[LONG] Cost of doing business was Re: [thelist] Whats it worth??

Ben Henick persist1 at io.com
Tue May 7 13:35:34 CDT 2002

On Tue, 7 May 2002, Martin wrote:

> <re: factors of t&m vs. fixed-cost>
> Agreed, but clients like some kind of indicative cost (eg "Time and
> materials, and we expect it to come out in the region of £x"), otherwise
> they have a feeling of blank-chequeness.

Yah.  The suggestion made to me by a friend who works as a consultant for
a large, well-known American vendor that does a lot of SLA's, is that you
make a guess - the less WAGging, the better - as to how long it will take
(in terms of hours billed) to meet an intermediate milestone, and sign a
contract for that many hours at an agreed rate whilst defining the
deliverables in a nonbinding MOU.  (That is an anecdotal suggestion and
not legal advice, by the way.)

Properly written, such an engagement allows the client to:

a) evaluate the vendor at a well-managed level of risk
b) figure out how much it will actually cost to achieve their stated
   objective (the raison d'etre for the project)
c) reassign the vendor to another project if it appears to better leverage
   their strengths

Such an arrangement also covers the vendor's posterior for the duration of
the engagement, as they are getting paid for all of the hours they put
into the work.

> ...and defining those requirements should be part of chargeable work.

For bleeding-edge stuff, I agree completely.

For more pedestrian work, I've learned that for small clients at least
you've got to cover the cost of the proposal on your own, and make it up
as part of your invoices.

My hard and fast rule is that I do not create a single PSD, or write a
single line of markup or code, until my first third is in the bank and

Obviously, this leaves you in a circumstance where you might write a
detailed proposal, only to see the prospect hand it off to somebody's
HS-age nephew as a baseline for establishing objectives and process.  But
if that happens, you've been spared what otherwise would have been a VERY
toxic engagement.

> ...and being ill which affects how much time you actually have available
> to produce feeable work.

Yah.  I neglected this in my initial post partly to see if anyone would
notice its absence - let's get people thinking! - and also because it's
hard to quantify.  People have varied levels of constitution, and
similarly varied attitudes toward the prospect of taking unscheduled PTO.

I, for example, have to be at death's door to take a sick day unless I
have a long commute... OTOH, I've discovered that my attitude toward
playing hooky is a lot more forgiving when I'm working from home.
(Working *onsite* I'd never dream of it, even given Oregon's climate.)

> > g.  Federal and local income taxes:
> Business taxes.

Depends on how your paperwork is squared away, and on the jurisdiction(s)
in which you're registered.

> > h.  Payroll taxes:
> If you're not a sole trader, employer's NI (if you're
> self employed, take into account employees' NI). Both have just gone
> up 1%.

This is a UK thing... would you be willing to explain how these levies
work?  It actually sounds similar to FICA/Medicare in implementation, but
doubtless there are salient differences.

Another widget I left out was OJI insurance.  Depending on where you are,
you may be permitted/required/not-allowed as an independent to contribute
to that fund... if as an independent you are paying in, the amounts paid
will still be enough to show up on your balance sheet each quarter.

> > My client has
> > paid for my meal every time we've gone out to eat, and I'm not spending
> > much on equipment.
> Absolutely - if your income doesn't come from clients, where *do* you
> expect it to arrive from?

When I wrote this, I was hinting that my analysis did not take into any
account the cost of performing solid client service.  If you're at the
level where the client expects you to take them out to lunch, you've got
to remember to put aside a budget for client services.

Ben Henick
Web Author At-Large              Managing Editor
http://www.io.com/persist1/      http://www.digital-web.com/
persist1 at io.com                  bmh at digital-web.com
"Are you pondering what I'm pondering, Pinky?"
"I think so, Brain, but... (snort) no, no, it's too stupid."
"We will disguise ourselves as a cow."
"Oh!" (giggles) "That was it exactly!"

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