Smart subcontracting . . . and not-so-smart

 

I'm at a networking event, and I'm talking to someone who works in a field I'm looking to break into. I'll call him Fred.

I know I have the skills Fred needs, even though my portfolio doesn't include anything that's a snug fit with what he's looking for.

He seems impressed with my experience and asks what I charge. I name an hourly rate.

"That wouldn't work for me," Fred says, and he names a piece rate that would bring me in at a fraction of what I quoted. He says there's no way he can pay any higher: "I pay you $45 per article, and my clients pay me $90 per article. They won't pay more than that."

In other words, Fred has a 100% mark-up!

And at $45 per article, a writer who likes to pay her rent would only have time to scramble someone else's content and spit it out in a different order. Apparently this is acceptable to Fred and his clients. It's not acceptable to me.

There's nothing inherently wrong with working as a subcontractor, but Fred is not the guy you wanna work for.

Sometimes subcontracting is smart

Sometimes it makes a lot of sense to work for another business owner as a subcontractor. For example, perhaps you're trying to break into a new field and don't yet have the portfolio strength to market directly to the end client. Subcontracting allows you to build your portfolio, and you might happen into a helpful mentoring relationship while you're at it.

This is how I broke into indexing. I met a textbook indexer at a networking event. Business was booming for her, and sometimes she parceled out chapters to subcontractors so she could finish by deadline without neglecting her health and her family. She paid me an hourly rate that was commensurate with what I was making at the time, and she helped me improve my skills because when I did well, she did well.

It was a great win-win. I got mentorship, decent pay, and experience. My client got relief from an overfull work schedule, a satisfied publisher client, and her small markup—the difference between what she was paying me and what the publisher was paying her.

Pitfalls of subcontracting

If you're considering subcontracting, you should avoid three pitfalls: too-low pay, overly restrictive noncompete agreements, and the temptation to settle in and avoid marketing your services directly.

First, remember that when you take on work for low pay, there's an opportunity cost: that's time you can't spend working for clients who pay you better. If you're just getting started and it's Fred's rates or no work at all, maybe knocking out a few articles for Fred is OK. But only if you can write original material that builds your portfolio—scramble-and-spit won't help you with that. And don't commit so many hours to Fred that you have no time to market your services to better-paying clients.

Second, be very wary of noncompete agreements. It is appropriate for businesses that use subcontractors to expect you not to circumvent them and seek work from their clients directly. However, a noncompete agreement that goes beyond this unfairly restricts your ability to build your own business. If my indexing mentor had told me I must sign an agreement saying I wouldn't market directly to textbook publishers, I would have walked away.

Finally, don't get too comfy. If you're getting a steady stream of work as a subcontractor and your clients are happy, you should be able to successfully market your services directly to customers in the same sector and keep the amount of your client's markup. Think about it: if your client's taking a 25% markup, it's as though you're paying $250 in advertising costs for every $750 of business. When you build direct relationships with the end users of your services, marketing to those clients will cost you nothing: satisfied customers will come back to you time and again. It'll be like giving yourself a 33% raise!

With subcontracting as with most freelance business matters, if you think strategically while you cultivate your skills, you'll do well.