Smart Answers

Contracts That Work for Consultants


Q: A food services business is willing to pay me a monthly retainer to consult with them on procedures and logistics. How do I set fees and structure a retainer agreement? I'd like to make $2,400 for 40 hours of work per month.—D.R., Chicago

A: Write up a simple consulting contract (you can find templates online) that states the scope of the work required, your rate, the time frame for the job and for payment, and other relevant details. It's not a bad idea to have an attorney look it over to make sure you've covered your bases.

Then present it to your client and be prepared to negotiate on some items. Just make sure that the final version includes protections for both sides.

For instance, if this will be an ongoing relationship, ensure that your retainer is paid in advance—say, on the first of the month. That way, you won't risk doing hours of work and not getting paid at all, or getting paid late.

Structure the contract so that either side can cancel at any time, advises Abbye Williams, a food service consultant with A Freiman Consulting in Torrance, Calif. Agree that if the contract is cancelled midmonth, you'll repay any unused retainer, minus 10 percent to cover your administrative costs.

"You don't want to work for an unhappy client­—or vice versa—so it is best to let either side cancel at will," she says. "As consultants, all we have are our reputations. You don't want them complaining about how they had to pay you when they were unhappy with the results. At least if you return their money, it doesn't leave them with a bad taste in their mouths."

Is Your Fee Appropriate?

Look into whether your proposed fee of $60/hour is right as a starter rate in your area. If it is, consider raising it as you gain experience and additional clients. Be prepared to work with clients who prefer to hire you for short consulting sessions: Williams charges $150/hour, requires a two-hour minimum, and collects payment on the spot for such clients, some of whom go on to hire her for longer-term jobs.

You may also be hired for one-off projects with a finite deadline. In those cases, you'll need to estimate how much time you'll put in and submit a bid for the whole job. Consider asking for one-third of the money up front, one-third after 30 days and one-third on completion of such projects, says William D. Cassidy III, chief executive partner at The Human Resource Partnership, a consulting business in New York City. Always leave the contract open to adjustments as the project plays out, he suggests, since it is difficult to determine the true scope of the work early on.

With new clients, consider building a late fee into your contract, says Tai Whaley, a human resources consultant in Los Angeles. "Make it 15 days, and if they balk, go to 30, but don't get into a situation where you are waiting weeks or months to get paid," she says.

She speaks from experience, having prepared an employee handbook for which the final payment was contingent on client approval. "That took a year to come to fruition, after comments, revisions, reviews, and foot-dragging on the part of the client, who didn't make this a priority," Whaley says. "So put a final date on it so you're not waiting for that payment forever."

Karen_klein
Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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