Side gig and consulting pricing models

One of the most frequent questions asked by doctors exploring or negotiating side gigs, like being a tech CMO, advisor or consultant, is, "How much should I charge?"

For those nearing retirement, consulting can be tempting as a second career, a good way to monetize your expertise, contacts and experience.

But the transition is harder than it looks. Novices struggle with how—and how much—to charge. They overestimate how easy it will be to get clients. They underestimate how much free time they’ll have.

The ultimate proof of success is landing paying clients. Without them, you’re just an older person with opinions.

Here are five keys to launching a successful consulting practice in retirement.

Value driven professionals see themselves as an economic product on the open market.

When you are interviewing a potential client, how you will be compensated will be part of the conversation. How would you answer, "What are your compensation expectations?"

In fact, you should expand the question from "how much" to include "how", "how long" and "when" as well.

Do you know how much to charge for your SasS product?

Here are things to consider that will inform your decision:

1. You should negotiate a compensation package, not just a cash payment, if applicable. Compensation can include not just cash, but equity and other benefits as well. The amount of equity will depend on your role, expected engagement and deliverables. Be sure to consider the income tax consequences of accepting stock v options.
2. Your negotiating power will depend on your brand equity, the multiples of value you can deliver, experience, KOL status, macro and micro economic trends and others so continually build those things. Since most of these jobs are now virtual, geographic location should not have much impact on your fee. You might use the 5 forces model to think about your personal competitive strategy to build your bargaining and negotiation strategy.

1. There are several cash payment models to choose from, depending on the circumstances and scope of work. They include a retainer, project based payment, revenue sharing,a per hour charge, a success fee or some combination. Let's say a full-time CMO of a small medtech or digital health company makes $240,000=20k/month (look it up on Linkedin) The job description for the stage of the company requires a .25 FTE. That's 5K a month with or without some equity allocation. Take a page out of Michael Jordan's play book. NBA icon Michael Jordan is selling his majority ownership of the Charlotte Hornets for an estimated $3 billion, ESPN reports, citing anonymous sources.?

Another compensation model is the "money for a meeting" , where you are paid a fee to successfully arrange a meeting between one person and another who is notoriously difficult to contact and accept a meeting. In some instances, you might also receive a revenue share of future sales.

1. All elements of your compensation package are negotiable, but you should have some idea of comparable rates. For example, here is what a clinical chief medical officer gets paid. Remember, though, that a CMO of a sickcare technology company is a different job, as are the required knowledge, skills, attitudes, and competencies.
2. In addition to the payment model and price for your services, you should also decide on the length of the agreement, the terms and conditions of terminating or renewing the agreement, and how and when you will be paid e.g. an electronic funds transfer or wire transfer on the first business day of every month.
3. It is in the founder and the team and consultant's best interest to get to know each other during some trial period. Generally, one month is too short and 9 months is too long. Decide when it will be time to revisit the arrangement and the terms and conditions of future engagement, and what happens if you are terminated, or decide not to renew.
4. If you are asked to raise money or help raise money, be sure you don't run afoul of securities laws in the relevant jurisdictions. Here are some problems with the "I eat what you kill" payment model.
5. Be sure you consult with a tax professional about the tax consequences of the agreement
6. Don't base your compensation on what you are being paid now as a practicing clinician. Advising is not doctoring.
7. Many sick care technology founders who don't necessarily have deep domain expertise in sick care entrepreneurship, might not have a good sense of what to pay you. It might, in fact, be their first sick care rodeo. Be fair and transparent when it comes to getting to yes.
8. Give yourself some wiggle room so you have Plan B if and when things don't work out.
9. If you are being asked to help with "sales and marketing", have a clear understanding of what your role will be in the process. Is it creating content, opening doors, sharing your network, directly contacting leads or something else?
10. Define the objectives and key results expected of you and timelines.
11. Factor in the stage of development and available resources of the company. As a rough guideline, those that are generating less than $2M in annual recurrent revenue are startups. Those generating between $2M and $10M are getting traction. Those are generating over $10M are scaling and try to to get to a grown-up level of $100 M, Are they willing and able to pay you want you want given their stage of development?
12. There are four basic compensation models: per hour, per project, retainer, success fee or a combination. Adjust your request depending on the goals and objectives of the client or founder.

16. Assess your risk profile and the stage of your career. Most startups and early stage companies will fail. Does your risk/return analysis fit with your wants and needs? Is the juice worth the squeeze?

17. Overcome the Picasso Paradox Whenever you can, separate time from your service pricing and charge based on deliverables. Focus on the value the customer receives, not how long it took to create that value.

18. If you are the person hiring someone as an advisor or consultant, here is a cheat sheet to give you some parameters:

1. Startups frequently compensate employees through a blend of cash and equity, such as stock options or restricted stock units, which may translate into ownership stakes. For prospective employees, assessing job offers with equity components can prove to be a complicated task. In fact, in a recent research study we found a clear and consistent pattern among participants evaluating offers that included equity compensation: They appeared to perceive that a higher number of shares translated into superior compensation. This led them to be more willing to sacrifice cash compensation when offered a larger quantity of shares, even when the underlying value remained the same. Call it the equity illusion.

Katherine Brooks, in the 2022 edition of the career planning classic, What Color is Your Parachute?. offers the five secrets of salary negotiation:

1. Do your research: Contact those in your network who you trust
2. Never discuss salary until the end of the interviewing process: However, if you know you are not going to work for equity alone, why waste time by not mentioning it early in the discussion?
3. The first one to mention salary loses.
4. Build some wiggle room into your compensation ask. Remember the benefits of intangibles as well as money.
5. Define the package and close the deal, particularly about not just how much, but when and how you will receive payment and what happens if you don't

Reasons why you might not want to work for equity alone if you are a doctor advisor:

1. The categories of board, technical, business are blurred

2. The vast majority of newcos will fail

3. Even if there were a financing event, you could be dead by that time

4. Doctors are used to getting paid for effort, not results

5. You might feel you are undervalued. There is an advisor-founder values gap

6. You are used to being risk averse

7. The compensation will depend on the expectations. Most newcos are looking for money, partners, and customers and expect you to work delivering them 365./24/7 as a connector

8. It better to crawl before you walk before you run so test the waters in the first few months

9. Tax reasons

10. Your personal financial situation and your ability to take advantage of the time value of failure.

The labor market and economy have recovered from the darkest days of the pandemic. Employers are now trying to compete for and keep talent, meaning they’re likely more willing to offer raises and promotions. Experts share their tips in the latest for asking for more money and seniority. Such as:

• Doing your research.
• Preparing your case and argument.
• Making the ask at the right time.
• Following up after your ask.

Here are some tips on how to say no to opportunities and the power of negative entrepreneurial thinking.

Knowing whether or not to accept an opportunity is a cost/benefit decision. Like most decisions, it is mostly emotional and part cognitive.

Don't be greedy. However things go, you will get valuable experience and learn for your next gig.

The most important thing you own is your time and it is not renewable. Consider the opportunity cost of the offer and decide whether it is worth the effort. If it's not, here are some ways to say no. Be sure to attend all the classes in Rejection 101.

Arlen Meyers, MD, MBA is the President and CEO of the Society of Physician Entrepreneurs on Substack and Editor of Digital Health Entrepreneurship