone who is a mechanism genius, or someone who is a CNC specialist. A little networking with people with related skills is always a good thing."

 

I agree with the idea of good networking, but you should always try and capitalize on your efforts. So a way to leverage your expertise is to do more then just the Engineering and CAD work. Sub out the FEA and CNC, and even see if you can get the contract for making the parts.... it's known as "value added". Yes it adds more work and responsibility, but you can also make more money by doing so. I realize that not every job and/or company fits this perfectly, but keep your eyes peeled for expanding your capabilities.

 

We build custom Equipment yet only have a small CNC miller for prototyping. All parts are sourced outside and we just assemble the equipment here. But I'm able to make a lot more money by doing so, then if I were just doing the design/engineering work. So we charge 2 to 3 times the hard costs, depending on the sophistication of the machines. But you can quickly see how selling a $150,000 custom machine can bring in about 3 to 4 times what I would have gotten just doing the engineering and design work. Again this is not for everyone, and I only mention it to open everone's eyes to how you can expand your business with existing customers. It doesn't hurt to ask. Graphics houses have handled the printing jobs for years using the same strategy.

 

Bob

by MLombard
on ‎09-05-2014 01:21 PM
Bob,
I singled out people who wanted to manage other people as a different kind of business altogether. I should have also singled out people who wanted to manage projects. The way of working that you're talking about is project management. I didn't get asked to do much of this, and I didn't really have any desire to be accountable for someone else's work, so I never did this.
Some contractors will want to grow into project management, and some project managers will want to grow into full service engineering organizations. But not everyone.
 

 

by Phenom
‎09-06-2014 02:12 PM - edited ‎09-06-2014 02:31 PM

An example of proliferating into other closely related areas without losing focus on one's expertise is programming which is my forte. The same applies to Surfacing too. As an independant contractor, I always showed willingness to adapt to and pick up the API of other CAD programs besides Solid Edge, which are more or less the same. Surfacing commands, workflows and techniques too largely are similar across competing CAD programs.

 

On the other hand, I've been through a situation that Bob described, where a client asked me to get involved in a CAD + Cloud project, the later making no sense to me more than a rain carrying agent. So I quicky roped in one of my contacts to handle the Cloud part directly for the client while still focusing on my key area of CAD programming. So I was neither managing any one else's work but still could win the CAD programming part of the project, thus retaining a happy customer.

 

Where/How would you categorise this Matt ? Synergy perhaps.

 

www.surfandcode.in

 

by MLombard
on ‎09-07-2014 03:32 PM

Tushar,

 

Sounds like you hired a project manager for your customer. Clever thinking.

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