Freelancing: How to talk yourself into charging more(andyadams.org)
andyadams.org
Freelancing: How to talk yourself into charging more
http://andyadams.org/you-can-charge-more/
207 comments
Bingo. Thanks, Brennan. Part of the epiphany I had was "wow, I did a lot more than programming on that project". I managed it, taught other developers, and "consulted" quite a bit. I also read your book right before I had this moment. I hadn't quite bought into it yet, but this was the first step.
Can you give an actual example of some problem that one of your clients had and how did you consult him/her?
Sure. So I had a client who wanted us to rewrite their 10 year old MS Access app as a web app.
The engineer in me would have immediately jumped into "OK, how do I migrate this database into Rails and recreate the functionality and UI of this app?" I would have priced the going rate for web development, and tried to gauge how long it would take to complete.
The business owner in me realized that this app is critical to their business. It's the tool they use to manage and close sales, and about 20ish people use it all day, every day. I also knew that the CEO was currently the maintainer of the app, as it was started when the company was a home business and the owner picked up a "Learn MS Access in 21 Days" book.
Knowing this, I went to work learning how I could not only modernize the product by making it web based, but I wanted to leverage my experience in usability to optimize how their team uses the app. How can we not just rewrite the app, but also optimize it? Is there a clear path to adding an hour or so a day of additional productivity per employee, and what would 100 hours of combined additional productivity a week mean (financially) for the business? And how much better would it be if the CEO of this small company wasn't needing to maintain the app himself, but could focus on what he does best — growing his company?
What I sold wasn't software or a rewrite. I ended up selling a better tomorrow for his business, and a more profitable tomorrow. This "decommoditized" what I was doing, and while he paid me a premium, he received a much better product at the end of the day.
The engineer in me would have immediately jumped into "OK, how do I migrate this database into Rails and recreate the functionality and UI of this app?" I would have priced the going rate for web development, and tried to gauge how long it would take to complete.
The business owner in me realized that this app is critical to their business. It's the tool they use to manage and close sales, and about 20ish people use it all day, every day. I also knew that the CEO was currently the maintainer of the app, as it was started when the company was a home business and the owner picked up a "Learn MS Access in 21 Days" book.
Knowing this, I went to work learning how I could not only modernize the product by making it web based, but I wanted to leverage my experience in usability to optimize how their team uses the app. How can we not just rewrite the app, but also optimize it? Is there a clear path to adding an hour or so a day of additional productivity per employee, and what would 100 hours of combined additional productivity a week mean (financially) for the business? And how much better would it be if the CEO of this small company wasn't needing to maintain the app himself, but could focus on what he does best — growing his company?
What I sold wasn't software or a rewrite. I ended up selling a better tomorrow for his business, and a more profitable tomorrow. This "decommoditized" what I was doing, and while he paid me a premium, he received a much better product at the end of the day.
> While he paid me a premium, he received a much better prodcut
n.b. That's how good business owners will look at this transaction: in terms of ROI. Sure this client paid a lot of money, but it was an investment in his company. It paid off. When you start framing offers like this, you don't have to feel bad about the price you'd like to charge because both parties come out further ahead.
Edit: Of interest to HN, I had a conversation with a business-owner friend of mine earlier this week. In trying to come up with a business ideas, I'd asked her if there was any software she hated using. This sparked an interesting conversation. When we got to the discussion about pricing, I asked:
"How much would you pay for something like this? $500 a year?" Her response was, and I quote: "I would do it on a monthly basis. Anything between 20-49/month is easy to sell. People <I think she means business owners here> don't even notice it."
tl;dr When you save a company money or time, they will hand you money accordingly.
n.b. That's how good business owners will look at this transaction: in terms of ROI. Sure this client paid a lot of money, but it was an investment in his company. It paid off. When you start framing offers like this, you don't have to feel bad about the price you'd like to charge because both parties come out further ahead.
Edit: Of interest to HN, I had a conversation with a business-owner friend of mine earlier this week. In trying to come up with a business ideas, I'd asked her if there was any software she hated using. This sparked an interesting conversation. When we got to the discussion about pricing, I asked:
"How much would you pay for something like this? $500 a year?" Her response was, and I quote: "I would do it on a monthly basis. Anything between 20-49/month is easy to sell. People <I think she means business owners here> don't even notice it."
tl;dr When you save a company money or time, they will hand you money accordingly.
This makes sense, but unfortunately not all clients are inclined into accepting propositions like these. Some clients do the research and design internally and then they hire a "consultant" to do the development part of the project.
I consider that the term "consultant" is used to freely and most of the time clients advertise that they are looking to hire a consultant when they actually want to hire a freelance developer.
I consider that the term "consultant" is used to freely and most of the time clients advertise that they are looking to hire a consultant when they actually want to hire a freelance developer.
THOSE PEOPLE AREN'T YOUR CLIENTS.
If you want to work with them as "life support" for your practice while you figure out how to find the (innumerable) real clients that pay for business value, fine. But don't kid yourself. Call them "life support", not "clients". And just like a ventilator, staying engaged with life support is going to screw you up.
You cannot, cannot, cannot earn true market rates if your default position on incoming prospective business is "yes". You're going to say "no" a lot, and you're going to hear "no" a lot.
Fear of "no" costs more tech consultants more money than DOTA2 and Imgur ever will.
If you want to work with them as "life support" for your practice while you figure out how to find the (innumerable) real clients that pay for business value, fine. But don't kid yourself. Call them "life support", not "clients". And just like a ventilator, staying engaged with life support is going to screw you up.
You cannot, cannot, cannot earn true market rates if your default position on incoming prospective business is "yes". You're going to say "no" a lot, and you're going to hear "no" a lot.
Fear of "no" costs more tech consultants more money than DOTA2 and Imgur ever will.
> I consider that the term "consultant" is used to freely and most of the time clients advertise that they are looking to hire a consultant when they actually want to hire a freelance developer.
For some bizarre reason, "consultant" has taken on in common use a meaning approximately equivalent to "contractor", which has nothing to do with whether the work being contracted for is consulting or not.
For some bizarre reason, "consultant" has taken on in common use a meaning approximately equivalent to "contractor", which has nothing to do with whether the work being contracted for is consulting or not.
I really think the idea that "consulting" is some special thing that "contractors" and "freelancers" can't do is harmful. In the sense we all mean it, "consulting" just means "being smart about what services you provide and at what price". It's the equivalent of product management in a product company. If you're serious about being independent, you have to do it. Now.
> I really think the idea that "consulting" is some special thing that "contractors" and "freelancers" can't do is harmful.
Most consultants are contractors (whether they are also freelancers or not depends on whether they are individual contractors or are contracted firms), though there are some cases where internal employees job function includes consulting for some other internal group than the one to which they directly report.
But not all contractors (freelance or otherwise) are contracted to consult, and those that aren't contracted to consult shouldn't be called "consultants", in the same way that people that are contracted exclusively for tasks (including consulting) that don't include developing software shouldn't be called "software developers".
Most consultants are contractors (whether they are also freelancers or not depends on whether they are individual contractors or are contracted firms), though there are some cases where internal employees job function includes consulting for some other internal group than the one to which they directly report.
But not all contractors (freelance or otherwise) are contracted to consult, and those that aren't contracted to consult shouldn't be called "consultants", in the same way that people that are contracted exclusively for tasks (including consulting) that don't include developing software shouldn't be called "software developers".
See, now I think you're using the term in a subtly different way than Brennan is. Brennan couldn't have sold that Access to Web conversion deal as a pure consulting project, in the Arthur Anderson "split up implementation and consulting" sense of the term.
Everyone working independent needs to think of the business value they're creating; they need to think about their services the way product managers think about Feature/Function/Benefit charts. We call the people who are good at this "consultants", even when most of what they actually do is (say) Rails apps.
Everyone working independent needs to think of the business value they're creating; they need to think about their services the way product managers think about Feature/Function/Benefit charts. We call the people who are good at this "consultants", even when most of what they actually do is (say) Rails apps.
Interesting. What do you do if the client is not interested the value-add but only in a rewrite for the web, say? Decline the project?
Sounds like their only goal is the rewrite which is in and of itself valuable.
Thanks for the great example.
Did you charge an hourly rate for your "consulting time", or did you charge a flat fee?
Did you charge an hourly rate for your "consulting time", or did you charge a flat fee?
Those aren't the only two options. In fact: they are both bad options!
Here's a much better option than either. I'm sure it's not the best way either, but the fact that "what came off the top of my business partner's head" is so much better than hourly or fixed is a good indication of how bad hourly and fixed are.
https://news.ycombinator.com/item?id=7850335
Here's a much better option than either. I'm sure it's not the best way either, but the fact that "what came off the top of my business partner's head" is so much better than hourly or fixed is a good indication of how bad hourly and fixed are.
https://news.ycombinator.com/item?id=7850335
Charging by the day is better than charging by the hour, and week is better than day.
Better than each is to stop valuing your time as "just" time. You'll never have those moments again.
Value your work product. Don't value your work effort, and definitely not your time.
Actually, don't value your work product. Figure out how your customer values your work product and charge that price.
Once you start to realize that your time is the most valuable thing you'll ever have and simultaneously completely worthless as a unit of currency, you'll begin to trade with what you have that is truly of value to the person actually paying the bill: that thing you haven't created yet.
Better than each is to stop valuing your time as "just" time. You'll never have those moments again.
Value your work product. Don't value your work effort, and definitely not your time.
Actually, don't value your work product. Figure out how your customer values your work product and charge that price.
Once you start to realize that your time is the most valuable thing you'll ever have and simultaneously completely worthless as a unit of currency, you'll begin to trade with what you have that is truly of value to the person actually paying the bill: that thing you haven't created yet.
I was going to bookmark the linked comment, and found that I had in fact already done so. It is a very useful, actionable piece of advice. Thanks for writing it.
Also, I think there is a lot of focus on pricing (fair, it was the point of the article). But you simply need to back it up with what is your differentiator. It's just like any product: you need to be articulate as to why you cost your rate, and also have an idea of the value of your work to customers (different customers value the same work differently).
So, know what makes you different, find the customers that value that work more, and set your price according to that.
So, know what makes you different, find the customers that value that work more, and set your price according to that.
In my experience, differentiating from competition wasn't really a factor in how much I charged or how much I made. For a lot of businesses that would hire a solo consultant, there is no consideration of the competition.
Most of the businesses that I've dealt with are intimately familiar with the problem/objective, but really don't have much knowledge of what is required to get there. This is where the consulting part comes into play. Many times it's been as simple as "let's talk about what you're trying to accomplish here" and from that I am able to formulate a solution in my mind of how that can be solved with custom software (or in some cases, an out of the box tool). I make the recommendation, and boom, a sale is made.
This is where making the business case for what the client stands to make comes into play and why what another developer might charge is highly irrelevant. If you can convince a business owner that he'll make $100,000 with your solution, convincing him to pay you $30,000 is not too difficult, regardless of whether he could technically find a high-school student who would do it for $15/hour.
To me, the key word is trust. Once you prove that you have good ideas and know how to execute on them, making sales is really more about just repeating the process than undercutting the competition. It goes without saying that you must deliver, though.
Most of the businesses that I've dealt with are intimately familiar with the problem/objective, but really don't have much knowledge of what is required to get there. This is where the consulting part comes into play. Many times it's been as simple as "let's talk about what you're trying to accomplish here" and from that I am able to formulate a solution in my mind of how that can be solved with custom software (or in some cases, an out of the box tool). I make the recommendation, and boom, a sale is made.
This is where making the business case for what the client stands to make comes into play and why what another developer might charge is highly irrelevant. If you can convince a business owner that he'll make $100,000 with your solution, convincing him to pay you $30,000 is not too difficult, regardless of whether he could technically find a high-school student who would do it for $15/hour.
To me, the key word is trust. Once you prove that you have good ideas and know how to execute on them, making sales is really more about just repeating the process than undercutting the competition. It goes without saying that you must deliver, though.
I am currently struggling with a method to raise my rate with a current client and your comment has crystallized the problem I've been having in writing the email, but not the way you think.
Another way of differentiation is to take stock of what you provide over and above basic work. That is, not to differentiate from any perceived competitors, but from what the client thinks you're doing (their perception of your role to them). If they think you're just doing web development, but also rely on or defer to you for system administration, UX/design, content, and/or hosting decisions, et al, those are all things that comprise your value. This is a roundabout of repeating tptacek's elements-of-value lists linked elsewhere in these threads.
Another way of differentiation is to take stock of what you provide over and above basic work. That is, not to differentiate from any perceived competitors, but from what the client thinks you're doing (their perception of your role to them). If they think you're just doing web development, but also rely on or defer to you for system administration, UX/design, content, and/or hosting decisions, et al, those are all things that comprise your value. This is a roundabout of repeating tptacek's elements-of-value lists linked elsewhere in these threads.
Sounds like, "Actually I take the idea of a 'rate' off the table, by becoming an equity cofounder with a cliff, and leveraging my connections at fortune 500 companies to sell the entire company for $60 million. This nets me about $20M based on the way I structure my contract, and takes approximately 800 days of work, so that works out to about $25,000 per day or something like $3125 per hour. Really, if the business is in a big market with good growth and good margins and some kind of proprietary lock-in or moat, $60M is quite a reasonable figure for many Fortune 500 companies to acquire for. Then I just make whatever needs to happen for that to happen, happen."
Well, good for you - but I don't think it has much to do with freelance web development! (the 'commodity' you mention).
In particular, what makes you think OP could do the same?
Well, good for you - but I don't think it has much to do with freelance web development! (the 'commodity' you mention).
In particular, what makes you think OP could do the same?
It has everything to do with freelance web development, because I (a 1099'd freelancer) am still doing web development. I've just come to realize that clients don't pay me for lines of code, therefore I don't sell lines of code :-)
Figure out WHY a project's being commissioned and then propose what your clients actually care about (hint: not code), vs. doing the usual "here's a proposal with a bunch of technical line items, a quote, timeline, and a signature field"
Figure out WHY a project's being commissioned and then propose what your clients actually care about (hint: not code), vs. doing the usual "here's a proposal with a bunch of technical line items, a quote, timeline, and a signature field"
In my fictitious example if you're still personally coding the things that need to happen, then by your argument you're still a "programmer", just one who is earning $3000 per hour. (Which certainly stretches the meaning of the term.)
What I'm saying is that it is not quite fair to assume that every 'freelance programmer' (OP or your readers) can do that to the extent that you can. Business requirements analysis is simply a different skill from programming.
Consider the example where the person buying your services is on to your pricing strategy, and misrepresents the value of the business downward (or hides it from you), so that you are left only with the process but no good idea of the value of it.
Can you still do your business analysis, and price it as you suggest? Not nearly as well. Even though as far as code goes, you could still write all of it.
So I would say that what you advocate goes well beyond the idea of a freelance programmer, to include aspects of a business consultant. (Finally, really good proof of this is that in some cases you may well be able to hand off the actual coding to someone who will follow your instructions at a low hourly rate. The fact that this is even a possibility suggests that the value you're describing and capturing may not be in the specific programming at all, but a different layer entirely.)
What I'm saying is that it is not quite fair to assume that every 'freelance programmer' (OP or your readers) can do that to the extent that you can. Business requirements analysis is simply a different skill from programming.
Consider the example where the person buying your services is on to your pricing strategy, and misrepresents the value of the business downward (or hides it from you), so that you are left only with the process but no good idea of the value of it.
Can you still do your business analysis, and price it as you suggest? Not nearly as well. Even though as far as code goes, you could still write all of it.
So I would say that what you advocate goes well beyond the idea of a freelance programmer, to include aspects of a business consultant. (Finally, really good proof of this is that in some cases you may well be able to hand off the actual coding to someone who will follow your instructions at a low hourly rate. The fact that this is even a possibility suggests that the value you're describing and capturing may not be in the specific programming at all, but a different layer entirely.)
Real clients don't do this, but it wouldn't matter if it did. When a prospect values your services too low, you simply say "no" to them. It's called "deal qualification", and it's a Sales 101 skill. Your job is to find the clients who value what you're doing enough to be worth working for.
This isn't theoretical. Lots of people on HN execute this strategy successfully.
This isn't theoretical. Lots of people on HN execute this strategy successfully.
Thomas, and do you think "freelancer" is how they should title themselves? It's not so much about increasing your negotiating skills and rate 'as a freelancer' but expanding what you're doing so that it's quite a poor title at that point.
A great comparison is the patio11 story about the expensive engagement ring vs extended honeymoon. If you can see what your clients care about, you can provide much greater value to those client (and have them write what seems like a ridiculously large cheque without even thinking about it) vs just delivering what they say they want without considering the larger picture.
Be very careful basing your rate on your expected salary. It's a trap that will hurt your returns.
The most important lesson I think you can learn in consulting is that businesses are paying for more than just lines of code; that a lot of things that you don't intuitively think have any value actually have enormous value. The best way I've managed to describe it is in this comment:
https://news.ycombinator.com/item?id=2190379
Each of those bullets is something that potentially adds dollar value to a project.
Some freelance projects can be valued against the cost of a full-time employee. But ask yourself: "Does the client I'm working for have the capability to hire someone full-time for the service I'm providing? Would they know how? Would they be able to attract the right talent? And: would it make any business sense for them to do that?" If the answer is "no", then please, think of it this way: no more than 50% of the value you're providing comes from actual code; the remainder is business value you create by being available to solve a problem for your client in the precise scheduling and format they need.
When you grok this, you see why your rate has nothing at all to do with full-time salary for a comparable tech position. No full-timer can do what you're doing. By definition. Because they're only available full-time.
Also: please, for the love of all that's holy, don't bill hourly. You don't have an hourly rate. You have a day rate, for projects so small that you don't charge by the week.
The most important lesson I think you can learn in consulting is that businesses are paying for more than just lines of code; that a lot of things that you don't intuitively think have any value actually have enormous value. The best way I've managed to describe it is in this comment:
https://news.ycombinator.com/item?id=2190379
Each of those bullets is something that potentially adds dollar value to a project.
Some freelance projects can be valued against the cost of a full-time employee. But ask yourself: "Does the client I'm working for have the capability to hire someone full-time for the service I'm providing? Would they know how? Would they be able to attract the right talent? And: would it make any business sense for them to do that?" If the answer is "no", then please, think of it this way: no more than 50% of the value you're providing comes from actual code; the remainder is business value you create by being available to solve a problem for your client in the precise scheduling and format they need.
When you grok this, you see why your rate has nothing at all to do with full-time salary for a comparable tech position. No full-timer can do what you're doing. By definition. Because they're only available full-time.
Also: please, for the love of all that's holy, don't bill hourly. You don't have an hourly rate. You have a day rate, for projects so small that you don't charge by the week.
As someone in a contract position, I couldn't agree more!
I just finished a code review where I finally figured out why I kept butting heads with the lead developer (a lifetime employee of the company contracting my services).
They had been trying, albeit only implicitly, to drill deep domain knowledge of the application into me. In the meantime, I've been doing everything I can to refactor the application so that it can be more readily understood, sans domain knowledge (knowledge that I couldn't use with another team in the same department, never mind at different companies). In short, I've been trying to make myself unnecessary, instead of turning into an essential member of the team.
As a contractor, I expect to not be there in a few months, so I can fix the code until I'm not needed. The "native" employee, on the other hand, feels the need (conscious or unconscious) to protect the code and the livelihood that comes with it. When you improve code to the point that even an intern could maintain it, you're providing huge value to the company. Keep that in mind (and the salary costs you'll spare them) when pricing yourself.
I just finished a code review where I finally figured out why I kept butting heads with the lead developer (a lifetime employee of the company contracting my services).
They had been trying, albeit only implicitly, to drill deep domain knowledge of the application into me. In the meantime, I've been doing everything I can to refactor the application so that it can be more readily understood, sans domain knowledge (knowledge that I couldn't use with another team in the same department, never mind at different companies). In short, I've been trying to make myself unnecessary, instead of turning into an essential member of the team.
As a contractor, I expect to not be there in a few months, so I can fix the code until I'm not needed. The "native" employee, on the other hand, feels the need (conscious or unconscious) to protect the code and the livelihood that comes with it. When you improve code to the point that even an intern could maintain it, you're providing huge value to the company. Keep that in mind (and the salary costs you'll spare them) when pricing yourself.
I'd really like to hear more discussion around this "don't bill hourly" concept. I'm 4 years in to a successful, solo freelancing career and this advice still doesn't click for me. I've billed precise hours for every one of the 20+ projects I've taken on.
What am I missing?
What am I missing?
I'm almost 20 years into a successful, solo freelancing career. GP's advice is worth researching.
You might not be missing anything by sticking to hourly billing if you are aiming at a downmarket clientele. They usually appreciate hourly billing because they are either making nice margins off of your work (by reselling or by quality derived) or undercharging for their own work. Hourly billing is comfortable for them because they are usually extremely price-sensitive. This works OK for a lot of new freelancers, who themselves are also very price-sensitive.
The upside of only doing hourly billing is steady work. The downside is that you may never understand what upmarket work is like.
If you are aiming at upmarket clientele (or just clientele who are upmarket from your current set of clients), you have to adapt to a different mindset--quality, specialty, and responsiveness are key; pricing is used as a toolset that supports your business goal of offering those three things. Pricing becomes a group of activities that act as a market positioning message, negotiating tool, sales pitch, etc. All of that from a little dollar sign with a number after it (or a set of them).
If you are not aiming at any market, you might be headed downmarket. Good idea to check on that. Most freelancers do the same amount of pricing research as the average lemonade stand. Many freelancers who go out of business have authored their own personal failure narrative that revolves around an uneducated view on pricing.
You might not be missing anything by sticking to hourly billing if you are aiming at a downmarket clientele. They usually appreciate hourly billing because they are either making nice margins off of your work (by reselling or by quality derived) or undercharging for their own work. Hourly billing is comfortable for them because they are usually extremely price-sensitive. This works OK for a lot of new freelancers, who themselves are also very price-sensitive.
The upside of only doing hourly billing is steady work. The downside is that you may never understand what upmarket work is like.
If you are aiming at upmarket clientele (or just clientele who are upmarket from your current set of clients), you have to adapt to a different mindset--quality, specialty, and responsiveness are key; pricing is used as a toolset that supports your business goal of offering those three things. Pricing becomes a group of activities that act as a market positioning message, negotiating tool, sales pitch, etc. All of that from a little dollar sign with a number after it (or a set of them).
If you are not aiming at any market, you might be headed downmarket. Good idea to check on that. Most freelancers do the same amount of pricing research as the average lemonade stand. Many freelancers who go out of business have authored their own personal failure narrative that revolves around an uneducated view on pricing.
I bill weekly. Clients can book time in increments of one week. Each week costs a fixed amount, though I give clients a 10% discount for pre-payment in full, cleared in my bank account before work starts.
Snarky but true: implementing this was roughly as hard as reading a comment by tptacek about billing weekly, deciding that I bill weekly, and then telling all existing clients and future clients that I now bill weekly.
Snarky but true: implementing this was roughly as hard as reading a comment by tptacek about billing weekly, deciding that I bill weekly, and then telling all existing clients and future clients that I now bill weekly.
Question from a per-hour freelancer:
Does this mean you only work on one project at a time? I seem to maximize my billable time by doing one project at 20 hours/week plus a few long-term relationships with smaller ad hoc projects. Sometimes the "big" projects overlap briefly but I try to avoid that.
If I moved to weekly billing, I'm afraid I'd need a longer sales process and I'd have to turn down a lot of work that I can slip in with my current approach. So I'm curious: do you work one engagement at a time, and what is your time between engagements?
Does this mean you only work on one project at a time? I seem to maximize my billable time by doing one project at 20 hours/week plus a few long-term relationships with smaller ad hoc projects. Sometimes the "big" projects overlap briefly but I try to avoid that.
If I moved to weekly billing, I'm afraid I'd need a longer sales process and I'd have to turn down a lot of work that I can slip in with my current approach. So I'm curious: do you work one engagement at a time, and what is your time between engagements?
You can bill daily and still rotate through work for 3 different clients at a time. You don't even need to make special arrangements to do it. Just do it in the background, get your work done competently for all your clients, and be honest. You'll be fine.
The only thing we're telling you not to do is to break your bills out by the hour. A whole lot of bad stuff happens when you start billing in sub-day increments.
The only thing we're telling you not to do is to break your bills out by the hour. A whole lot of bad stuff happens when you start billing in sub-day increments.
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How do you deal with the expectation that 1 day means 8 hours exactly and clients who think in those terms?
How precisely do you specify upfront what a 'day' means? Are you just keeping it vague and not working with anyone who takes issue with that? Or are you specifying it as 6 hours so you have time to handle other things?
I recently attempted a move to daily billing but had a client who was anal about 1 day = 8 hours and this caused significant friction/lack of flexibility. The client was a somewhat difficult/overly-controlling person but willing to pay well for quality. Would you simply turn down someone like this?
How precisely do you specify upfront what a 'day' means? Are you just keeping it vague and not working with anyone who takes issue with that? Or are you specifying it as 6 hours so you have time to handle other things?
I recently attempted a move to daily billing but had a client who was anal about 1 day = 8 hours and this caused significant friction/lack of flexibility. The client was a somewhat difficult/overly-controlling person but willing to pay well for quality. Would you simply turn down someone like this?
I think a bit of intuition you might need here is that the delivery date for a project and its fee structure are not the same thing. You carefully negotiate delivery dates. You do not carefully negotiate the definition of a day. You will find, when you do this, that most reasonable delivery dates are just fine with most clients, even if they account for more weekdays than you're billing for.
I think that with all sane clients, you will also find that once the delivery date is negotiated to both sides satisfaction, nobody gives a shit about what happens in the intervening days. Good clients are happy to know that they're going to get something on a specific date. They are thrilled to have a black box that they can put money into and get value out of. Don't open up the black box and explain it. They don't need to know how the fuel injectors work, and if you explain electronic fuel injection to them, some of them will just get neurotic about whether it's functioning correctly.
I think that with all sane clients, you will also find that once the delivery date is negotiated to both sides satisfaction, nobody gives a shit about what happens in the intervening days. Good clients are happy to know that they're going to get something on a specific date. They are thrilled to have a black box that they can put money into and get value out of. Don't open up the black box and explain it. They don't need to know how the fuel injectors work, and if you explain electronic fuel injection to them, some of them will just get neurotic about whether it's functioning correctly.
How precisely do you specify upfront what a 'day' means?
I don't. All my recent contracts of this nature have simply stated that a day on which any services are provided is chargeable, or words roughly equivalent to that.
This does require a client to trust that I won't abuse the deal by, say, charging for a day off just because I spent a few minutes replying to an e-mail. I suppose legally speaking I could do that, but then legally speaking a client can typically also fire me in the time it takes to get a letter delivered if they're not happy with progress on their project. As with so much of this business, trust goes both ways.
In reality, I have never found this to be a problem. As others have said, clients are typically more interested in the value of the work you produce than in how, when, or where you produce it. You might see the occasional raised eyebrow if someone asks directly and is surprised at your answer, but personally I'm not aware that I've ever lost business or left unhappy clients over it.
The client was a somewhat difficult/overly-controlling person but willing to pay well for quality. Would you simply turn down someone like this?
Given a reasonable alternative, which is usually the case: yes.
Incidentally, in the UK, where I am, you should be very wary of taking on "overly controlling clients". If you aren't sufficiently independent -- as demonstrated by signals like your clients controlling your working hours -- then you could be deemed a disguised employee rather than a separate business. That leaves you with all the overheads of running a business, yet also leaves both you and your client with all the tax obligations of an employer-employee relationship, which is a Very Bad Idea.
I don't. All my recent contracts of this nature have simply stated that a day on which any services are provided is chargeable, or words roughly equivalent to that.
This does require a client to trust that I won't abuse the deal by, say, charging for a day off just because I spent a few minutes replying to an e-mail. I suppose legally speaking I could do that, but then legally speaking a client can typically also fire me in the time it takes to get a letter delivered if they're not happy with progress on their project. As with so much of this business, trust goes both ways.
In reality, I have never found this to be a problem. As others have said, clients are typically more interested in the value of the work you produce than in how, when, or where you produce it. You might see the occasional raised eyebrow if someone asks directly and is surprised at your answer, but personally I'm not aware that I've ever lost business or left unhappy clients over it.
The client was a somewhat difficult/overly-controlling person but willing to pay well for quality. Would you simply turn down someone like this?
Given a reasonable alternative, which is usually the case: yes.
Incidentally, in the UK, where I am, you should be very wary of taking on "overly controlling clients". If you aren't sufficiently independent -- as demonstrated by signals like your clients controlling your working hours -- then you could be deemed a disguised employee rather than a separate business. That leaves you with all the overheads of running a business, yet also leaves both you and your client with all the tax obligations of an employer-employee relationship, which is a Very Bad Idea.
I'm not sure of the current state of things, but that last bit has traditionally been true in the US as well: if you spend all your time with one client, and they control your hours and/or work location and equipment, then you may be considered an employee for tax purposes (IRS Form SS-8 covers this).
In the US, that works to the benefit of the contractor; the problem is that clients know that, so if you look like someone the IRS might classify as a full-timer (an unincorporated sole practitioner), they may preemptively withhold taxes for you.
This is a problem a couple friends of mine have had. It seems like incorporation, which is cheap and something you should do anyways, mostly fixes it.
This is a problem a couple friends of mine have had. It seems like incorporation, which is cheap and something you should do anyways, mostly fixes it.
It seems like incorporation, which is cheap and something you should do anyways, mostly fixes it.
In the UK, we have almost the opposite problem.
If you set up a limited company to operate a freelance business, then by default you get to run it like any other business. That means you're responsible for paying your own overheads and doing the same administrative paperwork and taxes as any other company. (Who else is going to pay for or do those things, after all?) However, it also means that if you're the only owner and director, you can treat most of the profits as dividends rather than salary, which can be a significant tax advantage in some quite common circumstances.
Unfortunately, this arrangement was being abused by some people who were in effect working as employees of someone else, who operated with little meaningful independence but were being paid through a company so they could take the tax breaks anyway.
Consequently, with probably good intentions but unfortunately not a very good implementation, a set of rules known as IR35 were introduced that basically said if your arrangement works like employment, you'll have to treat your contract like employment, with the full tax liability that goes with it.
The trouble is that there has never been any useful, objective definition of what counts as working like employment, so all we really have to go on are a few precedents from early cases. In practice, this means every independent professional here who works this way, however legitimately, has this permanent axe hanging over their head. You can pay some accountants for an expert contract review that comes with insurance if they tell you you're OK and you are subsequently determined to be within the scope of IR35 anyway, but that's a lot of hassle and a significant cost if you do change contracts often, so not everyone does.
The tax authorities did make an attempt to codify some more concrete guidelines with their Business Entity Tests a few years ago; those were supposed to give you a clearer idea of how likely you were to fall within the scope of IR35, but the questions were bizarre and completely ignored most of the really important distinctions between an employee and a genuinely independent professional operating as a real one-person company, and the BETs were effectively killed off not so long after they were introduced.
This leaves us back at square one. Despite protests from the independent sector about the ongoing burden of IR35 and the lack of evidence that it has ever generated anywhere near the kind of additional tax revenues it was supposed to, successive governments have maintained the rules arguing that if they removed them now then the floodgates would open and suddenly everyone would be going down the disguised employment path costing the government a fortune.
In practice, the good news for genuinely independent professionals is that the tax authorities have very limited resources to go after small time tax dodgers, so as long as you're behaving reasonably it seems you're unlikely to get in much trouble. This brings me back to where I came in, which is a warning that if you really are trying to operate properly as an independent, a very controlling client who is able to impose obvious restrictions like setting working hours is not something you want pushing you to the top of the pile for an IR35 investigation.
In the UK, we have almost the opposite problem.
If you set up a limited company to operate a freelance business, then by default you get to run it like any other business. That means you're responsible for paying your own overheads and doing the same administrative paperwork and taxes as any other company. (Who else is going to pay for or do those things, after all?) However, it also means that if you're the only owner and director, you can treat most of the profits as dividends rather than salary, which can be a significant tax advantage in some quite common circumstances.
Unfortunately, this arrangement was being abused by some people who were in effect working as employees of someone else, who operated with little meaningful independence but were being paid through a company so they could take the tax breaks anyway.
Consequently, with probably good intentions but unfortunately not a very good implementation, a set of rules known as IR35 were introduced that basically said if your arrangement works like employment, you'll have to treat your contract like employment, with the full tax liability that goes with it.
The trouble is that there has never been any useful, objective definition of what counts as working like employment, so all we really have to go on are a few precedents from early cases. In practice, this means every independent professional here who works this way, however legitimately, has this permanent axe hanging over their head. You can pay some accountants for an expert contract review that comes with insurance if they tell you you're OK and you are subsequently determined to be within the scope of IR35 anyway, but that's a lot of hassle and a significant cost if you do change contracts often, so not everyone does.
The tax authorities did make an attempt to codify some more concrete guidelines with their Business Entity Tests a few years ago; those were supposed to give you a clearer idea of how likely you were to fall within the scope of IR35, but the questions were bizarre and completely ignored most of the really important distinctions between an employee and a genuinely independent professional operating as a real one-person company, and the BETs were effectively killed off not so long after they were introduced.
This leaves us back at square one. Despite protests from the independent sector about the ongoing burden of IR35 and the lack of evidence that it has ever generated anywhere near the kind of additional tax revenues it was supposed to, successive governments have maintained the rules arguing that if they removed them now then the floodgates would open and suddenly everyone would be going down the disguised employment path costing the government a fortune.
In practice, the good news for genuinely independent professionals is that the tax authorities have very limited resources to go after small time tax dodgers, so as long as you're behaving reasonably it seems you're unlikely to get in much trouble. This brings me back to where I came in, which is a warning that if you really are trying to operate properly as an independent, a very controlling client who is able to impose obvious restrictions like setting working hours is not something you want pushing you to the top of the pile for an IR35 investigation.
HMRC have an email address you can send information about your business and working arrangements to and they will tell you if you are caught by IR35.
I wrote a fuller explanation here: http://digitalassassin.net/2014/07/am-i-caught-by-ir35/
I wrote a fuller explanation here: http://digitalassassin.net/2014/07/am-i-caught-by-ir35/
HMRC will tell you whether in their opinion you are caught by IR35. However, it is important to understand that they are not a neutral advisor, and just because someone at HMRC thinks you are caught, that does not mean the actual decision-making process if they challenge your status will lead to the same conclusion. In reality, they have a record of chasing not very many people under IR35 in the first place and then winning only a fraction of those cases when someone has put up a fight.
To be clear, I'm not arguing that this is necessarily due to any ill intent on their part. It's just that even if HMRC people are trying to help when you call them, they can still fail to understand what the tax rules actually say and they can give incorrect advice as a result. When that happens, they seem to err on the side of saying you're caught by whatever it is you're asking about and should pay the extra tax.
If I'd taken them at their word the last couple of times I called, my companies would have paid far more tax than we really owed. (To be clear again, I'm not talking about any funny tax avoidance measures here, just applying the normal but somewhat complicated rules for things like international sales.) Fortunately, we also spoke with some accountants who could explain why the first advice was wrong, which in fact they did by citing parts of HMRC's own written guidance that HMRC's own people had overlooked.
To be clear, I'm not arguing that this is necessarily due to any ill intent on their part. It's just that even if HMRC people are trying to help when you call them, they can still fail to understand what the tax rules actually say and they can give incorrect advice as a result. When that happens, they seem to err on the side of saying you're caught by whatever it is you're asking about and should pay the extra tax.
If I'd taken them at their word the last couple of times I called, my companies would have paid far more tax than we really owed. (To be clear again, I'm not talking about any funny tax avoidance measures here, just applying the normal but somewhat complicated rules for things like international sales.) Fortunately, we also spoke with some accountants who could explain why the first advice was wrong, which in fact they did by citing parts of HMRC's own written guidance that HMRC's own people had overlooked.
"How do you deal with the expectation that 1 day means 8 hours exactly and clients who think in those terms?"
I suppose this only matters if the clients vocalize this assumption?
I suppose this only matters if the clients vocalize this assumption?
I'm usually working with one client at a time, but as you surmised spend considerable effort keeping the sales pipeline bubbling. Haven't had any time without work for the past couple of years unless I wanted it.*
I should probably point out that "maximising my billable time" isn't really an important goal for me as a freelancer, so we're likely talking about a different business model. You'll hear this a lot from patio11 and tptacek, but overwhelmingly, my goal is to provide as much business value to my clients as possible and charge accordingly.
You don't necessarily have to position yourself as a content marketing/CRO/Security/Sandwich-making consultant to do this, just find a way to make or save your clients buckets of cash and you can charge them whatever you want.
*: That makes me sound like some sort of rockstar freelancer, but in reality I'm a boringly average Rails developer. I get and keep clients by working really hard on sales and treating existing, long-term clients like my family's financial security depends on them (hint: it does!).
I should probably point out that "maximising my billable time" isn't really an important goal for me as a freelancer, so we're likely talking about a different business model. You'll hear this a lot from patio11 and tptacek, but overwhelmingly, my goal is to provide as much business value to my clients as possible and charge accordingly.
You don't necessarily have to position yourself as a content marketing/CRO/Security/Sandwich-making consultant to do this, just find a way to make or save your clients buckets of cash and you can charge them whatever you want.
*: That makes me sound like some sort of rockstar freelancer, but in reality I'm a boringly average Rails developer. I get and keep clients by working really hard on sales and treating existing, long-term clients like my family's financial security depends on them (hint: it does!).
This is very interesting. How do you handle working with multiple clients? E.g. I'm working on this project for this client, this week but the client from last week has an urgent question/issue that I need to look at. Would that be billed hourly, or as part of next week or something to that extend?
For work that actually requires me to crack open a terminal, it's as you described i.e. in the vast majority of cases it can probably wait until the next week they've booked. In the rare case that they're losing money thanks to inaction or if the problem is directly due to an error I made, then I'll fix the thing so that it's in a working state right now and work on a longer-term solution in their next slot.
Here's a start:
https://news.ycombinator.com/item?id=4101355#up_4103417
https://news.ycombinator.com/item?id=4101355#up_4103417
I think this is the list of arguments I saw back when you originally wrote it. Ever since then, I wished I dug into this deeper with you as it's been an open thread at the back of my mind. Even though this may not be the right place for it, I'm going to go ahead and respond point by point.
* It forces you to negotiate with clients in the worst possible numeric domain: where small deltas to proposed rates disproportionately impact the final cost. (This is a really good point and something that I will consider moving forard. I can see that higher effective rates may appear more palatable to clients if quoted on a per day or per week basis.)
I've categorized my feelings about the rest of your points:
The [HOW DOES BILLING HOURLY DO THIS] points:
* It positions you against the lowest-quality cheapest providers. (I charge a very high hourly rate, clients are happy to pay it.)
* It misaligns your incentives, so that you're penalized for doing a better job. (The times I accomplish a difficult task very efficiently are averaged with the times what appears to be a mundane task turns out taking much longer.)
* Not to mention: it generates more invoices. (I bill bi-weekly. I imagine I'd want to do the same no matter what unit I was using.)
* For that matter, it inclines your projects towards the small and away from anything ambitious. (Huh? What's wrong with "I expect this project will take 4 months of me working at 30/hrs a week and this hourly rate"?)
* It impedes your own flexibility, so that you tend to miss opportunities to interleave projects or for that matter take an occasional long lunch. (I typically tell clients that I'll put in 3hrs of work/day on their projects. It seems like my billing gives way MORE flexibility, not less.)
* It forces you to account for every waking hour of your day in a way that daily rates don't, when we all know that only a small subset of your work hours are truly productive. (See previous point: I'm never of the hook to provide a "full day". Some days I work more, some less.)
The [HAVING AN OPEN AN HONEST DISCUSSION ABOUT THE SOFTWARE DEVELOPMENT PROCESS AND WHAT EXPECTATIONS ARE APPROPRIATE AND WHY I FEEL UTTER TRANSPARENCY IS KEY FOR MUTUAL UNDERSTANDING] points:
* It totally hides the cost of ramp-up and ramp-down (if you think clients push back on daily or project rates, wait until you charge them for 2 hours of "getting in flow"). (My clients do not push back on this because I explain how very necessary this type of work is up front.)
* It conditions your customers to take a fine-tooth-comb approach to project plans and invoices. (If they're fine-toothing, that's fine. I can't really tell, it doesn't affect me. I've had a single client ask me a single time for clarification on an hourly line item in the past four years. It wasn't a big deal.)
The [I ALWAYS PRECISELY TRACK TIME ON EVERY PROJECT I WORK ON BECAUSE IT HELPS ME IMPROVE AT ESTIMATING, WHICH I'M NOW EXTREMELY GOOD AT] points:
* It forces you to be vigilant about time tracking lest you accidentally undercharge customers.
* It inclines you towards finicky accounting, the kind that charges a customer for a 45 minute phone conversation.
The [I DON'T UNDERSTAND WHAT YOU MEAN] point:
* Not to mention, with virtually any client worth doing business with, you (the consultant) are much more sensitive to the cost of a project than the customer is; it is a small miracle that the customer can get a programming project completed at all without potentially hiring and then firing 3 different people. So why is all the burden on you? Why is any of the burden on you? Key consulting idea: it's not the customer's money they're spending. (What burden do you mean? The burden of tracking time? The burden of estimating?)
The [HOW IS THIS DIFFERENT EITHER WAY] point:
* It obscures the final cost of projects in ways that make clients defensive, so that their immediate thought is "oh shit this is going to add up to lots of hours we better be careful".
The [I REALLY DON'T THINK GIVING FREEBIE TIME IS IMPORTANT FOR CLIENT RELATIONS IF YOU SET EXPECTATIONS APPROPRIATELY] point:
* It makes it harder for you to reasonable toss freebie work to your best clients without damaging the expected value of your time; for instance, I can cab over to a client in Chicago and spend 2 hours looking at a design with them for free without creating the appearance that my bill rate is arbitrary. (Why would the ability to offer free work inform the structure I put in place for billing?)
I hope I'm not coming off as disrespectful, I do really appreciate the time and care you put into HN. It's just that, if it's possible for it to happen, I'd love to be convinced to change my billing structure to something that works better for me.
* It forces you to negotiate with clients in the worst possible numeric domain: where small deltas to proposed rates disproportionately impact the final cost. (This is a really good point and something that I will consider moving forard. I can see that higher effective rates may appear more palatable to clients if quoted on a per day or per week basis.)
I've categorized my feelings about the rest of your points:
The [HOW DOES BILLING HOURLY DO THIS] points:
* It positions you against the lowest-quality cheapest providers. (I charge a very high hourly rate, clients are happy to pay it.)
* It misaligns your incentives, so that you're penalized for doing a better job. (The times I accomplish a difficult task very efficiently are averaged with the times what appears to be a mundane task turns out taking much longer.)
* Not to mention: it generates more invoices. (I bill bi-weekly. I imagine I'd want to do the same no matter what unit I was using.)
* For that matter, it inclines your projects towards the small and away from anything ambitious. (Huh? What's wrong with "I expect this project will take 4 months of me working at 30/hrs a week and this hourly rate"?)
* It impedes your own flexibility, so that you tend to miss opportunities to interleave projects or for that matter take an occasional long lunch. (I typically tell clients that I'll put in 3hrs of work/day on their projects. It seems like my billing gives way MORE flexibility, not less.)
* It forces you to account for every waking hour of your day in a way that daily rates don't, when we all know that only a small subset of your work hours are truly productive. (See previous point: I'm never of the hook to provide a "full day". Some days I work more, some less.)
The [HAVING AN OPEN AN HONEST DISCUSSION ABOUT THE SOFTWARE DEVELOPMENT PROCESS AND WHAT EXPECTATIONS ARE APPROPRIATE AND WHY I FEEL UTTER TRANSPARENCY IS KEY FOR MUTUAL UNDERSTANDING] points:
* It totally hides the cost of ramp-up and ramp-down (if you think clients push back on daily or project rates, wait until you charge them for 2 hours of "getting in flow"). (My clients do not push back on this because I explain how very necessary this type of work is up front.)
* It conditions your customers to take a fine-tooth-comb approach to project plans and invoices. (If they're fine-toothing, that's fine. I can't really tell, it doesn't affect me. I've had a single client ask me a single time for clarification on an hourly line item in the past four years. It wasn't a big deal.)
The [I ALWAYS PRECISELY TRACK TIME ON EVERY PROJECT I WORK ON BECAUSE IT HELPS ME IMPROVE AT ESTIMATING, WHICH I'M NOW EXTREMELY GOOD AT] points:
* It forces you to be vigilant about time tracking lest you accidentally undercharge customers.
* It inclines you towards finicky accounting, the kind that charges a customer for a 45 minute phone conversation.
The [I DON'T UNDERSTAND WHAT YOU MEAN] point:
* Not to mention, with virtually any client worth doing business with, you (the consultant) are much more sensitive to the cost of a project than the customer is; it is a small miracle that the customer can get a programming project completed at all without potentially hiring and then firing 3 different people. So why is all the burden on you? Why is any of the burden on you? Key consulting idea: it's not the customer's money they're spending. (What burden do you mean? The burden of tracking time? The burden of estimating?)
The [HOW IS THIS DIFFERENT EITHER WAY] point:
* It obscures the final cost of projects in ways that make clients defensive, so that their immediate thought is "oh shit this is going to add up to lots of hours we better be careful".
The [I REALLY DON'T THINK GIVING FREEBIE TIME IS IMPORTANT FOR CLIENT RELATIONS IF YOU SET EXPECTATIONS APPROPRIATELY] point:
* It makes it harder for you to reasonable toss freebie work to your best clients without damaging the expected value of your time; for instance, I can cab over to a client in Chicago and spend 2 hours looking at a design with them for free without creating the appearance that my bill rate is arbitrary. (Why would the ability to offer free work inform the structure I put in place for billing?)
I hope I'm not coming off as disrespectful, I do really appreciate the time and care you put into HN. It's just that, if it's possible for it to happen, I'd love to be convinced to change my billing structure to something that works better for me.
Good clients --- in fact, it's possible that all the clients of my previous practice, over 10(!) years --- will uniformly accept daily rates. In high-end contracting work, daily rates are industry standard. If you have the option to bill on a daily increment, why would you ever bill hourly?
You charge a very high hourly rate today. Savvy clients are happy to pay it. Those same savvy clients would be happy to pay on the day increment if you multiplied that rate by 8. And:
* So would slightly-less savvy clients! Clients will balk at a high hourly rate more often than a daily rate. People are accustomed to paying for service work --- housekeeping, car maintenance --- at an hourly rate, and have price anchors in their heads that your rate blows past. You sound more expensive hourly.
* You get an automatic 8-hour commit for every project you do without even trying
* You can repurpose the brain cells you're spending today on being really good at time tracking to getting really good at Jakiro in DOTA2 at no additional cost to your business
* You can still throw 3 hours per day at a client, and the next 3 hours of that same day at another client; all you have to do is be honest with yourself about how you're doing. And again: part of the terms of a day rate is, you get to round up.
* You can still work more some days and less other days. Your fee structure is not your delivery date.
* You don't need to explain ramp-up and ramp-down to clients, because it's built directly, quietly, and non-negotiably into your fee structure. It's a conversation you simply never need to have.
The two points it didn't seem like you followed from my original comment:
* By working with a contractor instead of hiring a full-time developer, your client is paying for projects to be completed on a specific timeline without the overhead of an employee on a deterministic schedule. There is a huge amount of convenience and de-risking implied in that. When I talk about burden-sharing, what I mean is that it is more than reasonable for part of the cost of that convenience to be "you get me for a day at a time, whether you need the whole day or not". The alternative they're looking at is "you get me for 2 years at a time, whether you need me that long or not".
* When you have an hourly rate, any time you do anything free for a client, you risk creating the expectation that that thing should have been free, and that it's reasonable to ask for that free thing in the future. But very few freebie tasks take a whole day. The client can intuit that a day's worth of work is going to cost, but still feel comfortable asking for a 30 minute phone call without wondering whether it's going to be invoiced.
You charge a very high hourly rate today. Savvy clients are happy to pay it. Those same savvy clients would be happy to pay on the day increment if you multiplied that rate by 8. And:
* So would slightly-less savvy clients! Clients will balk at a high hourly rate more often than a daily rate. People are accustomed to paying for service work --- housekeeping, car maintenance --- at an hourly rate, and have price anchors in their heads that your rate blows past. You sound more expensive hourly.
* You get an automatic 8-hour commit for every project you do without even trying
* You can repurpose the brain cells you're spending today on being really good at time tracking to getting really good at Jakiro in DOTA2 at no additional cost to your business
* You can still throw 3 hours per day at a client, and the next 3 hours of that same day at another client; all you have to do is be honest with yourself about how you're doing. And again: part of the terms of a day rate is, you get to round up.
* You can still work more some days and less other days. Your fee structure is not your delivery date.
* You don't need to explain ramp-up and ramp-down to clients, because it's built directly, quietly, and non-negotiably into your fee structure. It's a conversation you simply never need to have.
The two points it didn't seem like you followed from my original comment:
* By working with a contractor instead of hiring a full-time developer, your client is paying for projects to be completed on a specific timeline without the overhead of an employee on a deterministic schedule. There is a huge amount of convenience and de-risking implied in that. When I talk about burden-sharing, what I mean is that it is more than reasonable for part of the cost of that convenience to be "you get me for a day at a time, whether you need the whole day or not". The alternative they're looking at is "you get me for 2 years at a time, whether you need me that long or not".
* When you have an hourly rate, any time you do anything free for a client, you risk creating the expectation that that thing should have been free, and that it's reasonable to ask for that free thing in the future. But very few freebie tasks take a whole day. The client can intuit that a day's worth of work is going to cost, but still feel comfortable asking for a 30 minute phone call without wondering whether it's going to be invoiced.
If you have the option to bill on a daily increment, why would you ever bill hourly?
There are some circumstances where I think this can make sense.
One is that for urgent, very short, very specialised gigs (for example, an emergency fix for a previous but not usually recurring client) you might command a much higher rate per hour than the equivalent of your normal daily rate for medium-long term gigs. This just follows from all the same reasons we've talked about on HN before in terms of business value generated vs. time served.
Another is that it is sometimes useful to multiplex a part-time contract gig with some other task -- another part-time client, a start-up, supervising the guys building your home extension. It can be advantageous for all concerned to be up-front about the fact that you're only working part-time and how much time may vary considerably from day to day. This manages expectations if, for example, you aren't going to be around to answer the phone at reliable times. Obviously really top-end consultancy work isn't likely to be forgiving of part-time engagement anyway, but you probably aren't attracting that kind of gig no matter how good you are while you're also working part time on something else that can't wait.
There are some circumstances where I think this can make sense.
One is that for urgent, very short, very specialised gigs (for example, an emergency fix for a previous but not usually recurring client) you might command a much higher rate per hour than the equivalent of your normal daily rate for medium-long term gigs. This just follows from all the same reasons we've talked about on HN before in terms of business value generated vs. time served.
Another is that it is sometimes useful to multiplex a part-time contract gig with some other task -- another part-time client, a start-up, supervising the guys building your home extension. It can be advantageous for all concerned to be up-front about the fact that you're only working part-time and how much time may vary considerably from day to day. This manages expectations if, for example, you aren't going to be around to answer the phone at reliable times. Obviously really top-end consultancy work isn't likely to be forgiving of part-time engagement anyway, but you probably aren't attracting that kind of gig no matter how good you are while you're also working part time on something else that can't wait.
"In high-end contracting work, daily rates are industry standard. If you have the option to bill on a daily increment, why would you ever bill hourly?"
This advice is rather black and white, making it not exactly spot on for a large variety of cases. "X is an industry standard" is also rarely entirely correct. Ex. While daily rate might be standard in the UK and US, Scandinavian rates are almost always hourly based. Russian and ukranian as well, and most likely a whole range of other locations I know nothing about.
If you contract for a professional services firm that re-bill your hours, you're going to have an explanation problem when they see 3 hours logged and a full day billed. Conversely, the "full day" is easily stretched by a client-in-need into 10 or 12 hours, which leaves your hourly income plummeting by 25-50%
In this particular case, your best bet by far is to bill hourly. This applies to a variety of other cases as well, which is why there is no such thing as a universally applicable approach on consultancy billing, and such really shouldn't be given or taken without a huge disclaimer.
This advice is rather black and white, making it not exactly spot on for a large variety of cases. "X is an industry standard" is also rarely entirely correct. Ex. While daily rate might be standard in the UK and US, Scandinavian rates are almost always hourly based. Russian and ukranian as well, and most likely a whole range of other locations I know nothing about.
If you contract for a professional services firm that re-bill your hours, you're going to have an explanation problem when they see 3 hours logged and a full day billed. Conversely, the "full day" is easily stretched by a client-in-need into 10 or 12 hours, which leaves your hourly income plummeting by 25-50%
In this particular case, your best bet by far is to bill hourly. This applies to a variety of other cases as well, which is why there is no such thing as a universally applicable approach on consultancy billing, and such really shouldn't be given or taken without a huge disclaimer.
I've been informed by evil bastards whom love to outsource that Ukrainians are perfectly happy with $5 per hour.
You can get a junior for as little as $2/hour, if you need code grunt tasks done.
> You can still throw 3 hours per day at a client, and the next 3 hours of that same day at another client; all you have to do is be honest with yourself about how you're doing. And again: part of the terms of a day rate is, you get to round up.
Can you explain more clearly what you mean by "be honest with yourself about how you're doing"?
If you work 3 hours one day and 3 hours the next day, are you charging 2 days, or do you consolidate it into 1?
Can you explain more clearly what you mean by "be honest with yourself about how you're doing"?
If you work 3 hours one day and 3 hours the next day, are you charging 2 days, or do you consolidate it into 1?
If I am building a Foo widget and I work 3 hours one day and 3 hours the next and then I'm done, I bill one day.
If I am building a Foo widget and I work 3 hours one day and then I'm done, I bill one day.
If I am building a Foo widget and I work 3 hours one day and then I'm done, and then the client asks me to build a Bar widget and I work 3 hours the next day and then I'm done, I might bill 1 day or I might bill 2, depending on the relationship. This doesn't come up much.
If I am building a Foo widget and I work 3 hours one day and then I'm done, and then a week later the client asks me to build a Bar widget and I work 3 hours next week and then I'm done, I bill 2 days.
If I am building a Foo widget and I work 3 hours one day and then I'm done, I bill one day.
If I am building a Foo widget and I work 3 hours one day and then I'm done, and then the client asks me to build a Bar widget and I work 3 hours the next day and then I'm done, I might bill 1 day or I might bill 2, depending on the relationship. This doesn't come up much.
If I am building a Foo widget and I work 3 hours one day and then I'm done, and then a week later the client asks me to build a Bar widget and I work 3 hours next week and then I'm done, I bill 2 days.
I missed the "If I am building a Foo widget and I work 3 hours one day, 3 hours the next and 3 hours the next and then I'm done, I bill ¿?."
One or two days? :) It depends on the client?
One or two days? :) It depends on the client?
You've put more than 1 standard 8-hour work day of effort into the project. If you round up, you have two days.
Although it's too close to one day, that it might be a bit unethical to say it were two...
Then do that.
Thanks
I have a question, though I don't know if it's relevant.
Do you suppose that there's a psychological effect here; where employees compare their hourly rate to your hourly rate? And it's less intuitive to compare a daily rate to an hourly rate?
Apologies if I'm off the mark.
Do you suppose that there's a psychological effect here; where employees compare their hourly rate to your hourly rate? And it's less intuitive to compare a daily rate to an hourly rate?
Apologies if I'm off the mark.
YES. People tend to have a sense of what they make per hour, but very few people have a sense of their daily rate, unless they're consultants.
>People tend to have a sense of what they make per hour, but very few people have a sense of their daily rate, unless they're consultants.
Why? Isn't it equally easy to divide a monthly salary by 30 as by 30 x 8 (ignoring holidays, to keep it simple)?
Why? Isn't it equally easy to divide a monthly salary by 30 as by 30 x 8 (ignoring holidays, to keep it simple)?
you missing the point the big boy constancies all charge by the day - and decent clients know this and don't have a problem with it
hourly makes you seem like the little guy and you will be chasing after the small engagement with lower quality clients
hourly makes you seem like the little guy and you will be chasing after the small engagement with lower quality clients
Lawyers bill hourly. But here's the rub: most lawyer tasks take less than 2 days (the modal corporate legal task is probably a 4 hour long contract review).
That's not true of software development. Serious development projects are broken into major milestones weeks apart from each other. That's why the term "weekend project" is so evocative.
That's not true of software development. Serious development projects are broken into major milestones weeks apart from each other. That's why the term "weekend project" is so evocative.
Also, lawyers command significantly higher hourly rates at almost any level than the equivalent level on any sort of IT/software consultant scale.
For one thing, hiring a lawyer is much like buying an insurance policy in many cases: the potential amount of money you save if something bad does happen is dramatically greater than the fee you pay. Take the usual arguments about business value generated by IT consultancy, and scale them up by some number of orders of magnitude.
It doesn't hurt them that they operate in a tightly regulated industry with high barriers to entry and effective immunity to market disruption. This supports a culture of high pricing where, regardless of whether it really does represent good value for money, clients expect decent lawyers to be expensive but bill by the hour or shorter.
As a curious aside, the norm in the legal profession is that if lawyers want to fight for a good cause they do that work pro bono and still charge a small fortune for their regular clients. It is almost unheard of for a lawyer to charge real money but at well below the normal market rate for their services. It's an interesting contrast to other creative industries, where spec work is often frowned upon and you have the option to outsource work to foreign businesses who will charge you peanuts as long as you can accept the quality of work that buys.
For one thing, hiring a lawyer is much like buying an insurance policy in many cases: the potential amount of money you save if something bad does happen is dramatically greater than the fee you pay. Take the usual arguments about business value generated by IT consultancy, and scale them up by some number of orders of magnitude.
It doesn't hurt them that they operate in a tightly regulated industry with high barriers to entry and effective immunity to market disruption. This supports a culture of high pricing where, regardless of whether it really does represent good value for money, clients expect decent lawyers to be expensive but bill by the hour or shorter.
As a curious aside, the norm in the legal profession is that if lawyers want to fight for a good cause they do that work pro bono and still charge a small fortune for their regular clients. It is almost unheard of for a lawyer to charge real money but at well below the normal market rate for their services. It's an interesting contrast to other creative industries, where spec work is often frowned upon and you have the option to outsource work to foreign businesses who will charge you peanuts as long as you can accept the quality of work that buys.
I'm still new to it, but one huge advantage of daily rates is that it gets much easier to estimate projects. It's no longer "2 hours for this, 3 hours for that" and instead is "that'll take about a day".
If you bill daily/weekly, make sure you don't slack a little and cut out early on some days. Billing hourly ensures nobody feels shorted, you aren't there, you aren't billing, etc. But with a daily billing, it might be easy to slip into a mindset of "I accomplished all of today's goals X, Y, and Z. I'm going to head out 30 minutes early today." Sooner or later, you'll have a client that ads up that time and feels like you've shorted them (especially on a longer project where the sum can be a full day or more).
If you bill daily, make sure you put in a full day. I would also make sure your definition of a "day" is known upfront (8 hours not including a lunch, or whatever). This way there is no confusion later.
If you bill daily, make sure you put in a full day. I would also make sure your definition of a "day" is known upfront (8 hours not including a lunch, or whatever). This way there is no confusion later.
If you bill daily, make sure you put in a full day. I would also make sure your definition of a "day" is known upfront (8 hours not including a lunch, or whatever).
Ouch. No. Please don't do this.
A major advantage of billing in longer increments is that you are not constrained to those minute-by-minute time tracking activities. If your client says they'll call you back with an answer in five minutes, and in reality it's half an hour, you did not just lose a half hour of chargeable time because you weren't on the clock. If you got the agreed work completed quicker than expected, you do not have any obligation to be a bum on a seat for the remainder of the day. If your client is even able to detect this if it happens occasionally, you're doing it wrong.
This cuts both ways, and sometimes you need to put in a longer day to get the job done, and on a daily rate you just have to suck that up. And obviously I'm not advocating slacking off or failing to make a reasonable effort to produce the results you're being paid for; that would be unethical whatever your charging agreement might be.
But if you want to start fixing what "one day" means because you think one party is going to feel cheated by the other without that, either you need different clients and better working relationships, or you probably are someone who should just work on an agreed hourly rate with some even shorter minimum increment anyway. It's a lower risk/lower reward arrangement, but it's more stable if that is what you want to prioritise.
Ouch. No. Please don't do this.
A major advantage of billing in longer increments is that you are not constrained to those minute-by-minute time tracking activities. If your client says they'll call you back with an answer in five minutes, and in reality it's half an hour, you did not just lose a half hour of chargeable time because you weren't on the clock. If you got the agreed work completed quicker than expected, you do not have any obligation to be a bum on a seat for the remainder of the day. If your client is even able to detect this if it happens occasionally, you're doing it wrong.
This cuts both ways, and sometimes you need to put in a longer day to get the job done, and on a daily rate you just have to suck that up. And obviously I'm not advocating slacking off or failing to make a reasonable effort to produce the results you're being paid for; that would be unethical whatever your charging agreement might be.
But if you want to start fixing what "one day" means because you think one party is going to feel cheated by the other without that, either you need different clients and better working relationships, or you probably are someone who should just work on an agreed hourly rate with some even shorter minimum increment anyway. It's a lower risk/lower reward arrangement, but it's more stable if that is what you want to prioritise.
Such a great comment.
Good article as well as some good advice here.
I had been billing at $75/hourly and feeling burned out and that it's just easier to do a day job. Clients would always ask for my rates and then get back to me. Then a new client, who had seen some of my work, contacted me to see if I was available. I was just wrapping up another gig that week, so I said I was available immediately. He then says, "Do you think you could work for $100/hour"?
So he seemed to think he got off cheap and meanwhile I'm left thinking I'm definitely not charging enough.
I had been billing at $75/hourly and feeling burned out and that it's just easier to do a day job. Clients would always ask for my rates and then get back to me. Then a new client, who had seen some of my work, contacted me to see if I was available. I was just wrapping up another gig that week, so I said I was available immediately. He then says, "Do you think you could work for $100/hour"?
So he seemed to think he got off cheap and meanwhile I'm left thinking I'm definitely not charging enough.
Thomas, thanks for that discussion (almost 4 years ago)! I'm a converted "day rate" person and highly recommend for everyone else.
> Be very careful basing your rate on your expected salary.
As I mentioned in the linked thread, the problem isn't normally consultants being convinced of these concepts, but rather it's the clients that don't understand this. I often find that going into engagements I have to spend a lot of time explaining these things to clients before moving forward. My suggestions - if they are unwilling to accept/understand that up front you're probably destined to have a shitty client (that will ultimately have financial impact on your business).
> Be very careful basing your rate on your expected salary.
As I mentioned in the linked thread, the problem isn't normally consultants being convinced of these concepts, but rather it's the clients that don't understand this. I often find that going into engagements I have to spend a lot of time explaining these things to clients before moving forward. My suggestions - if they are unwilling to accept/understand that up front you're probably destined to have a shitty client (that will ultimately have financial impact on your business).
I actually agree with you completely. I bill daily, but this was the first step for me to get there.
By the way, thank you for your contributions. Reading your HN profile was a big motivation to move to daily rates - the little bullet point was all it took!
By the way, thank you for your contributions. Reading your HN profile was a big motivation to move to daily rates - the little bullet point was all it took!
If you bill by the day how do you manage expectations of how much of that day goes to client work? Particularly if the work is onsite?
I would like to stop billing by the hour but I fear if I bill by the day I'll get "well my days last 12 hours, why don't yours?" Oftentimes when there is a lot of programming to do and not much managing, planning, etc I am burned out after six hours.
I would like to stop billing by the hour but I fear if I bill by the day I'll get "well my days last 12 hours, why don't yours?" Oftentimes when there is a lot of programming to do and not much managing, planning, etc I am burned out after six hours.
I'm not even clear on how you could reasonably bill hourly for on-site work. Your client made you travel to their office and then back. Your day is shot; your client ate the whole thing up. They pay for a day.
The universal convention in the US is that a work-day is 8 hours long. You don't need to spell that out (doing so just invites questions and unwelcome negotiation). Work an 8-hour day. If your client has a problem with that, they'll tell you, and then you can negotiate. That negotiation may end up with your rate jumping up (GREAT: that's your new rate there forever), or with you jettisoning the client.
The universal convention in the US is that a work-day is 8 hours long. You don't need to spell that out (doing so just invites questions and unwelcome negotiation). Work an 8-hour day. If your client has a problem with that, they'll tell you, and then you can negotiate. That negotiation may end up with your rate jumping up (GREAT: that's your new rate there forever), or with you jettisoning the client.
Thanks a million. Used your advice here, including your linked comment, to help structure my 2015 pricing.
Amusing story: One time, I was chatting with someone I met on HN who was trying to learn three.js. He wanted to potentially hire me as a freelancer to help him with the graphics side of a little game he was working on. He explained what he wanted done, and at the end of it I was left feeling like "This is so easy it would be wrong of me to exploit this guy like this." I didn't phrase it quite like that, but I said something along the lines of "Okay, so at this point, most people would take your money and do the project. But I feel like I should do you a favor and not do that, because this is actually not a hard problem. Here's some tutorials that are pretty much exactly what you're asking: x, y, z"
Next thing I see, he's disconnected from chat and never said another word to me.
The lesson for me (besides that I'm an idiot for not taking the money) is that the amount of value you think you're providing is almost always wildly different from the actual value you're providing. Even if it's just "take money, follow tutorial."
Next thing I see, he's disconnected from chat and never said another word to me.
The lesson for me (besides that I'm an idiot for not taking the money) is that the amount of value you think you're providing is almost always wildly different from the actual value you're providing. Even if it's just "take money, follow tutorial."
This has happened to me in the past when I was wearing my project manager hat. From my perspective it felt like I was negotiating with extremely apathetic individuals (not saying you are like that; this was just my experience with these people). I would make a request and the response was usually something like, "that is so simple...here are the instructions." It would have been a huge pain to convince the other parties that the business purpose of my inquiry was on solid ground. I would have to explain that I was trying to tie up a minuscule patch in a larger gantt chart, the nature of project management, the way I was looking to build long-term relationships (usually completely under-appreciated), etc.
In one case I offered to pay a premium to a developer for his domain expertise, only for him to loop around and use our project discussions as an evangelism platform for his software of choice. Almost every one of his replies started with "No problem," had the software name in the middle, and ended with "makes this extremely simple." At the end of the project he gave me a gigantic discount because I was now "part of the community." Needless to say, I found the didactic nature of his communications extremely difficult and we never worked together after that.
Back in development mode (as opposed to project management mode) I can understand what was happening. I've landed new clients because they noticed my community contributions and saw that I was geographically close to them. And whenever someone says, "we just don't have time to do this ourselves" I can now offer 100% of my empathy. Still, I'm surrounded by community members who type up massive tutorials within an hour, or build a completed demo project that does 80% of what the requester needs, and then disappear when the requester asks for just a bit more, or heaven forbid, offers money.
In one case I offered to pay a premium to a developer for his domain expertise, only for him to loop around and use our project discussions as an evangelism platform for his software of choice. Almost every one of his replies started with "No problem," had the software name in the middle, and ended with "makes this extremely simple." At the end of the project he gave me a gigantic discount because I was now "part of the community." Needless to say, I found the didactic nature of his communications extremely difficult and we never worked together after that.
Back in development mode (as opposed to project management mode) I can understand what was happening. I've landed new clients because they noticed my community contributions and saw that I was geographically close to them. And whenever someone says, "we just don't have time to do this ourselves" I can now offer 100% of my empathy. Still, I'm surrounded by community members who type up massive tutorials within an hour, or build a completed demo project that does 80% of what the requester needs, and then disappear when the requester asks for just a bit more, or heaven forbid, offers money.
I was nodding my head in agreement… All the way until the “How much would I charge?” part. Here’s something to consider for other freelancers reading this:
1. We all know what a pain it is to bill hourly. The way-off estimates, the tracking, the reporting… Why not bill on a daily/weekly/monthly rate? I know what you’re thinking: “But how will my client know how much work I’m doing?!” In the past year that I’ve been doing this, the ONLY people to ever ask me that were other freelancers, NOT clients/prospects. Clients–the good ones, at least–don’t CARE how many hours you’re spending to do X and Y, as long as you’re doing a damn good job at X and Y and adding significant value to their company.
2. Why tie your rates to your cost of living? (And number of vacation days, and tax rate, and other arbitrary multipliers/divisors…) Your rate should reflect the value you bring to a company. (Yes, figuring the value of your work for a company could be tricky, but that’s another matter…) Using living expenses to calculate your rates makes as much sense as pricing milk by the size of the cow that produced it. Charging based on value will almost always get you more than charging based on your thrifty living expenses. (And if it doesn’t, then either you’re underestimating your work’s value or your clients are way too small.)
1. We all know what a pain it is to bill hourly. The way-off estimates, the tracking, the reporting… Why not bill on a daily/weekly/monthly rate? I know what you’re thinking: “But how will my client know how much work I’m doing?!” In the past year that I’ve been doing this, the ONLY people to ever ask me that were other freelancers, NOT clients/prospects. Clients–the good ones, at least–don’t CARE how many hours you’re spending to do X and Y, as long as you’re doing a damn good job at X and Y and adding significant value to their company.
2. Why tie your rates to your cost of living? (And number of vacation days, and tax rate, and other arbitrary multipliers/divisors…) Your rate should reflect the value you bring to a company. (Yes, figuring the value of your work for a company could be tricky, but that’s another matter…) Using living expenses to calculate your rates makes as much sense as pricing milk by the size of the cow that produced it. Charging based on value will almost always get you more than charging based on your thrifty living expenses. (And if it doesn’t, then either you’re underestimating your work’s value or your clients are way too small.)
> Why not bill on a daily/weekly/monthly rate?
I would need explanation on this. It's not that I disagree, just that I don't understand the reason of this recommendation.
I've read the other comments going in the same direction as you, and already saw it in the past written in tptacek's profile [1].
Do you mean that you always dedicate full days to a customer, and will always invoice them full days, even if you don't work all the time? If not, how do you do when you work, say 4 hours for one client?
How is billing daily/weekly/monthly more simple? Thanks for enlighting me.
[1]https://news.ycombinator.com/user?id=tptacek
I would need explanation on this. It's not that I disagree, just that I don't understand the reason of this recommendation.
I've read the other comments going in the same direction as you, and already saw it in the past written in tptacek's profile [1].
Do you mean that you always dedicate full days to a customer, and will always invoice them full days, even if you don't work all the time? If not, how do you do when you work, say 4 hours for one client?
How is billing daily/weekly/monthly more simple? Thanks for enlighting me.
[1]https://news.ycombinator.com/user?id=tptacek
Personally I work with monthly billing, and infrequently with weekly billing, so my experience is mostly with those two formats.
> Do you mean that you always dedicate full days to a customer, and will always invoice them full days, even if you don't work all the time?
When I'm on a monthly contract, it means "I will spend time this month doing X and Y to help your company achieve goal Z." There is no mention at all about hours. Nor does the actual time spent doing X and Y affect the rate. In any given month I am helping multiple companies reach various goals.
Some may wonder: "So how in the world does the client know you're actually doing anything?" Well, if after a month or two we're not any closer to goal Z, then I'd be out of work.
Not only does this turn the conversation toward ROI and real business value instead of counting hours, but it also gives both the consultant and company predictability: The company knows how much it needs to budget each month towards goal Z, and I can plan expenses ahead of time instead of living paycheck-to-paycheck.
> Do you mean that you always dedicate full days to a customer, and will always invoice them full days, even if you don't work all the time?
When I'm on a monthly contract, it means "I will spend time this month doing X and Y to help your company achieve goal Z." There is no mention at all about hours. Nor does the actual time spent doing X and Y affect the rate. In any given month I am helping multiple companies reach various goals.
Some may wonder: "So how in the world does the client know you're actually doing anything?" Well, if after a month or two we're not any closer to goal Z, then I'd be out of work.
Not only does this turn the conversation toward ROI and real business value instead of counting hours, but it also gives both the consultant and company predictability: The company knows how much it needs to budget each month towards goal Z, and I can plan expenses ahead of time instead of living paycheck-to-paycheck.
Thanks, things are much clear now :)
Your first point is solid. On your second, I don't think the rate is tied to cost of living. It is setting a minimum rate necessary before the contract isn't profitable. The formula is:
Minimum Rate = (Potential Salary * 1.25 – Freedom Tax) / 1000
When negotiating with customers, the formula will be:
Offer Rate = (Potential Salary * 1.25) / 1000
Potential Salary is the area where your value is estimated. Since the customer will likely negotiate down, the minimum rate is simply the point that one should never go below.
Minimum Rate = (Potential Salary * 1.25 – Freedom Tax) / 1000
When negotiating with customers, the formula will be:
Offer Rate = (Potential Salary * 1.25) / 1000
Potential Salary is the area where your value is estimated. Since the customer will likely negotiate down, the minimum rate is simply the point that one should never go below.
No. "Potential salary" is a number based on a salary. Salaries are discounted almost arbitrarily because they include a long-term commitment from the client (employer) to the vendor (employee). How big that discount is depends on a lot of different factors, but: a 2-year 40-hour-a-week commit from a client at my last company would have garnered you a pretty freaking enormous discount.
You have to see the whole picture. There is always more being transacted than simply dollars for lines of code. When you grok that, you see that "salary" does not make sense as the "free variable" in your valuation equation.
You have to see the whole picture. There is always more being transacted than simply dollars for lines of code. When you grok that, you see that "salary" does not make sense as the "free variable" in your valuation equation.
Genuinely wondering what commitment you're speaking of. I've worked for some big names, in several states, but my employment has never had any commitment attached to it by the Employer.
If a company extended you a full-time job offer knowing that they were only going to use you for 2 months and then get rid of you, you'd be pissed, and so would HN when you told them about it. People would be disinclined to accept job offers from that company, once they found out what happened.
Legal commitment isn't the only kind of commitment.
Legal commitment isn't the only kind of commitment.
In a situation where everyone is negotiating in good faith, when a company offers you full time salaried employment they're expecting you to stick around for awhile. Depending on the company, this could be a year, two years, ten years. They don't expect to terminate your employment themselves. That's the commitment tptacek is speaking of. They're committing to buying all of your available work hours for an semi-defined period of time in exchange for a regular paycheck. Their legal commitment to you is generally extremely limited, but also not relevant to this discussion.
In consulting/contracting/freelancing terms, if a client accepts a multi-year retainer with a large number of hours, you'll likely give them a bit of a discount relative to your normal everyday rate. They're committing to continuing your business relationship for the duration of the contract, even though the contract will almost always state that either side can end it at any time with a certain amount of notice (just like full time salaried employment).
In consulting/contracting/freelancing terms, if a client accepts a multi-year retainer with a large number of hours, you'll likely give them a bit of a discount relative to your normal everyday rate. They're committing to continuing your business relationship for the duration of the contract, even though the contract will almost always state that either side can end it at any time with a certain amount of notice (just like full time salaried employment).
bit low for contracting I would set my day rate at between 2x-4x equivelent gross salary for tech/location
eg for bog standard perl work in UK Central London) id be charging a minimum of $700-800 perday.
eg for bog standard perl work in UK Central London) id be charging a minimum of $700-800 perday.
Basically $100/hour is a nice round number that seems to be roughly in line with the market for line of business application programming on a consulting basis. More specialized programming that requires particular problem domain expertise can command much higher rates, basically inversely correlated with the number of other devs who are able to do it.
Here's my doubt about that: I like having control of my own time. I sometimes arrive later than others and often leave earlier. I get a lot done, though. But I am concerned that asking for 'daily' pay and not putting in the same hours might start to rankle.
If the company continues to get same substantial value from your work, yet they're bugging you about the number of minutes it took you to do it, then they have their priorities backwards.
There are cases when timing matters, such as if you're expected to collaborate with internal teams who have set schedules, but that has less to do with how many hours you spent doing X.
There are cases when timing matters, such as if you're expected to collaborate with internal teams who have set schedules, but that has less to do with how many hours you spent doing X.
I think it's more a question of morale: if you're the freelancer who waltzes in and out when they please, how's that going to play with the guys who have set hours?
That is a problem for management to deal with.
I've had this thrown at me on multiple occasions, at gigs where I've solved and addressed long-standing problems, hugely improved efficiencies, and taken systems from states of perpetual chaos to vastly smoother functioning conditions.
And the simple truth is, I will lose my effectiveness and sanity if I'm required to put in "face time" simply to maintain order elsewhere.
Ultimately I view complaints on that basis as an exceptionally strong indicator of management incompetence. Time to look elsewhere.
I'm being paid for my outputs, not inputs.
I've had this thrown at me on multiple occasions, at gigs where I've solved and addressed long-standing problems, hugely improved efficiencies, and taken systems from states of perpetual chaos to vastly smoother functioning conditions.
And the simple truth is, I will lose my effectiveness and sanity if I'm required to put in "face time" simply to maintain order elsewhere.
Ultimately I view complaints on that basis as an exceptionally strong indicator of management incompetence. Time to look elsewhere.
I'm being paid for my outputs, not inputs.
but if your a Contrcator you dont want to let your client set the hours you work the IRS could take this as evidence of disgusied employment
Although I understand what you mean, I don't think it's your job to worry about others' morale. Yes, they have to stay there while you get to come and go, but they have job stability and you don't. You are taking a bigger risk than them, and having flexible work hours is your reward.
That's a nice way to view it but as a contractor/freelancer part of your job is getting and retaining contracts. While a big part of that is the work you do and the results you produce, people pleasing and team fit play a part as well. It's a legitimate concern since FTEs often complain about different rules and regs for contractors while forgetting about their own holidays and other benefits. Yes, your supervisor/company contact should handle it and, technically, dictating your hours can be playing fast and loose with IRS 1099 laws but, depending on your relationship, it can be better to conform in some areas to have more leverage in others.
If you bill daily, and waltz in around 10am when the company has been open since 7, and then waltz out at 2 when they stay till 4... it may be a little challenging to convince anyone that you really accomplished a full day's work ("well, if you had been here that extra few hours, we could have gotten X finished today", etc...)
Nobody said when you charge daily/weekly you get to slack off. You absolutely have to deliver the value if you want to keep getting contracts and referrals. Billing daily or weekly helps to refocus the discussion from a metric that people very commonly attempt to micromanage and pick apart (hours) to a metric that actually benefits the client: the ROI of your services. Who cares if you worked 15 minutes extra on Tuesday and left 10 minutes early on Thursday when you can show to your client that your ROI is 300%?
When I leave at 3 in the afternoon because I'd like to pick up my kids from school for once, I'm not "slacking off", but I'm definitely taking time that could have been employed productively, so I don't think I would feel good about charging for a full day. When I stay until 8 to fix something, I kind of want to be reimbursed for the extra time I'm putting in.
You spent time on their stuff that day instead of working on something else or some other client. The opportunity cost to you is the same, whether you leave at 3pm or work until midnight. Charging by the day or week allows both you and the client to not think about low level implementation details like that.
The inverse may be true however. If you skip out 1 hour early every day but still accomplish a lot in your opinion, the company may feel that if you had stayed that one extra hour each day, over a week's time you billed them for a full day that they never received.
They may argue you could have accomplished the task 1 day early, saving them $X, etc.
I agree with your value proposition -- but I feel it's difficult to pull off in reality. I feel a lot more comfortable with billing Time and Materials rates, so basically if I skip out early one day, they aren't being billed for it, and the project goes on at it's pace.
They may argue you could have accomplished the task 1 day early, saving them $X, etc.
I agree with your value proposition -- but I feel it's difficult to pull off in reality. I feel a lot more comfortable with billing Time and Materials rates, so basically if I skip out early one day, they aren't being billed for it, and the project goes on at it's pace.
I literally today sold a day-rate contract. It can be done.
If you end up working out of their offices and on their schedules, you're already blurring the line about being a contractor in the first place. More like a temp really.
Hmmm.. I can see that, just like you wouldn't reveal your salary for morale reasons.
Maybe close a couple of issues/send a bunch of emails at night so that people see you are not done at 5PM sharp? Visibility does not have to be physical, like "body in the office", but digital also.
Maybe close a couple of issues/send a bunch of emails at night so that people see you are not done at 5PM sharp? Visibility does not have to be physical, like "body in the office", but digital also.
Then bill by project, not time spent.
>> Then bill by project, not time spent.
That's a very dicey proposition. How many projects do you really know the scope that well? You'll also need to define the deliverable in writing or the client may keep you around saying "it's not done", scope creep and all that...
That's a very dicey proposition. How many projects do you really know the scope that well? You'll also need to define the deliverable in writing or the client may keep you around saying "it's not done", scope creep and all that...
You are 100% correct on both counts. Personally, I bill daily and roughly according to the value I'm providing. This particular article was outlining the steps I had to take before I could charge by value, by the day.
Some people are able to charge a ton right off the bat. For me, it was a gradual understanding of pricing that brought me up. Thanks for the comment!
Some people are able to charge a ton right off the bat. For me, it was a gradual understanding of pricing that brought me up. Thanks for the comment!
Another good way to "break out" of the low-hourly-rate trap, for those reading this... Just give highest price you can say without laughing.
(Wish I could give credit to whomever I heard that from, but I can't remember...)
Anecdote: I was once on a call with a prospect, and it seemed we were both in complete agreement about value mattering more than hours spent doing X and Y.... Then when I mentioned my rate, the prospect immediately started doing calculations out loud such as "well I could get 40-50 hours per week out of a full-time employee for $X, yadda yadda yadda..." So they cared more about how many hours they can get out of someone than how much value... That's a company you don't want to work with.
(Wish I could give credit to whomever I heard that from, but I can't remember...)
Anecdote: I was once on a call with a prospect, and it seemed we were both in complete agreement about value mattering more than hours spent doing X and Y.... Then when I mentioned my rate, the prospect immediately started doing calculations out loud such as "well I could get 40-50 hours per week out of a full-time employee for $X, yadda yadda yadda..." So they cared more about how many hours they can get out of someone than how much value... That's a company you don't want to work with.
This works until you run into those clients that contact you every day with changes because they want to get their money's worth. Even when you try to reason with them, they are usually the same clients that throw a tantrum.
Charging by the hour is fine if they are already hosting their own site, just make sure you charge enough. When clients know they are being charged hourly you can immediately see their thought process change from "I need this useless feature X this week" to "that feature isn't worth an investment yet".
If you're taking on more work than you can handle just keep increasing your rate.
Charging by the hour is fine if they are already hosting their own site, just make sure you charge enough. When clients know they are being charged hourly you can immediately see their thought process change from "I need this useless feature X this week" to "that feature isn't worth an investment yet".
If you're taking on more work than you can handle just keep increasing your rate.
No matter how you bill, there are always going to be pathological people to work with.
When you run into the "incessant stream of bogus requests" pathology, ask yourself:
"Does this person represent a business that can afford to pay serious market rates, and does this person have the juice inside the company to make real decisions?"
If so: raise your rates and change your packaging so that you're capturing some of the value they're asking for. The "incessant stream of requests" phenomenon is why there are retainer arrangements.
If not: jettison the client. Say no more. Say yes less.
When you run into the "incessant stream of bogus requests" pathology, ask yourself:
"Does this person represent a business that can afford to pay serious market rates, and does this person have the juice inside the company to make real decisions?"
If so: raise your rates and change your packaging so that you're capturing some of the value they're asking for. The "incessant stream of requests" phenomenon is why there are retainer arrangements.
If not: jettison the client. Say no more. Say yes less.
> "Say no more. Say yes less."
It all seems to come down to this. Your pipeline must be strong, all the time. When it is, you can say no more and say yes less, and still have a steady stream of good work for good clients.
So the real key is, how do you keep your pipeline that robust? Can you offer some pointers about that?
It all seems to come down to this. Your pipeline must be strong, all the time. When it is, you can say no more and say yes less, and still have a steady stream of good work for good clients.
So the real key is, how do you keep your pipeline that robust? Can you offer some pointers about that?
Whoah. No. It's the opposite. The shittier your projects, the lower your rate, the more aggressive you have to be with your pipeline, for obvious mathematical reasons.
Ohhhh! (Light bulb). So you're saying, make your rate very high, which will weed out all but the best projects. Then, be willing to only work half the year (if necessary), but your rate will be high enough to cover it. Is that right?
Both of these points are dead on. The client that does ask you what you're doing with each of your hours better be paying a very steep rate indeed, because otherwise they're pathological and should be ejected from your pipeline.
I'm curious how this works when you are part of a team? I was brought into a project to help fix a mess and wasn't sure how to charge for value? The project consisted of 5 or so developers, and I was part of a new team of about 5.
Obviously, for the team lead, it's possible to wrap it all up into value based pricing (risky, hard, but possible) but for team members? The first question my team lead asked was 'what is your hourly rate'?
Any suggestions?
Obviously, for the team lead, it's possible to wrap it all up into value based pricing (risky, hard, but possible) but for team members? The first question my team lead asked was 'what is your hourly rate'?
Any suggestions?
This sounds comparable to the dog-walking lady in the article. If I were you, I'd have walked away from that one. It sounds like the team lead wasn't interested in the value you'd provide, she just wanted a cheap developer.
"Clients–the good ones, at least–don’t CARE how many hours you’re spending to do X and Y, as long as you’re doing a damn good job at X and Y and adding significant value to their company"
amen...i've been discussing this concept with a frontend developer just this week, and could not agree more.
things have set market value, irregardless of how fast you can get it done, and undercutting this market value is a sure way to keep your bank account low.
amen...i've been discussing this concept with a frontend developer just this week, and could not agree more.
things have set market value, irregardless of how fast you can get it done, and undercutting this market value is a sure way to keep your bank account low.
>"Clients–the good ones, at least–don’t CARE how many hours you’re spending to do X and Y, as long as you’re doing a damn good job at X and Y and adding significant value to their company."
this resonates with me; In software we so often think in "hours" as value when we should be thinking in "what value does the product I am creating bring to my client"
We shouldn't be charging by hours, we should be charging by value; Product X is very useful and brings value to your company.
However, there is also the question of quality. If you charge the market rate of a product and the quality of the delivered product is poor, I suppose the customer can return it.
this resonates with me; In software we so often think in "hours" as value when we should be thinking in "what value does the product I am creating bring to my client"
We shouldn't be charging by hours, we should be charging by value; Product X is very useful and brings value to your company.
However, there is also the question of quality. If you charge the market rate of a product and the quality of the delivered product is poor, I suppose the customer can return it.
"We shouldn't be charging by hours, we should be charging by value; Product X is very useful and brings value to your company"
It's usually really hard for most people to be able to assign value to discrete pieces of work from a vendor.
For those who can do it, they're usually... sharp enough to drive a harder bargain.
I had a client project a few years back, and after working there for a bit, I discovered an area of their operations that was very ... bad. They knew it. Fixing and streamlining it would be worth at least $50k per year in reduced losses. When we got to the point about discussing that area of the business, I'd brought up attacking this. When we finally got to the point about pricing, I'd offered a couple options, but they quickly realized they'd be able to get someone to do the work for half of what I was proposing. For example (made up numbers), my 'cost' would have been, say, $25k over a few months, to net them an ongoing minimum $50k positive benefit. Once they realized the extent of the problem, they knew it needed to be addressed, but also knew they could get it done for half of my proposal terms. They knew the 'value' all too well.
It's usually really hard for most people to be able to assign value to discrete pieces of work from a vendor.
For those who can do it, they're usually... sharp enough to drive a harder bargain.
I had a client project a few years back, and after working there for a bit, I discovered an area of their operations that was very ... bad. They knew it. Fixing and streamlining it would be worth at least $50k per year in reduced losses. When we got to the point about discussing that area of the business, I'd brought up attacking this. When we finally got to the point about pricing, I'd offered a couple options, but they quickly realized they'd be able to get someone to do the work for half of what I was proposing. For example (made up numbers), my 'cost' would have been, say, $25k over a few months, to net them an ongoing minimum $50k positive benefit. Once they realized the extent of the problem, they knew it needed to be addressed, but also knew they could get it done for half of my proposal terms. They knew the 'value' all too well.
You may have lost that one, but I've picked up enough contracts where I had to clean up a cheaper developer's half-finished project. Eventually, companies who go searching for cheaper labor will get what they pay for. There are exceptions, but that's the norm.
That company made the (usually bad) assumption that the output of you and the cheaper option will be equal.
This is the key point companies often miss :/
Edit: Grammar
Edit: Grammar
This is a key point you need to convince them of.
I saw contractors on daily rates being abused - they always worked super long hours, which is the opposite of what I want to do.
If you saw them, they weren't doing it right.
> Why not bill on a daily/weekly/monthly rate?
Does anyone have experience with all three options? Which worked out best for you?
Does anyone have experience with all three options? Which worked out best for you?
I've done them all. Here's my writeup on the pros/cons of each: http://doubleyourfreelancing.com/the-definitive-guide-to-pro...
Nice write-up, but a little too complex for me. I've taken a slightly different approach that I've never had to "talk myself into"...
I got the gig by charging something we both felt comfortable with. Then I raised my rates 10% every 90 days. No discussion, no debate, no permission, just, "Starting October 1, my new rate is x." If they said no, I'd walk away. That never happened.
I remember the first time I crossed $100 using this method. My client said, "Now we'll have to start treating you like a real consultant." I said, "OK."
I got the gig by charging something we both felt comfortable with. Then I raised my rates 10% every 90 days. No discussion, no debate, no permission, just, "Starting October 1, my new rate is x." If they said no, I'd walk away. That never happened.
I remember the first time I crossed $100 using this method. My client said, "Now we'll have to start treating you like a real consultant." I said, "OK."
> "Now we'll have to start treating you like a real consultant." I said, "OK."
That's funny... I bet it felt great hearing that. I remember when I had more than 1 concurrent client for the first time ever, I thought to myself: "Wow, now I'm a real consultant, not a wanna-be-consultant!"
That's funny... I bet it felt great hearing that. I remember when I had more than 1 concurrent client for the first time ever, I thought to myself: "Wow, now I'm a real consultant, not a wanna-be-consultant!"
Did it come as a surprise to your clients that your rates would increase every 90 days, or did they know before hiring you?
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I really wish everybody who was a freelancer had a chance to work for six months in a big-time consulting firm (e.g. Computer Science Corp, Accenture, Sapient, or IBM Global Services). Get an up-close look at how much companies will pay for developers, project managers, and designers. Medium-sized or larger companies have no problem paying $175+ per hour for average developers who have the right experience. If you're any good, you'll soon see that a big company will pay $200+/hour for you.
Sure, there's extra overhead involved in those big firms, but there's no way you'll come out of that experience thinking you're only worth $50/hour.
Sure, there's extra overhead involved in those big firms, but there's no way you'll come out of that experience thinking you're only worth $50/hour.
Small companies will, too. Just not the sort of small companies who look for talent on Freelancer boards. They're looking for bargains or non-critical work, in my experience, and the majority of them - if they get past the sticker shock - are not pleasant to work with.
How else do you find the right sort of companies? (genuinely curious)
In short, you painstakingly build a network over time. Eventually you get to the point where good companies find you. There's no definitive way to do this and that's what makes running a successful consulting company difficult. In my experiences, all of the consultants that I know (including myself) who are going strong, sort of fell into consulting after working a long time in their industries. If you are young, I would suggest working for a company in your industry first and gain experience/contacts before setting out to be an independent consultant.
Networking.
Marketing (ebooks, blogging, tweeting, open source).
Connecting people who can do nothing for you because you want to do a good thing (aka karma). (I wrote a post about 'being an informal recruiter': http://www.mooreds.com/wordpress/archives/1728 )
Marketing (ebooks, blogging, tweeting, open source).
Connecting people who can do nothing for you because you want to do a good thing (aka karma). (I wrote a post about 'being an informal recruiter': http://www.mooreds.com/wordpress/archives/1728 )
I've considered, but when Accenture call a Front-End Developer role "Modern Web Developer", I am wondering how far behind are they.
Here's a quick overview of my experience in a big consulting company:
-Don't expect to work on cutting-edge stuff. They're the conservative choice for conservative clients.
-Most consulting companies are "up or out". If you're not on the partner track you're an interchangeable cog.
-Most of the folks who make partner are project managers, business analysts, and rainmakers. Coding skills can get you on good projects, but advancement is about how many other people you can leverage. The techies that make partner are generally "architects" and "practice leads" who can lead a bunch of junior people.
-Work/life balance isn't a thing that exists at a lot of big consulting firms.
-You will often be forced to become an instant expert next project. Most big consultancies are not afraid to invest in training, but it's also up to you to fake it for a while until you know it.
-You can learn a ton of non-technical skills from the partners. These people are often at handling people, delivering bad news, making presentations, gathering input from others, etc. There's a reason they make tons of money and it's not because they're 10x programmers.
I can't say I enjoyed my time there, but it was an educational experience really helped my career.
-Don't expect to work on cutting-edge stuff. They're the conservative choice for conservative clients.
-Most consulting companies are "up or out". If you're not on the partner track you're an interchangeable cog.
-Most of the folks who make partner are project managers, business analysts, and rainmakers. Coding skills can get you on good projects, but advancement is about how many other people you can leverage. The techies that make partner are generally "architects" and "practice leads" who can lead a bunch of junior people.
-Work/life balance isn't a thing that exists at a lot of big consulting firms.
-You will often be forced to become an instant expert next project. Most big consultancies are not afraid to invest in training, but it's also up to you to fake it for a while until you know it.
-You can learn a ton of non-technical skills from the partners. These people are often at handling people, delivering bad news, making presentations, gathering input from others, etc. There's a reason they make tons of money and it's not because they're 10x programmers.
I can't say I enjoyed my time there, but it was an educational experience really helped my career.
right, but remember what the companies are mostly paying for is the all the resources and reassurances of an IBM, not for the particular developer they are using to get the work done.
No, they're really not. Small companies also charge this rate.
This.
I own a small consulting and training shop focusing on a particular "enterprise" product that's used by more companies than I can count, big or little. We charge a premium rate per hour for consulting, and a premium per-day rate for training. Been doing it for over a decade now. Companies that would hire out to Accenture or Avenade or name-your-consulting-firm-here would, in our experience, much prefer to pay someone they can speak to about their skills and work without a technical sales rep getting in the way. It's not even that tough to get into a client's "preferred vendor" list, if they have one.
The combination of humble confidence and actually knowing your shit is a potent one.
Edit: typo
I own a small consulting and training shop focusing on a particular "enterprise" product that's used by more companies than I can count, big or little. We charge a premium rate per hour for consulting, and a premium per-day rate for training. Been doing it for over a decade now. Companies that would hire out to Accenture or Avenade or name-your-consulting-firm-here would, in our experience, much prefer to pay someone they can speak to about their skills and work without a technical sales rep getting in the way. It's not even that tough to get into a client's "preferred vendor" list, if they have one.
The combination of humble confidence and actually knowing your shit is a potent one.
Edit: typo
Not disagreeing with you, but I would add, "Small established companies" can charge these rates. No one is going to pay some unknown person/company $200/hr without an established track record.
Yes they will, because that is the rate they're expecting. If you charge a lot less, they'll grin all the way to the bank.
Every other industry, new haulage firm? They charge slightly less than other ones maybe.
Programmers? Charge 20%. I've done it! We're idiots.
Every other industry, new haulage firm? They charge slightly less than other ones maybe.
Programmers? Charge 20%. I've done it! We're idiots.
The most you can charge is the perceived differential value you provide. So, if the client perceives that you will make them an extra $1M compared to the alternatives, you can charge, say $300K. If you have to do 100 hours of work to do that, don't say that your rate is $3,000/hr. Just say that the $1M costs $300K.
You don't always get a clearcut case like that, but the key, as @bdunn mentioned, is that you need to help the customer in a way that other commodity providers can't. Writing Ruby code or working with Photoshop is a commodity. The market sets the rate for those services. But if you can use those skills to reduce costs, increase web conversions, etc, you can provide increased differential value.
I've helped a lot of small business owners work through these scenarios, and then come up with numbers that "don't feel right." They don't want to charge what they're worth. Then we have a conversation like this:
"I agree with you that it's worth it, but I just don't feel like I can charge that much."
"Why not?"
"It just doesn't feel right?"
"You believe in helping your clients, right?"
"Of course."
"Would charging the higher rate help you provide more resources and increase the customer's return?"
"Probably."
"So why are you so hung up on your own feelings that you're hurting your clients by not charging them properly?"
OK, it's a bit silly, but it's a real conversation I've had many times. When they are convinced in their head but not in their gut, I ask them to literally practice talking about price in front of a mirror. Do it so that it sound confident, comfortable, and unapologetic. Your customer is getting a great deal! Of course they should want to do this. Steve Jobs never apologized for the fact that a Mac had a higher price than many PCs-- it was just a great deal if you wanted to do certain things.
Feedback is that practicing in front of a mirror really helps. ;-)
You don't always get a clearcut case like that, but the key, as @bdunn mentioned, is that you need to help the customer in a way that other commodity providers can't. Writing Ruby code or working with Photoshop is a commodity. The market sets the rate for those services. But if you can use those skills to reduce costs, increase web conversions, etc, you can provide increased differential value.
I've helped a lot of small business owners work through these scenarios, and then come up with numbers that "don't feel right." They don't want to charge what they're worth. Then we have a conversation like this:
"I agree with you that it's worth it, but I just don't feel like I can charge that much."
"Why not?"
"It just doesn't feel right?"
"You believe in helping your clients, right?"
"Of course."
"Would charging the higher rate help you provide more resources and increase the customer's return?"
"Probably."
"So why are you so hung up on your own feelings that you're hurting your clients by not charging them properly?"
OK, it's a bit silly, but it's a real conversation I've had many times. When they are convinced in their head but not in their gut, I ask them to literally practice talking about price in front of a mirror. Do it so that it sound confident, comfortable, and unapologetic. Your customer is getting a great deal! Of course they should want to do this. Steve Jobs never apologized for the fact that a Mac had a higher price than many PCs-- it was just a great deal if you wanted to do certain things.
Feedback is that practicing in front of a mirror really helps. ;-)
>"You believe in helping your clients, right?"
"Of course."
I think this might be the snag. The people who will pay what the SBO is worth will likely not be the same people as the current clients.
I think this might be the snag. The people who will pay what the SBO is worth will likely not be the same people as the current clients.
This is true in some cases, especially if they don't perceive the value, or they are so cash-strapped that they can't execute on the plans that would really help them.
However, this is often an excuse to avoid having the pricing conversation. I've worked with people who have raised rates on existing clients by 30% without losing any of them.
Usually, though, you'll lose some clients who don't perceive the value and are a giant pain, anyway. You'll get to do better, more interesting work for most of your clients, who will magically start treating you better, and you'll get to do work for a new set of clients who treat you better than the ones you lost.
(Of course, value is not something you assign to a project. It's what the buyer perceives. You can help frame the perception, but it's got to be credible.)
However, this is often an excuse to avoid having the pricing conversation. I've worked with people who have raised rates on existing clients by 30% without losing any of them.
Usually, though, you'll lose some clients who don't perceive the value and are a giant pain, anyway. You'll get to do better, more interesting work for most of your clients, who will magically start treating you better, and you'll get to do work for a new set of clients who treat you better than the ones you lost.
(Of course, value is not something you assign to a project. It's what the buyer perceives. You can help frame the perception, but it's got to be credible.)
For someone like me who is a "jack of all trades master of none" type of freelancer, this formula works fairly well. I have the advantage of having a full time job and freelancing on the side for extra spending/saving money. But if I ever do make the great leap to a full time freelancer, this formula tells me that I can make it for only a little more than I charge now.
Granted, I'm in a suburban/semi-rural area, so I may actually have to raise my rates to make a livable wage on my own, since the client pool is smaller, and this is part of why I haven't already made the leap. Admittedly, the "imposter syndrome" the author spoke of is probably a factor as well; deep down I know I'm good at what I do, but every time I have to research something I end up feeling like a know-nothing. That's something I'll have to overcome not only if I want to set forth on my own as a full time freelancer, but even if I want to advance as an employee.
Granted, I'm in a suburban/semi-rural area, so I may actually have to raise my rates to make a livable wage on my own, since the client pool is smaller, and this is part of why I haven't already made the leap. Admittedly, the "imposter syndrome" the author spoke of is probably a factor as well; deep down I know I'm good at what I do, but every time I have to research something I end up feeling like a know-nothing. That's something I'll have to overcome not only if I want to set forth on my own as a full time freelancer, but even if I want to advance as an employee.
If it's of any help, the impostor syndrome isn't unique to new freelancers. I've been consulting steadily for over a year, and I still feel it frequently. Acknowledge the feeling but don't let it be a barrier. (Maybe someone more experienced can chime in if I'm wrong about this.)
I contracted full-time for about 2.5 years before going back to being an FTE for the stability. Even as I steadily raised my rates upwards of $150/hr+ I still thought back to when I was charging $70 and that I was doing the exact same work and providing the exact same value.
Even when you're in the thick of it, it's sometimes hard to contextualize that no, I'm not charging too much now, I was just charging too little then.
You will lose clients as your rates go up, it's only natural (I had one complain very loudly when I went from $70 to $80 an hour, even though he only needed 2-3 hours of work a month at most; he left when I went to $95 about 6 months later). With few exceptions, most of them will be the painful ones.
Even when you're in the thick of it, it's sometimes hard to contextualize that no, I'm not charging too much now, I was just charging too little then.
You will lose clients as your rates go up, it's only natural (I had one complain very loudly when I went from $70 to $80 an hour, even though he only needed 2-3 hours of work a month at most; he left when I went to $95 about 6 months later). With few exceptions, most of them will be the painful ones.
I've done IT based side work for nearly 20 years now, so I know it's not unique to those just starting out. My main problem really is that I'm just too helpful; I have a natural inclination to help people, and that leads to being taken advantage of at times.
There is one particular client I could have charged twice my regular rate and they could have afforded it, but they saw how "nice" I was being by charging them (a sole proprietorship business) the same rate as the old lady down the street, and figured they had a sucker. When I tried to raise my rates they dropped me and hired someone who charged twice what I did but ultimately wasn't willing to put up with their attitude like I was. Of course, I considered it a good thing as I lost a headache, but I also lost a good referral.
In short, I need to stop trying to help my clients financially by offering rock bottom rates (and devaluing myself - imposter syndrome again), and focus on doing the job they are willing to pay me a good rate for. I can still undercut the competition, what little there is here, and make a decent living doing it.
There is one particular client I could have charged twice my regular rate and they could have afforded it, but they saw how "nice" I was being by charging them (a sole proprietorship business) the same rate as the old lady down the street, and figured they had a sucker. When I tried to raise my rates they dropped me and hired someone who charged twice what I did but ultimately wasn't willing to put up with their attitude like I was. Of course, I considered it a good thing as I lost a headache, but I also lost a good referral.
In short, I need to stop trying to help my clients financially by offering rock bottom rates (and devaluing myself - imposter syndrome again), and focus on doing the job they are willing to pay me a good rate for. I can still undercut the competition, what little there is here, and make a decent living doing it.
> every time I have to research something I end up feeling like a know-nothing
I once heard a programmer say her job description was "learning new things". I'm a generalist like you, with a handful of specialties, and I don't think you should have any guilt or embarrassment about doing research. In fact the ability to research and learn is a skill too.
I once heard a programmer say her job description was "learning new things". I'm a generalist like you, with a handful of specialties, and I don't think you should have any guilt or embarrassment about doing research. In fact the ability to research and learn is a skill too.
> In fact the ability to research and learn is a skill too.
It's the only skill worth having. With it, you can acquire anything you need.
It's the only skill worth having. With it, you can acquire anything you need.
I've never freelanced and I'm just about to start (in an SDE-equivalent role), but getting the first job is definitely the hardest. I really need your advice!
The back story: My startup is experiencing a quiet period and won't be making money for a few months. I need to make my rent and pay for food, yet have the flexibility to continue working on my startup.
I considered asking for a low rate just because of my dire need to make money. This brilliant article makes me reconsider my worth (I've turned down 100k offers to pursue my startup), though. What's the best thing to do in my sitauation?
I've built a portfolio and I've considered four approaches that I will take. Which ones should I focus on? Is #2 too much of a long shot?
1. Reach to my network (mostly recent grads, though)
2. Apply to freelancing agencies
3. Reach out to companies that are hiring, have a great cover letter which explains my situation and propose working on a contract basis (is that too much of a long shot?)
4. Reach out to companies that seek freelancers (but how do I find these?)
Thanks for advice!
The back story: My startup is experiencing a quiet period and won't be making money for a few months. I need to make my rent and pay for food, yet have the flexibility to continue working on my startup.
I considered asking for a low rate just because of my dire need to make money. This brilliant article makes me reconsider my worth (I've turned down 100k offers to pursue my startup), though. What's the best thing to do in my sitauation?
I've built a portfolio and I've considered four approaches that I will take. Which ones should I focus on? Is #2 too much of a long shot?
1. Reach to my network (mostly recent grads, though)
2. Apply to freelancing agencies
3. Reach out to companies that are hiring, have a great cover letter which explains my situation and propose working on a contract basis (is that too much of a long shot?)
4. Reach out to companies that seek freelancers (but how do I find these?)
Thanks for advice!
I started with #1 and #4. In particular, http://www.authenticjobs.com/ is a great place to find quality first-time leads.
To get jobs there, I use this formula:
1. Make sure you're only applying to jobs you're really interested in.
2. Write an introduction email that explains your interest in a personal tone. Nothing stodgy, nothing cookie-cutter.
3. Try to be one of the first ones to apply - postings get flooded with applications (most of them crappy), so it doesn't hurt to be in first. This means you may need to check the job board multiple times per day.
Beyond job boards: Nothing beats word-of-mouth referrals. Become to "go to" person for your clients and watch the leads roll in.
(edit: formatting)
To get jobs there, I use this formula:
1. Make sure you're only applying to jobs you're really interested in.
2. Write an introduction email that explains your interest in a personal tone. Nothing stodgy, nothing cookie-cutter.
3. Try to be one of the first ones to apply - postings get flooded with applications (most of them crappy), so it doesn't hurt to be in first. This means you may need to check the job board multiple times per day.
Beyond job boards: Nothing beats word-of-mouth referrals. Become to "go to" person for your clients and watch the leads roll in.
(edit: formatting)
I just started freelancing after doing a few regular SDE "regular" jobs, and just got my first contract through a freelancing agency. It's been pretty nice in my experience, since they helped explain a lot of things about freelancing that I didn't know, and they handle all the taxes for me (so it's a bit like a consulting firm, and I get a W-4).
Ideally I'd like to develop a network so I won't need them for leads, but starting out they've been really helpful.
Ideally I'd like to develop a network so I won't need them for leads, but starting out they've been really helpful.
5. All of the above. Hang a shingle and start contacting people (and follow up!) Those people who have sent you offers? Contact them and ask what problems they're having and offer to help them solve them.
After reading this (and other threads where 'tptacek has written in great detail about the merits of billing by the day, raising your rates, etc.) the only question I have left is: how do freelance consultants typically find clients? Assuming a clean slate and no testimonials or referrals to springboard off of.
Is it as simple as calling random businesses? Or is there a nice set of useful tips for starting out?
(Has this already been answered in another thread?)
Is it as simple as calling random businesses? Or is there a nice set of useful tips for starting out?
(Has this already been answered in another thread?)
Very few people start consulting when immediately out of the womb. One's first client or few clients is often sourced by one's personal network: an old day job, a college buddy who went on to work somewhere, someone you met at the local meetup for Pythonistas, etc.
After one is actually working as a consultant, one can fix the "I have no testimonials or referrals" problem fairly quickly. Do great work. Explicitly ask clients, as part of your aftercare (or before), to give you testimonials and/or referrals. e.g. "I'm really happy that this engagement seems to have worked well for everyone. Over the next couple weeks, I'll make myself available to the team if they have any questions about $PROJECT. Naturally, I'm also going to be doing the consulting rainmaking dance. I've really enjoyed working with you -- do you know anyone else who would enjoy working with me?"
There are a few other methods which work in a repeatable fashion:
a) Go to events populated by people who can say yes to consulting engagements. If you cannot be invited to these for whatever reason or if they don't exist in your area, throw the event yourself. Do presentations which relate in any way to the sort of work that you do and then ask people at the end of the presentation to continue the conversation offline if they found it interesting. You will get 5+ coffee dates per 50 people you present to. Work on converting 1~2 to clients.
b) Figure out who should be buying your services. Cold call or cold email them. This strikes engineers as Black Magick Most Foul, but it is actually pretty routine in business, and clearly works in a reproducible fashion. Business owners mostly will not be offended if you send them a considered, personalized, one paragraph pitch to explore business together. Selling and being sold to is what we do all day.
c) I hesitate to mention it, since it is a long-ball sort of strategy and typically will not help you pack Q1 with engagements when starting from a standing start in December 2014, but putting a few writeups of what you do for a living on the Internet (you can use WordPress for this but, crucially, you're not shipping blog posts) plus an email capture opportunity can get you a lot of leads over the long run. Virtually anyone on HN who has ever shipped software with a business impact could spend four hours writing about that experience and get a handful of leads every month from now to forever for that investment. Assuming one's consultancy is known to work given people to sell services to, this strikes me as a good use of one's time between engagements.
After one is actually working as a consultant, one can fix the "I have no testimonials or referrals" problem fairly quickly. Do great work. Explicitly ask clients, as part of your aftercare (or before), to give you testimonials and/or referrals. e.g. "I'm really happy that this engagement seems to have worked well for everyone. Over the next couple weeks, I'll make myself available to the team if they have any questions about $PROJECT. Naturally, I'm also going to be doing the consulting rainmaking dance. I've really enjoyed working with you -- do you know anyone else who would enjoy working with me?"
There are a few other methods which work in a repeatable fashion:
a) Go to events populated by people who can say yes to consulting engagements. If you cannot be invited to these for whatever reason or if they don't exist in your area, throw the event yourself. Do presentations which relate in any way to the sort of work that you do and then ask people at the end of the presentation to continue the conversation offline if they found it interesting. You will get 5+ coffee dates per 50 people you present to. Work on converting 1~2 to clients.
b) Figure out who should be buying your services. Cold call or cold email them. This strikes engineers as Black Magick Most Foul, but it is actually pretty routine in business, and clearly works in a reproducible fashion. Business owners mostly will not be offended if you send them a considered, personalized, one paragraph pitch to explore business together. Selling and being sold to is what we do all day.
c) I hesitate to mention it, since it is a long-ball sort of strategy and typically will not help you pack Q1 with engagements when starting from a standing start in December 2014, but putting a few writeups of what you do for a living on the Internet (you can use WordPress for this but, crucially, you're not shipping blog posts) plus an email capture opportunity can get you a lot of leads over the long run. Virtually anyone on HN who has ever shipped software with a business impact could spend four hours writing about that experience and get a handful of leads every month from now to forever for that investment. Assuming one's consultancy is known to work given people to sell services to, this strikes me as a good use of one's time between engagements.
Thanks! I believe I can work with all of this information :D
A technique a friend taught me to make good prices.
"What number would you not say no to? Assuming you wouldn't enjoy the work."
It's helped me make reasonable, and sometimes unreasonable offers, which are good starting points for negotiation.
"What number would you not say no to? Assuming you wouldn't enjoy the work."
It's helped me make reasonable, and sometimes unreasonable offers, which are good starting points for negotiation.
> If I told you about freelancers charging $20,000/week or $350/hour, what would you say? I know what I said: “Sure, they can get away with that, but I couldn’t because…”.
How do you raise your rates from $88/hour to $350/hour? That's 4x the rate, it seems like a whole different ball game to me. I have a few regular clients, and there is no way they would be able to afford that, so is it time to ditch them?
How do you raise your rates from $88/hour to $350/hour? That's 4x the rate, it seems like a whole different ball game to me. I have a few regular clients, and there is no way they would be able to afford that, so is it time to ditch them?
My method goes counter to the article but still ends up with the same result - higher rates with the added advantage that I KNOW it is the highest possible rate I can charge and not worry if I should charge more or less.
Here's my simple method: Decide how many hours you want to work each week. Then find double or even triple work than that. Then raise your rates till clients start to drop off until you have your desired weekly hours of work.
If you feel your rate for a client is too high, you can always give free or discount hours every once in a while, especially when they are in crisis mode. If you want to drop a client, let them you know you are raising your rates in near future. If they agree to it, great, now you get a bonus for working with bad-client. If they can't afford your new rate, great, you just fired a client without burning down a bridge or having awkward conversation.
Your hourly rate is literally the only thing you are getting from the entire contract. They have projects, deadlines, specs, SDLC, deliverables, development methodologies, use cases, and a hundred other things they want. You have an hourly rate. No year-end bonus, no promotion, no office space, no profit sharing, no health plan, no 401k contributions, no office cooler gossip, and certainly no annual raises.
Of course, having been on the client side of this equation too, I know how wonderful it is to pay someone a single fixed hourly rate and not have to worry about a hundred minor things because I can trust them to be on top of it without my involvement.
Here's my simple method: Decide how many hours you want to work each week. Then find double or even triple work than that. Then raise your rates till clients start to drop off until you have your desired weekly hours of work.
If you feel your rate for a client is too high, you can always give free or discount hours every once in a while, especially when they are in crisis mode. If you want to drop a client, let them you know you are raising your rates in near future. If they agree to it, great, now you get a bonus for working with bad-client. If they can't afford your new rate, great, you just fired a client without burning down a bridge or having awkward conversation.
Your hourly rate is literally the only thing you are getting from the entire contract. They have projects, deadlines, specs, SDLC, deliverables, development methodologies, use cases, and a hundred other things they want. You have an hourly rate. No year-end bonus, no promotion, no office space, no profit sharing, no health plan, no 401k contributions, no office cooler gossip, and certainly no annual raises.
Of course, having been on the client side of this equation too, I know how wonderful it is to pay someone a single fixed hourly rate and not have to worry about a hundred minor things because I can trust them to be on top of it without my involvement.
Your second to last paragraph is a great way to word a conversation I'm about to have. Thanks!
Here's another way to look at it. When you're selling yourself as a freelancer, the last step in the sale is to make the business case. At that point, you've probably already proved that you could do something for the company, and the business case answers the question, "Why pay this much for this service, right now?"
There is more than one way to build a business case. They include:
- ROI. How much money will the business make? What fraction of that will you charge?
- Opportunity cost. What timeline would it take to get somebody else to do this? How much is that worth?
- Productivity / knowledge. Will your work transfer knowledge to people internally? What is the alternative to not hiring you?
- Flexibility. If they didn't hire a contractor, what is their equivalent of "freedom cost"? Reminding employers that they can fire you at any time is a positive for you.
You may even be able to find others. It's not a trivial task, and it'll take some digging, but keep your ears open. You can always find ways that different companies rationalize spending money, and using one company's framework to help another justify the spend can make things go much more smoothly.
There is more than one way to build a business case. They include:
- ROI. How much money will the business make? What fraction of that will you charge?
- Opportunity cost. What timeline would it take to get somebody else to do this? How much is that worth?
- Productivity / knowledge. Will your work transfer knowledge to people internally? What is the alternative to not hiring you?
- Flexibility. If they didn't hire a contractor, what is their equivalent of "freedom cost"? Reminding employers that they can fire you at any time is a positive for you.
You may even be able to find others. It's not a trivial task, and it'll take some digging, but keep your ears open. You can always find ways that different companies rationalize spending money, and using one company's framework to help another justify the spend can make things go much more smoothly.
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Charging more is only half the work on escaping feast and famine cycles when you're a freelancer or an agency. A while ago, I wrote a post to my inner circle of email suscribers about one sure way I've found that works when it comes to charging more (here's the email article: http://logit.createsend.com/t/ViewEmailArchive/r/3991C04F56F... - hint: saying "just double your prices" does not work for everybody, like andy_adams discovered himself; I've got a better way - increase prices gradually and with every project.)
The second half of being satisfied with your (freelancing or agency) career is having abundant recurring revenue. I recently analyzed revenues, market size and the number of employees per company for ten or so related industries: graphic design, web design, domain industry, hosting industry, digital advertising agencies, advertising agencies, website creation software industry... The numbers told me that graphic design and web design companies cannot even afford to hire a second employee - on average. All the other industries, who are known for relying heavily on recurring revenue, had much healthier business indicators. For example, the market in the U.S. for web design / web development is seven times bigger than i.e. the domain name business, but domain name companies are in much better shape, financially.
I've described my experience with implementing recurring revenue services in my webdev agency in the book I wrote: https://www.simpfinity.com/books/recurring-revenue-web-agenc... - I now firmly believe that charging more + having recurring revenue is the answer to most freelancers' troubles. As soon you upgrade your attitude to charge more for your work, you're ready to start thinking about earning money from existing clients, every month. We've managed to pay for up to 90% of our monthly expenses solely with recurring revenue.
The second half of being satisfied with your (freelancing or agency) career is having abundant recurring revenue. I recently analyzed revenues, market size and the number of employees per company for ten or so related industries: graphic design, web design, domain industry, hosting industry, digital advertising agencies, advertising agencies, website creation software industry... The numbers told me that graphic design and web design companies cannot even afford to hire a second employee - on average. All the other industries, who are known for relying heavily on recurring revenue, had much healthier business indicators. For example, the market in the U.S. for web design / web development is seven times bigger than i.e. the domain name business, but domain name companies are in much better shape, financially.
I've described my experience with implementing recurring revenue services in my webdev agency in the book I wrote: https://www.simpfinity.com/books/recurring-revenue-web-agenc... - I now firmly believe that charging more + having recurring revenue is the answer to most freelancers' troubles. As soon you upgrade your attitude to charge more for your work, you're ready to start thinking about earning money from existing clients, every month. We've managed to pay for up to 90% of our monthly expenses solely with recurring revenue.
This seems to be for the us and unapplicable to europe (factor 1.25 seems too low), right?
1.25 is too low for the US, too. However, we're just establishing the minimum, so I erred on the low end. 1.5 or 2.0 would probably come closer to reality.
It's highly individual. Mine is about 2.25 because of an infuriating rule about deducting health care premiums. bdunn's course Double Your Freelancing Rate[1] has a really good in-depth discussion on how you can figure this out for yourself.
[1]: http://doubleyourfreelancing.com/rate/
[1]: http://doubleyourfreelancing.com/rate/
You're right. In Germany you'll need to do the math with 1.40 at least.
This is great. The simple model to estimate minimum hourly rate is useful and I believe would create a convincing argument in negotiations of rates. (Of course, one wouldn't have to be so conservative in the estimates in that case).
I have on occasion simply raised the number of hours in the equation, instead of my rate. Strictly for fixed-price projects though.
They get the same bang for their buck, but lower hourly rates is for some customers easier to swallow.
They get the same bang for their buck, but lower hourly rates is for some customers easier to swallow.
They get the "same bang for their buck" while you "simply raised the number of hours"? That sounds a lot like intentional misrepresentation of hours worked. Or more bluntly, this seems like fraud.
It's what basically every company that delivers project bids that include an estimate of work hours does, AFAIK. Higher hour counts make the managers choosing which bid to accept feel more comfortable, I think.
Doesn't necessarily make it right, but it's very common, maybe even expected and off-putting when not committed, in the way that a lot of business-related lies are.
Doesn't necessarily make it right, but it's very common, maybe even expected and off-putting when not committed, in the way that a lot of business-related lies are.
This is great. Thank you so much! I was curious if you had any advise on figuring out per project rates? I'm pretty new at making Wordpress sites but I make nice, handsome, responsive and very usable sites. People I have made sites for so far have wanted a single fee for the whole project.
I'm not so good at estimating the number of hours that go into a project yet. Do you have a rule of thumb aside from estimated hours * rate?
I'm not so good at estimating the number of hours that go into a project yet. Do you have a rule of thumb aside from estimated hours * rate?
I wouldn't do a project rate as a freelancer.
I own a design/development studio and encourage my employees to do side work if they want to, in order to get some experience in areas they don't normally dabble in. Examples are estimating, invoicing, figuring out tough problems all on their own (and being on the hook for the solutions), etc. I think it's awesome.
But I always tell them to bill hourly. I do NOT want them to make the same mistakes that I did when I got started. Working late into the night for free is never a fun feeling.
I own a design/development studio and encourage my employees to do side work if they want to, in order to get some experience in areas they don't normally dabble in. Examples are estimating, invoicing, figuring out tough problems all on their own (and being on the hook for the solutions), etc. I think it's awesome.
But I always tell them to bill hourly. I do NOT want them to make the same mistakes that I did when I got started. Working late into the night for free is never a fun feeling.
Well put. That makes perfect sense. Thank you for your input.
I don't see anyone pointing out that the impetus for this blog post was a fixed-price contract that went bad. OP's solution was to raise his rates. This is an apples and oranges discussion. Charging higher rates is not the solution to the pain of fixed-price contracts. And for all but the simplest of projects, fixed price is ill-advised.
Fantastic article. The company I work for is trying to solve this exact problem with the tool that we're building (http://getbilly.co/ - not ready yet but launching soon) - trying to get freelancers and businesses to value their time more and charge what they're worth.
I did not read this article and am only commenting on freelancing in general.
It requires a good understanding, and importantly, articulation of the problem; but flatrate for projects is the way to go. You can charge more and make the client happier. So many software projects fail; that many clients are happy to pay 50-200%+ premiums for the insurance that if you fail to deliver they won't need to pay.
It is hard/impossible to do this when you first start out; but generally speaking if you realize you are selling "peace of mind" rather than whatever it is you are doing; you will make a lot more money and have happier clients.
It requires a good understanding, and importantly, articulation of the problem; but flatrate for projects is the way to go. You can charge more and make the client happier. So many software projects fail; that many clients are happy to pay 50-200%+ premiums for the insurance that if you fail to deliver they won't need to pay.
It is hard/impossible to do this when you first start out; but generally speaking if you realize you are selling "peace of mind" rather than whatever it is you are doing; you will make a lot more money and have happier clients.
When you charge a flat rate you are assuming the risk of a project. For this, you need to charge a risk premium.
My last fixed price contract (what was I thinking?) was estimated to take 120 hours and instead it took 400. I didn't do too bad because I priced that risk into my "rate".
If you would normally charge $100 hr, you should charge an effective rate of $175 or $200 hour for a fixed price project. Risk/insurance/peace of mind is something you need to charge for. Don't give it away.
My last fixed price contract (what was I thinking?) was estimated to take 120 hours and instead it took 400. I didn't do too bad because I priced that risk into my "rate".
If you would normally charge $100 hr, you should charge an effective rate of $175 or $200 hour for a fixed price project. Risk/insurance/peace of mind is something you need to charge for. Don't give it away.
Absolutely! You charge a super fat risk premium. My whole point is that clients will pay significant insurance (easily 100% premium) on a flat rate project.
I don't talk about hours with my clients when doing flatrate work. I am able to be like "okay.. this should take me 10 hours.. so really it will take me 40 hours, this is eaily worth 3k to them.. if i make anywhere from 75-300/hr I am pretty happy" Then I simply quote 3k and tell them they owe nothing if I don't complete the project to specification. I am very tight on specification and only would do this on projects I fully understand.
Even when I have been explicit about risk premiums being 150% of the estimate; clients nearly always choose the flat rate over the hourly with estimate. If I truly believe my estimates; this is an obvious win for me.
This is also why I said you can't do it right away; estimates are notoriously hard to get right, you really have to be a veteran to make more money doing flat rate than hourly; but I stand by my conviction that if you are decent at estimating (within .2 - 3x of the estimated hours); clients are generally happy to pay you the risk premium at a rate that is much higher than the actual risk.
I don't talk about hours with my clients when doing flatrate work. I am able to be like "okay.. this should take me 10 hours.. so really it will take me 40 hours, this is eaily worth 3k to them.. if i make anywhere from 75-300/hr I am pretty happy" Then I simply quote 3k and tell them they owe nothing if I don't complete the project to specification. I am very tight on specification and only would do this on projects I fully understand.
Even when I have been explicit about risk premiums being 150% of the estimate; clients nearly always choose the flat rate over the hourly with estimate. If I truly believe my estimates; this is an obvious win for me.
This is also why I said you can't do it right away; estimates are notoriously hard to get right, you really have to be a veteran to make more money doing flat rate than hourly; but I stand by my conviction that if you are decent at estimating (within .2 - 3x of the estimated hours); clients are generally happy to pay you the risk premium at a rate that is much higher than the actual risk.
I confused "Freedom Tax" with self employment tax at first. 25% is definitely a low estimate if it includes 7.5%.
Little bit of reality for you, HN.
All due respect to patio11, who has made an excellent career for himself, but outside of the usual suspects (NYC, SF, Chicago), the kind of rates he talks about will get you laughed out of almost all client negotiations.
All due respect to patio11, who has made an excellent career for himself, but outside of the usual suspects (NYC, SF, Chicago), the kind of rates he talks about will get you laughed out of almost all client negotiations.
It's true. Patrick is able to charge those rates because he was bit by a radioactive spider, and because he famously invented the idea of hooking "Hello World" up to a random number generator and people want a little slice of that sweet sweet bingo card expertise.
I think you're being a little bit flip. As a matter of fact, he is famous for hooking up "Hello World" to a random-number generator. You're right that it's not really an extraordinary feat on its face, but he garnered a lot of recognition for it nonetheless. Most of us here don't have well-funded companies approaching us to consult for them, so I'm not sure why you're downplaying how special the results of that were for Patrick.
He's not famous. At all. We think he's great on hacker news (I've read the vast majority of his blog and listened to every episode of his podcast), but in the _real world_ nobody actually knows who he is. According to him, most of his consulting gigs have been word of mouth. If he can do it, so can we :)
You're saying the same thing I said using different phrasing — "word of mouth" is fame. Those gigs came because people did know who he was. It's true that there are people who are more talked-about (i.e. famous) than Patrick, but it's also true that most of us are much less so.
I don't like to be negative, but I just don't think Patrick's experience is reproducible without substantial amounts of luck. I have a friend who's constantly talking about lottery winners and telling me, "Look, they did it, so why can't you?" I feel the same kind of frustration on this topic.
I don't like to be negative, but I just don't think Patrick's experience is reproducible without substantial amounts of luck. I have a friend who's constantly talking about lottery winners and telling me, "Look, they did it, so why can't you?" I feel the same kind of frustration on this topic.
There are four people in this thread that I can think of off the top of my head --- me, Patrick, Ali, and Brennan --- that have used these strategies successfully. Are we just all famous?
OK, I guess I didn't explain what I meant clearly. I've never heard Patrick talk about any particular strategy that gave him his start. You would know better since you know Patrick personally, but from the accounts he's written, it sounds like he basically had clients come to him thanks to his reputation.
Like, let me put it this way: If I were to create an exact clone of Bingo Card Creator the way it looked and behaved a few years back, do you think Joel Spolsky would come knocking at my digital door? I really, really don't think so. You were laughing at the idea that his "Hello World attached to an RNG" is hard to reproduce, but nobody ever thought that was the difficult part — it's the fame that followed from it that gave Patrick a base of good clients, and that seems to be harder to replicate or replace. At least that is my impression.
(Just to be clear, I don't mean any of this to disparage anyone. It's just like I said earlier — this kind of "it's so easy" talk bothers me in the same way as lottery ads.)
Like, let me put it this way: If I were to create an exact clone of Bingo Card Creator the way it looked and behaved a few years back, do you think Joel Spolsky would come knocking at my digital door? I really, really don't think so. You were laughing at the idea that his "Hello World attached to an RNG" is hard to reproduce, but nobody ever thought that was the difficult part — it's the fame that followed from it that gave Patrick a base of good clients, and that seems to be harder to replicate or replace. At least that is my impression.
(Just to be clear, I don't mean any of this to disparage anyone. It's just like I said earlier — this kind of "it's so easy" talk bothers me in the same way as lottery ads.)
Well you were mentioned in ZF0 and GoD so maybe in some circles? :P
How's this for reality: I know a consulting business that goes into nursing homes -- often rural nursing homes -- and charges them $3000 a day. That's hardly a high-margin industry, and yet it works, and the customers are happy because they capture even more than that.
Businesses everywhere deal with money flows that are really big by individual-person standards. It's not just a question of being in outlier cities.
Businesses everywhere deal with money flows that are really big by individual-person standards. It's not just a question of being in outlier cities.
I definitely don't charge what he does. But if you ever want to get closer, you've gotta take the steps. Setting a baseline that was logical was the first step for me.
I don't think anyone here is talking about the kind of rates he talks about ($30k/week is what he's mentioned in the past)... There is a huge gap between that and the undervalued rates many freelancers charge.
I read these articles and get excited at the prospect of earning this much money but eventually I pull myself back to earth knowing that I've never met anyone that actually charges these rates (UK).
I know a Wordpress customizer who does very well at 125/hr in Orlando. He's booked solid 3-4 days per week
over age 53 - thought experiment.
How much would you charge yourself to WORK on your own brain
as a Brain Surgeon?
Or comedian star Chris Rock is just another black high school dropout or CHARGES what talent is worth?
YOUR CUSTOMER is monitoring your Facebook for signs of depression indicated by drinking too much. Of course your customer is 'paranoid' as your hobby and what you would really do if you were RICH is to RUN A VINEYARD and bottle champaign.
Most including perhaps ME are clueless as to what the CUSTOMER IS WILLING TO PAY. Think of it this way. THE CEO signs on with 'golden parachutes' and stock options. GE is still paying plenty for 'club frees' for former CE 'Neutron Jack Welch.'
the average tenure of a CEO is less than 3 years, yet some consultants LONGEVITY is 14 years and OLDER THAN the Unix systems of 'the BIG CORP.'
It's a simple question of CASH FLOW - most WAGES SLAVES are bound to the paycheck going to the rent.
THE VALUATION IS YOUR GENIUS and the MAJOR PROBLEM CHALLENGE is that 'the boss', even BIG CORP, even HQ and even 'the system' does not value your genius.
the CONTROVERSIAL SOLUTION used to great effects are the buliding contractors. They have even 'destroyed' the professional engineering consultant industry.
This is called design-build-all stops in one shopping.
So, BIG CORP. you do NOT pay me for my 'time.' because your employees are too afraid to tell you the truth, you need to hire FREE AGENTS. always offer more for BIGGER PAY.
Controversial point number two. Even Contractors and the big water tunnel by Chicago - can go 'bankrupt' and WALK AWAY FROM THE PROJECT.
Everyone except the FREE AGENT knows that SO SUE THE SMALL GUY, but too bad your company burns. This is NOT to say that you are an Oracle like Big corp that cannot easily be replaced. oh... have a good lawyer.
It has nothing to do with lousy reputation customers; bad environment; DEPRESSED and unhappy customer base and employees, etc. Heeeck. i was happy working for big corp
UNTIL I WAS FORCED TO LOOK for FREE AGENT FREEDOM as I was learning little. No, stuuupad! the company paid for your MBA degree but that will not get you a contract.
companies that are PROFITABLE are stingy. companies that are LOSING MONEY are desperate not to go bankrupt.
At least for me it is NOT the amount or the monies but THE TERMS. how EASY is it to extend the contract flexibly. YES, I expect to do work for your competitors.
SURE I LOVE TEACHING, demonsrating, but I am not going to raise the GENIUS LEVEL at your company. Too bad you are stuck with the dumbbbb geniuses there.
THE TRENDS - see economics are VERY CLEAR. Labor rates are DECREASING.
U get early cataracts from being on the beach sun at AGE 47 and too bad your CONSULTING CONTRACTS with plenty of plane time are GONE.
The rent is cheap at the run down apartments - walk up in New York City, but AS SOON AS MARKET DEMAND - area gentrifies, PRICES SKYROCKET. leases are less than a year and can be brocken by the LANDLORD or the 'BIG POWER.'
The reason you charge more is for the 'rainy days'
Or comedian star Chris Rock is just another black high school dropout or CHARGES what talent is worth?
YOUR CUSTOMER is monitoring your Facebook for signs of depression indicated by drinking too much. Of course your customer is 'paranoid' as your hobby and what you would really do if you were RICH is to RUN A VINEYARD and bottle champaign.
Most including perhaps ME are clueless as to what the CUSTOMER IS WILLING TO PAY. Think of it this way. THE CEO signs on with 'golden parachutes' and stock options. GE is still paying plenty for 'club frees' for former CE 'Neutron Jack Welch.'
the average tenure of a CEO is less than 3 years, yet some consultants LONGEVITY is 14 years and OLDER THAN the Unix systems of 'the BIG CORP.'
It's a simple question of CASH FLOW - most WAGES SLAVES are bound to the paycheck going to the rent.
THE VALUATION IS YOUR GENIUS and the MAJOR PROBLEM CHALLENGE is that 'the boss', even BIG CORP, even HQ and even 'the system' does not value your genius.
the CONTROVERSIAL SOLUTION used to great effects are the buliding contractors. They have even 'destroyed' the professional engineering consultant industry.
This is called design-build-all stops in one shopping.
So, BIG CORP. you do NOT pay me for my 'time.' because your employees are too afraid to tell you the truth, you need to hire FREE AGENTS. always offer more for BIGGER PAY.
Controversial point number two. Even Contractors and the big water tunnel by Chicago - can go 'bankrupt' and WALK AWAY FROM THE PROJECT.
Everyone except the FREE AGENT knows that SO SUE THE SMALL GUY, but too bad your company burns. This is NOT to say that you are an Oracle like Big corp that cannot easily be replaced. oh... have a good lawyer.
It has nothing to do with lousy reputation customers; bad environment; DEPRESSED and unhappy customer base and employees, etc. Heeeck. i was happy working for big corp
UNTIL I WAS FORCED TO LOOK for FREE AGENT FREEDOM as I was learning little. No, stuuupad! the company paid for your MBA degree but that will not get you a contract.
companies that are PROFITABLE are stingy. companies that are LOSING MONEY are desperate not to go bankrupt.
At least for me it is NOT the amount or the monies but THE TERMS. how EASY is it to extend the contract flexibly. YES, I expect to do work for your competitors.
SURE I LOVE TEACHING, demonsrating, but I am not going to raise the GENIUS LEVEL at your company. Too bad you are stuck with the dumbbbb geniuses there.
THE TRENDS - see economics are VERY CLEAR. Labor rates are DECREASING.
U get early cataracts from being on the beach sun at AGE 47 and too bad your CONSULTING CONTRACTS with plenty of plane time are GONE.
The rent is cheap at the run down apartments - walk up in New York City, but AS SOON AS MARKET DEMAND - area gentrifies, PRICES SKYROCKET. leases are less than a year and can be brocken by the LANDLORD or the 'BIG POWER.'
The reason you charge more is for the 'rainy days'
However, I think the big takeaway is realizing that the formula presented establishes a minimum threshold. It shouldn't be used to figure out what you charge. My rates are way north of what the a developer/marketer would command on the open market, but I don't contextualize my costs against the equivalent costs of an employee; instead, I anchor my costs against the upside that a successful delivery of a project would yield for my client.
The single best way to substantially make more money consulting is to stop selling commodity services (web design, Ruby programming, whatever), and to truly consult. Provide your clients with a way to bridge the problem they face with the solution they desire, and charge accordingly.