Which is the better approach -- consultant or contractor? | Consulting Structures | Consultant Launch Pad Community Forum

Post edited 4:44 pm – May 22, 2010 by Peter

Part of the decision around consulting is determining the best way to deliver your talents and services to clients in a profitable way.   You will often hear the words Contractor and Consultant used interchangeably, but that’s somewhat misleading.  We prefer to think of the framework as a continuum that starts with “Employee” at one end and “Consultant” at the other with “Contractor” being halfway between, with various levels of autonomy, security, “profitability” and risk based on each individual’s appetite for those factors.  For instance, sometimes it is best to provide your skills in a similar manner to an employee, taking direction on projects and working alongside the client at their workplace.  That’s a Contractor relationship.  For others, developing and applying unique methodologies or deep industry experience in the form of projects and presentations with complete autonomy is a better fit (i.e., Consultant).

Although this is a subject that is the source of great debate, here are our views on the differences:  

Contractors usually provide very specific sets of skills, often filling a role in the client’s organization.  They nearly always work under a formal contract that helps to distinguish them from client employees for certain legal and personnel-related reasons.  Once you’re done, you move on.  Contractors can be thought of as “halfway” between being an Employee and being a Consultant.  Most contractors work on one project at a time, but you will find cases where you have multiple contracts going at the same time – leaving it to you to balance prioritization and timing…and satisfying each client.  Fees are often closely related to the salary that would be paid an employee doing comparable work with a premium reflecting the flexibility the client has in terms of not paying benefits and the ability to terminate the contract at will.  Contractor fees are normally paid by the time unit (hourly or per-diem).

Consultants have complete independence from the client with their services usually provided under a purchase order, not through a contract with Human Resources.  Consultants are therefore vendors and are paid for the products they deliver with these products clearly described in a detailed scope of work.  Consultant fees can often be considerably above those of a Contractor and priced to reflect the unique skills, knowledge, or methodologies.  Consultant fees are usually fixed for a given scope of work, meaning the Consultant takes the risk for managing his or her time on the project.

Choosing one approach over the other is not a right or wrong decision.   Each has its own merits and drawbacks.  But you need to consider which best fits your personal skills, career goals, style, and personality.  Some things to think about are:

If you are using consulting as a bridge to another permanent position, then being a Contractor probably makes the most sense.  Clients will sometimes use Contractors in positions they intend to fill permanently and will “contract-to-hire” with the understanding that if the contracting relationship works for both parties, permanent employment is the eventual outcome.  This can sometimes be negotiated into the contracting agreement.

If you prefer complete independence and are consulting in lieu of an Employee relationship, then being a Consultant may be a better approach.  Consultants structure their relationship as that of a vendor, clearly defining deliverables for which they will be paid.  The consultant remains autonomous and the client does not direct day-to-day work.

Contracting can often be done with very minimal investment and overhead costs.  Marketing is minimized since the number of clients is very small and the need for on-going sales effort is reduced because you have more predictability in terms of monthly income.  It may be possible to contract without setting up a corporation and instead being paid through 1099. 

Consulting usually requires considerable investment and overhead costs including creating a business entity or corporation, investing in marketing materials, and advertising.