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I wrote a similar post [1] in which I suggest charging at least 4x the rate you'd charge working full-time at a company. So, if you normally make $60/hr workin

I wrote a similar post [1] in which I suggest charging at least 4x the rate you'd charge working full-time at a company. So, if you normally make $60/hr working full-time (converts to $120k/year), then as a freelancer I'd suggest charging at least $240/hr if you plan on having anywhere near a similar lifestyle. This is because 50% of your working time goes towards marketing, self-promotion, and other things clients don't pay you for. And 50% of your revenue goes towards taxes, office space, and buying products and services to support your business. It's a rough calculation, but I think it explains why a lot of freelancers massively undercharge when first starting out. 4x your normal rate just seems so high until you think of the real costs. [1] https://blog.artisfy.com/2017/04/13/charge-at-least-this-much-to-make-your-freelance-business-sustainable/ https://blog.artisfy.com/2017/04/13/charge-at-least-this-muc...

ghaff 9y ago
Plus you’re not being paid for time off or sick time and you’ll also just have downtime; you can fill that with other necessary activities to some degree but probably not completely.
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ebendogan 9y ago
At the beginning of my contracting career I neglected to think about all the time I'd spend on non-coding tasks. It wasn't insignificant. I also found that the 4x full-time hourly wage is about right. A few other things I learned: Almost never take a fixed bid contract. They're pretty much always a net negative. Give clients discounts for paying early. Everyone loves a discount. Never discount your hourly rate though, because once you do that once for a client they'll never stop arguing with you about it. There's a line on Schedule C for recording discounts. If you turn over raw source code to a client, stress (in written, contractual form) that if any other contractor/employee changes the code, then you will charge them a premium rate for any changes or fixes.
- kod 9y ago
  The flip side of never taking a fixed bid contract is when it turns out someone really just didn't RTFM, and it takes you 15 minutes of real work to fix their problem. Thousands of dollars of benefit to them... and one billable hour to you.
  - TaylorGood 9y ago
    Exactly. The most recent work I shipped was on a fixed-rate retainer. I based it on the value and not time. Internally, I knew how many hours it would take and was pleased with the ROI.
- kfcm 9y ago
  I only do fixed bid projects (plus expenses). In my experience, clients want to know up front what they'll be paying (or a very tight range, with expenses). Hourly, they get nervous they'll end up with The Never-ending Project, it's impact on their budget, and start haggling over hourly rate vs project value.
- ryanwaggoner 9y ago
  Almost never take a fixed bid contract. They're pretty much always a net negative. This is not the best approach, honestly. No one would pay me the effective hourly rates that I make off fixed rate projects, and everyone is happy. Clients almost always prefer to know what they’re going to pay upfront. Additionally, hourly seems simpler and low risk, but it’s all downside for you. If you’re way more efficient, you get penalized. But if it takes longer than your estimate, clients get pissed. At extremes, they may just refuse to pay. Tell a client your estimate is $10k and then try to bill $30k, tell me what happens :) Just like value-based pricing, flat rate takes a bit more skill to learn, but it’s dramatically more profitable in the long run.
  - kazinator 9y ago
    I did some fixed software dev contracts many years ago (1994-1995 time frame). I cobbed the agreements together myself and put in late penalties; as in, I get paid less for being late, with an increasing scale by the day. In some industries, you cannot avoid flat pricing. E.g. bidding on any sort of construction or renovation project. You may have workers under you who work by the hour, but that's your problem.
JamesBarney 9y ago
240/hr is a lot of money, especially outside of the valley. That's not a custom dev rate, that's a you have a track record of doing something very niche and valuable and usually domain specific. I.e. you have a portfolio or set of recommendations that you delivered successful financial plug-ins for oil and gas ERP systems.
- TomMarius 9y ago
  Well he did base the calculation on a SV yearly salary. For other areas it will be based on a normal salary for that area.
  - JamesBarney 9y ago
    I'm in the Houston area, and its easy to make 75-90/hr as a dev. But very hard to charge 300-360/hr as a consultant.
    - neltnerb 9y ago
      IEEE consultant surveys indicated ~$150/hr for a well trained consultant in software is median last time I checked. But what you get depends on how you get your business and what your approach is to selling your services. I think I'd find it impossible to charge more than $200/hr for embedded firmware (Boston), but could probably get $400/hr for systems engineering or industrial design to develop an integrated complex solution to a business problem that they don't have the in-house expertise to deal with.
    - mason55 9y ago
      I think a lot depends on who your clients are and what your business is. If you're talking about a real professional services engagement (Accenture, Oracle Consulting, whatever) then $300+/hour for an architect-level resource is pretty standard. Hell, junior business analysts get charged out at $175/hour. As a one-person shop the value you can bring is probably lower because you don't have the synergies of a team and you will have to spend some of your time doing junior BA-type work. You can't charge yourself out at the full rate of an architect-level resource because you're not spending all your time doing architect-level work. However as a one-person shop your overhead should be lower (e.g. no HR people or other cost centers to support with your billings). $75/hour seems awful low as a 1099/consultant, so it's no wonder businesses are happy to pay that.
jcadam 9y ago
I don't know. I dabbled with freelancing on the side a few years ago and never did land a gig. The potential clients I managed to get on the phone didn't want to pay more than $30/hour or so (I started off asking for $60). I decided freelancing wasn't a real thing for US-based software developers and dropped the idea.
- bpicolo 9y ago
  As I understand it, one easy rate-factor is having a focused and desirable skillset. Become an expert at something specific and seeing widespread adoption/need - kubernetes, cloud security, whatever - and you can command a lot more. Web design / simple apps are a lowest-bidder sort of deal.
- xapata 9y ago
  Depends on the stage of your career. I charge $200 to $400 hourly, depending on the duration of the project.
  - jcadam 9y ago
    Sure, somehow I'm worth ~$140k/yr (plus benefits, etc) to my current employer as a FTE (who bills me out at a much higher rate to our customers, I'm sure), but I'm in govt contracting - it's a different world. How to find private sector clients willing to pay good rates? I have no idea.
    - xapata 9y ago
      It's sometimes possible for a small business (like a single-member LLC) to bid on government contracts. You can try to cut out the middleman. My personal style is to avoid getting into bidding contests. I've invested years into building my personal network. That means enthusiastically following up with strangers that I meet to turn them into acquaintances and semi-friends. It's exhausting, but has paid off. For example, sometimes I get a call out of the blue from someone I haven't spoken to in 3 years asking me to help with a project. Don't expect people to sign contracts right away. Give them time. Years, perhaps. Just put the word out there that you're skilled and available for work. Edit: Also, you need a specialty that allows you to accomplish something useful in a few months by yourself.
acranox 9y ago
I learned this guideline from a slightly different approach. I worked in a computer repair shop for a while. The boss charged the customer $75/hr. I got paid $10/hr. Later I was an auto mechanic. Shop rate was $80/hr. When I left, i was getting paid $16/hr. So basically I learned that if I was working for myself, I could charge 5x the rate I was being paid, and customers won't think it's unusually high.
- scarface74 9y ago
  It doesn't work like that. The hourly rate they are charging for your time also goes to support overhead and employees who aren't directly billable.
  - TehCorwiz 9y ago
    Indeed a portion of revenue does cover all operating costs, fixed or otherwise. However in a large org those costs are also distributed across all of the profit generating employees. The comparative overhead on a single employee among thousands is small compared to a sole proprietor's burden. Economies of scale kick in above a certain point as bulk purchases from supplies and larger employee pools for things like insurance increase your bargaining power when negotiating those contracts. The same is not true of an individual. But the conceit of that argument is that it's not zero sum, those prices also include a healthy profit margin. And I'd wager the profit margin is higher on a large company than for a sole consultant.
    - scarface74 9y ago
      I'm on the opposite side now. I don't work for a software development company. The people who make us money have to support software development. The development department is considered a cost center. That doesn't mean that I should pay them. For the most part, what you make isn't derived from how much revenue you make your company. It's derived from what the market will bare. Even if you are independent, people who are hiring you are going to try to find the largest spread between what they have to pay for development and the profit they can make based on the development. On the other hand, what are the real cost of being an independent developer? Health insurance, a computer (that we would probably have anyway) and any development tools. We can usually get away with Fred development software.
dboreham 9y ago
Another rule of thumb is : take the salary you'd get for whatever level of work is required (e.g. $150K) and divide by 1000. That produces the hourly rate you should charge (e.g. $150). I agree that failure to understand costs is a common cause for undercharging. Same thing with other fields though : construction, remodeling etc.
- AnimalMuppet 9y ago
  A standard working year is 2000 hours (40 hour weeks, 50 weeks a year, 2 weeks for vacation - the pathetic US usual). So dividing by 1000 means double your salary's hourly rate. That is, this amounts to 2x rather than the parent's 4x.
  - dboreham 9y ago
    True. It's only a rule of thumb. I guess I'd aim for 3X if I could. 4X seems quite high --- perhaps justified in the context of some business relationships (e.g. client gets to invoke you on short notice, preempting other clients' work).
- tapvt 9y ago
  This is the rule I've been using of late. Perhaps I'm charging too little (as the parent comment suggests), but I'm comfortable with it. When I must travel for on-site consultation, I soften the blow of travel time by charging the client 50% of my lowest hourly rate for that time.
  - dboreham 9y ago
    Travel time seems to get folks worked up so I have never charged for it. However, I generally spend the time on a flight reviewing client documents and so on: billable activity. For some reason I don't like the idea of charging different rates for different kinds of time but I suppose my approach works out roughly the same as yours in the end. The only instance where I tried to charge for travel time was an engagement where I had to travel to Atlanta to do a very small amount of work for a very big law firm. Since it was going to take me a day to get there and a day to return, to do at best one day's work, I said I needed to charge for my travel time. They informed me that lawyers NEVER charge for travel time (assertion mostly disputed by my lawyer friends, but...whatever) and so they couldn't bill my travel time back to their clients. They said however that they could consider a higher rate for my billed time. This discussion went on for a while with the end result I billed them at something like 3X my regular rate but no travel time. They thought this was just fine. Together we beat a patent troll so I probably would have done the work for free ;)
codingdave 9y ago
> And 50% of your revenue goes towards taxes, office space, and buying products and services to support your business. Where in the world is your office??? As a freelancer, I always worked from home. Sure, you have taxes to pay, and some supplies. But as a coding freelancer, I cannot imagine spending much on an office at all.
- ivanhoe 9y ago
  What about the bills for electricity, heating, internet, phone, drinks & meals, and the fact that you're using your own furniture, your own computer, printer, etc. ?! You need to amortize all those costs if you want to know the real cost of working from home.
  - mehrdadn 9y ago
    > What about the bills for electricity, heating, internet, phone, drinks & meals, and the fact that you're using your own furniture, your own computer, printer, etc. ?! You need to amortize all those costs if you want to know the real cost of working from home. Do you get to skip on meals and furniture if you don't freelance though?
    - ivanhoe 9y ago
      On many dev jobs you get one meal and free coffee/drinks provided, and furniture gets less worn out if you spend half a day out of the house - also you probably don't need to invest in good (and expensive) office chair, perhaps you don't need any office furniture at all (desk, lamp, bookcases, whatnot). It's a lot of small things that can amount to a lot when summed up...
      - ryanwaggoner 9y ago
        If you’re freelancing full-time as a software dev, a meal and coffee and a nice desk and chair and computer every few years is a rounding error. You’re talking about $1-2k per year for someone earning 100x - 300x that.
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ryanmarsh 9y ago
I've seen a few comments like "that's a lot of money" etc... I made ~$400k last year. I'm a consultant and I don't have a college education, any meaningful certifications or pedigrees and I don't even have a website. The fact is, the money is out there. In my experience there is always a client out there willing to pay whatever you think is exorbitant, and most clients are terrible at judging which vendors are worth their rates. If you don't get sick with fear inside when you name your rate then it isn't high enough. Keep asking for more money and I promise you will make more. It isn't unfair dealing if your client is happy to pay it, instead it's foolish if your client would have happily paid more and you didn't find out. From an economics perspective it's an impure market. Nobody knows what the price should be for your services, including you. What makes you think the client is any better a judge of value than you?
- Toast_25 9y ago
  Do you work in a niche? How do you get the word out that you're good/looking for work?
  - ryanmarsh 9y ago
    I do. People come looking for me, usually through recruiters or firms specializing in what I do. You absolutely have to specialize if you want to charge higher rates, if you’re not in a niche then what are you? A commodity.
- sjclemmy 9y ago
  > If you don't get sick with fear inside when you name your rate then it isn't high enough Absolutely spot on. I sat in a meeting with a client and another consultant who named a price for some work. The client’s immediate response was “when can you start?”. My immediate thought was “You could get twice that”. When it came around to my turn to name a price I went in high, and spent the next half hour arguing my value. So I would put it another way; if the client doesn’t balk at your rate and try and negotiate it down, it’s too low.
scarface74 9y ago
I usually end up doing W2 contracting when I'm contracting and I have a network of good recruiters. W2 contracting means they take care of employment taxes. I am officially working for them. Recruiters mean that jobs usually just fall in my lap without any major marketing. I get insurance through my wife. This makes my calculation much simpler. 2080 total weekday hours -80 hours paid holidays -120 hours paid vacation -120 hours gap in employment. Desired market based salary * 1.04 (usual 401K match) is the minimum I'll accept. There is a premium for doing work based on technology I already know well and have experience with vs. using technology I want to learn. There is also a premium for commute distance, and if it's something I know but really want to avoid (project management, anything dealing with stored procedures, out dated technology, C/C++).
ryanwaggoner 9y ago
This is because 50% of your working time goes towards marketing, self-promotion, and other things clients don't pay you for. And 50% of your revenue goes towards taxes, office space, and buying products and services to support your business. I'm hugely in favor of charging more as a freelancer or consultant, but this isn't accurate. In general, software devs have very low overhead, don't spend half their productive time on marketing and promotion (perhaps they should), and the additional taxes you pay when self-employed in the US are either small (other half of SE tax, max ~8% but usually lower for high-income) or negative (you can write off a lot more). The reason to charge more is because you're delivering more value, not because you need more money. Clients don't give a shit what you need to make. Charge them based on the value you produce, whether that's 2x or 10x what they'd pay an employee.
- mtberatwork 9y ago
  Well, there's more than just self-employment tax that you are paying as a freelancer. There's also state and local taxes to consider. Depending on where you reside, your county may collect taxes on gross receipts or collect property taxes on office furniture/equipment. Furthermore, you will really want to have some form of business insurance (like errors and omissions) on hand as well as your own health insurance and retirement fund. All of this will come out of your pocket and needs to be considered when determining an hourly rate to charge.
  - ryanwaggoner 9y ago
    Taxes like that are exceedingly rare and minimal where they exist. Property taxes on office furniture?
    - mattwinslow 9y ago
      Weirdly enough, I'm 95% sure that's a thing in New Orleans. Two of my coworkers are based there and it's come up in the past...iirc when they were purchasing monitors for the office.
    - acdha 9y ago
cylinder 9y ago
You can't just expect to use this conversion and always be able to make it work. Company you worked for might have proprietary tech, patents/IP, massive clients you'll never be able to get, etc and thus can pay you more. If I work for Google as a search engineer making $200k it doesn't mean I can leave and then suddenly earn $800k selling search consultancy services to DuckDuckGo and AskJeeves. If I'm an accountant at Deloitte making $120k auditing Fortune 10 companies it doesn't mean I can leave and make $480k revenue auditing sandwich shops and I probably won't be able to take any of my previous clients.
Mandatum 9y ago
In my experience this is false and also depends on the market and your specialty. (Sorry, I don't have data - but it is my experience when looking at freelance roles in the US or when talking to my North American counterparts.) For example in the United States, employees in many states have much less security than those in countries like Australia. My experience is that freelancers can charge 1.2x to 1.5x the hourly rate of their full-time employee counterparts. In places like Australia, where employees have a lot of security and there's no such thing as "at will" employment, freelancers are able to charge 2x minimum the hourly rate compared to their full-time employee counterparts. This is because employees get a lot of benefits, like 4 weeks of leave, premium health insurance, sick leave, up to 6 weeks notice for dismissal and redundancy payouts etc. I'm in a high-demand, high-value technical role and able to go above those multipliers here in Australia - but on average, say for a middle-tier generalist Java developer, 2x is very common. The only way I find you're able to charge 4x or more your hourly rate, is if you do public speaking, write books, author a blog and participate as a (dear I say it), "thought-leader" within your local tech community. At that point your title becomes consultant and you generally only cater to clients who are hopelessly clueless in your area and want the best advice, or those with a large bank-roll to "get shit done, properly, fast".
seattle_spring 9y ago
So if I have been making $300+k as a FE engineer at a big co, I should be charging $1200 / hr as a contractor?
mirimir 9y ago
I'm not sure about 4x, but 3x is certainly reasonable. Or at least, I've worked for consulting firms that billed clients about 3x what they paid me. Some of the difference is social security, health insurance, management, and other overhead. But much of it is profit. However, starting out as a consultant, it's unrealistic to expect that much. Unless you're already a star employee. But it is possible to get there, within a few years, if you're successful, and build a good reputation. I started out billing my first clients at about 2x what I'd earned as salary. Once I started getting inquiries from new clients, I negotiated for more. I negotiated the hardest when I had lots of work from old clients. What I billed new clients became my standard rate, going forward. Every year or so, I renegotiated rates with old ones, more aggressively when I had more work from new clients. But they always got a discount off my standard rate.
mvindahl 9y ago
I work as a freelancer on six month contracts, embedded into regular development teams at customer sites. Before that I have held regular SW developer positions. A bureau helps me out finding contracts so I spend very little time on self promotion. Also, I don't spend more money on equipment than I would otherwise have done (although, with tax deductions and all, I buy nicer equipment these days). Income tax is unavoidable either way. I'm charging market rate, which is about 1.5x to 2x what I would get in a regular job with the same amount of vacation and sick days. On top of that, the bureau takes a cut, the details of which I don't know (I invoice them, and they invoice the customer). On the negative side, being a freelancer is less secure and I may lose income between contracts. This hasn't happened to me yet, and in the current job market, it doesn't feel like an overhanging risk. I think the pay compensates. Disclaimer: Danish job market, YMMV

ghaff 9y ago

Plus you’re not being paid for time off or sick time and you’ll also just have downtime; you can fill that with other necessary activities to some degree but probably not completely.

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ebendogan 9y ago

At the beginning of my contracting career I neglected to think about all the time I'd spend on non-coding tasks. It wasn't insignificant. I also found that the 4x full-time hourly wage is about right. A few other things I learned: Almost never take a fixed bid contract. They're pretty much always a net negative. Give clients discounts for paying early. Everyone loves a discount. Never discount your hourly rate though, because once you do that once for a client they'll never stop arguing with you about it. There's a line on Schedule C for recording discounts. If you turn over raw source code to a client, stress (in written, contractual form) that if any other contractor/employee changes the code, then you will charge them a premium rate for any changes or fixes.

kod 9y ago
The flip side of never taking a fixed bid contract is when it turns out someone really just didn't RTFM, and it takes you 15 minutes of real work to fix their problem. Thousands of dollars of benefit to them... and one billable hour to you.
- TaylorGood 9y ago
  Exactly. The most recent work I shipped was on a fixed-rate retainer. I based it on the value and not time. Internally, I knew how many hours it would take and was pleased with the ROI.
kfcm 9y ago
I only do fixed bid projects (plus expenses). In my experience, clients want to know up front what they'll be paying (or a very tight range, with expenses). Hourly, they get nervous they'll end up with The Never-ending Project, it's impact on their budget, and start haggling over hourly rate vs project value.
ryanwaggoner 9y ago
Almost never take a fixed bid contract. They're pretty much always a net negative. This is not the best approach, honestly. No one would pay me the effective hourly rates that I make off fixed rate projects, and everyone is happy. Clients almost always prefer to know what they’re going to pay upfront. Additionally, hourly seems simpler and low risk, but it’s all downside for you. If you’re way more efficient, you get penalized. But if it takes longer than your estimate, clients get pissed. At extremes, they may just refuse to pay. Tell a client your estimate is $10k and then try to bill $30k, tell me what happens :) Just like value-based pricing, flat rate takes a bit more skill to learn, but it’s dramatically more profitable in the long run.
- kazinator 9y ago
  I did some fixed software dev contracts many years ago (1994-1995 time frame). I cobbed the agreements together myself and put in late penalties; as in, I get paid less for being late, with an increasing scale by the day. In some industries, you cannot avoid flat pricing. E.g. bidding on any sort of construction or renovation project. You may have workers under you who work by the hour, but that's your problem.

JamesBarney 9y ago

240/hr is a lot of money, especially outside of the valley. That's not a custom dev rate, that's a you have a track record of doing something very niche and valuable and usually domain specific. I.e. you have a portfolio or set of recommendations that you delivered successful financial plug-ins for oil and gas ERP systems.

TomMarius 9y ago
Well he did base the calculation on a SV yearly salary. For other areas it will be based on a normal salary for that area.
- JamesBarney 9y ago
  I'm in the Houston area, and its easy to make 75-90/hr as a dev. But very hard to charge 300-360/hr as a consultant.
  - neltnerb 9y ago
    IEEE consultant surveys indicated ~$150/hr for a well trained consultant in software is median last time I checked. But what you get depends on how you get your business and what your approach is to selling your services. I think I'd find it impossible to charge more than $200/hr for embedded firmware (Boston), but could probably get $400/hr for systems engineering or industrial design to develop an integrated complex solution to a business problem that they don't have the in-house expertise to deal with.
  - mason55 9y ago
    I think a lot depends on who your clients are and what your business is. If you're talking about a real professional services engagement (Accenture, Oracle Consulting, whatever) then $300+/hour for an architect-level resource is pretty standard. Hell, junior business analysts get charged out at $175/hour. As a one-person shop the value you can bring is probably lower because you don't have the synergies of a team and you will have to spend some of your time doing junior BA-type work. You can't charge yourself out at the full rate of an architect-level resource because you're not spending all your time doing architect-level work. However as a one-person shop your overhead should be lower (e.g. no HR people or other cost centers to support with your billings). $75/hour seems awful low as a 1099/consultant, so it's no wonder businesses are happy to pay that.

jcadam 9y ago

I don't know. I dabbled with freelancing on the side a few years ago and never did land a gig. The potential clients I managed to get on the phone didn't want to pay more than $30/hour or so (I started off asking for $60). I decided freelancing wasn't a real thing for US-based software developers and dropped the idea.

bpicolo 9y ago
As I understand it, one easy rate-factor is having a focused and desirable skillset. Become an expert at something specific and seeing widespread adoption/need - kubernetes, cloud security, whatever - and you can command a lot more. Web design / simple apps are a lowest-bidder sort of deal.
xapata 9y ago
Depends on the stage of your career. I charge $200 to $400 hourly, depending on the duration of the project.
- jcadam 9y ago
  Sure, somehow I'm worth ~$140k/yr (plus benefits, etc) to my current employer as a FTE (who bills me out at a much higher rate to our customers, I'm sure), but I'm in govt contracting - it's a different world. How to find private sector clients willing to pay good rates? I have no idea.
  - xapata 9y ago
    It's sometimes possible for a small business (like a single-member LLC) to bid on government contracts. You can try to cut out the middleman. My personal style is to avoid getting into bidding contests. I've invested years into building my personal network. That means enthusiastically following up with strangers that I meet to turn them into acquaintances and semi-friends. It's exhausting, but has paid off. For example, sometimes I get a call out of the blue from someone I haven't spoken to in 3 years asking me to help with a project. Don't expect people to sign contracts right away. Give them time. Years, perhaps. Just put the word out there that you're skilled and available for work. Edit: Also, you need a specialty that allows you to accomplish something useful in a few months by yourself.

acranox 9y ago

I learned this guideline from a slightly different approach. I worked in a computer repair shop for a while. The boss charged the customer $75/hr. I got paid $10/hr. Later I was an auto mechanic. Shop rate was $80/hr. When I left, i was getting paid $16/hr. So basically I learned that if I was working for myself, I could charge 5x the rate I was being paid, and customers won't think it's unusually high.

scarface74 9y ago
It doesn't work like that. The hourly rate they are charging for your time also goes to support overhead and employees who aren't directly billable.
- TehCorwiz 9y ago
  Indeed a portion of revenue does cover all operating costs, fixed or otherwise. However in a large org those costs are also distributed across all of the profit generating employees. The comparative overhead on a single employee among thousands is small compared to a sole proprietor's burden. Economies of scale kick in above a certain point as bulk purchases from supplies and larger employee pools for things like insurance increase your bargaining power when negotiating those contracts. The same is not true of an individual. But the conceit of that argument is that it's not zero sum, those prices also include a healthy profit margin. And I'd wager the profit margin is higher on a large company than for a sole consultant.
  - scarface74 9y ago
    I'm on the opposite side now. I don't work for a software development company. The people who make us money have to support software development. The development department is considered a cost center. That doesn't mean that I should pay them. For the most part, what you make isn't derived from how much revenue you make your company. It's derived from what the market will bare. Even if you are independent, people who are hiring you are going to try to find the largest spread between what they have to pay for development and the profit they can make based on the development. On the other hand, what are the real cost of being an independent developer? Health insurance, a computer (that we would probably have anyway) and any development tools. We can usually get away with Fred development software.

dboreham 9y ago

Another rule of thumb is : take the salary you'd get for whatever level of work is required (e.g. $150K) and divide by 1000. That produces the hourly rate you should charge (e.g. $150). I agree that failure to understand costs is a common cause for undercharging. Same thing with other fields though : construction, remodeling etc.

AnimalMuppet 9y ago
A standard working year is 2000 hours (40 hour weeks, 50 weeks a year, 2 weeks for vacation - the pathetic US usual). So dividing by 1000 means double your salary's hourly rate. That is, this amounts to 2x rather than the parent's 4x.
- dboreham 9y ago
  True. It's only a rule of thumb. I guess I'd aim for 3X if I could. 4X seems quite high --- perhaps justified in the context of some business relationships (e.g. client gets to invoke you on short notice, preempting other clients' work).
tapvt 9y ago
This is the rule I've been using of late. Perhaps I'm charging too little (as the parent comment suggests), but I'm comfortable with it. When I must travel for on-site consultation, I soften the blow of travel time by charging the client 50% of my lowest hourly rate for that time.
- dboreham 9y ago
  Travel time seems to get folks worked up so I have never charged for it. However, I generally spend the time on a flight reviewing client documents and so on: billable activity. For some reason I don't like the idea of charging different rates for different kinds of time but I suppose my approach works out roughly the same as yours in the end. The only instance where I tried to charge for travel time was an engagement where I had to travel to Atlanta to do a very small amount of work for a very big law firm. Since it was going to take me a day to get there and a day to return, to do at best one day's work, I said I needed to charge for my travel time. They informed me that lawyers NEVER charge for travel time (assertion mostly disputed by my lawyer friends, but...whatever) and so they couldn't bill my travel time back to their clients. They said however that they could consider a higher rate for my billed time. This discussion went on for a while with the end result I billed them at something like 3X my regular rate but no travel time. They thought this was just fine. Together we beat a patent troll so I probably would have done the work for free ;)

codingdave 9y ago

> And 50% of your revenue goes towards taxes, office space, and buying products and services to support your business. Where in the world is your office??? As a freelancer, I always worked from home. Sure, you have taxes to pay, and some supplies. But as a coding freelancer, I cannot imagine spending much on an office at all.

ivanhoe 9y ago
What about the bills for electricity, heating, internet, phone, drinks & meals, and the fact that you're using your own furniture, your own computer, printer, etc. ?! You need to amortize all those costs if you want to know the real cost of working from home.
- mehrdadn 9y ago
  > What about the bills for electricity, heating, internet, phone, drinks & meals, and the fact that you're using your own furniture, your own computer, printer, etc. ?! You need to amortize all those costs if you want to know the real cost of working from home. Do you get to skip on meals and furniture if you don't freelance though?
  - ivanhoe 9y ago
    On many dev jobs you get one meal and free coffee/drinks provided, and furniture gets less worn out if you spend half a day out of the house - also you probably don't need to invest in good (and expensive) office chair, perhaps you don't need any office furniture at all (desk, lamp, bookcases, whatnot). It's a lot of small things that can amount to a lot when summed up...
    - ryanwaggoner 9y ago
      If you’re freelancing full-time as a software dev, a meal and coffee and a nice desk and chair and computer every few years is a rounding error. You’re talking about $1-2k per year for someone earning 100x - 300x that.

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ryanmarsh 9y ago

I've seen a few comments like "that's a lot of money" etc... I made ~$400k last year. I'm a consultant and I don't have a college education, any meaningful certifications or pedigrees and I don't even have a website. The fact is, the money is out there. In my experience there is always a client out there willing to pay whatever you think is exorbitant, and most clients are terrible at judging which vendors are worth their rates. If you don't get sick with fear inside when you name your rate then it isn't high enough. Keep asking for more money and I promise you will make more. It isn't unfair dealing if your client is happy to pay it, instead it's foolish if your client would have happily paid more and you didn't find out. From an economics perspective it's an impure market. Nobody knows what the price should be for your services, including you. What makes you think the client is any better a judge of value than you?

Toast_25 9y ago
Do you work in a niche? How do you get the word out that you're good/looking for work?
- ryanmarsh 9y ago
  I do. People come looking for me, usually through recruiters or firms specializing in what I do. You absolutely have to specialize if you want to charge higher rates, if you’re not in a niche then what are you? A commodity.
sjclemmy 9y ago
> If you don't get sick with fear inside when you name your rate then it isn't high enough Absolutely spot on. I sat in a meeting with a client and another consultant who named a price for some work. The client’s immediate response was “when can you start?”. My immediate thought was “You could get twice that”. When it came around to my turn to name a price I went in high, and spent the next half hour arguing my value. So I would put it another way; if the client doesn’t balk at your rate and try and negotiate it down, it’s too low.

scarface74 9y ago

I usually end up doing W2 contracting when I'm contracting and I have a network of good recruiters. W2 contracting means they take care of employment taxes. I am officially working for them. Recruiters mean that jobs usually just fall in my lap without any major marketing. I get insurance through my wife. This makes my calculation much simpler. 2080 total weekday hours -80 hours paid holidays -120 hours paid vacation -120 hours gap in employment. Desired market based salary * 1.04 (usual 401K match) is the minimum I'll accept. There is a premium for doing work based on technology I already know well and have experience with vs. using technology I want to learn. There is also a premium for commute distance, and if it's something I know but really want to avoid (project management, anything dealing with stored procedures, out dated technology, C/C++).

ryanwaggoner 9y ago

This is because 50% of your working time goes towards marketing, self-promotion, and other things clients don't pay you for. And 50% of your revenue goes towards taxes, office space, and buying products and services to support your business. I'm hugely in favor of charging more as a freelancer or consultant, but this isn't accurate. In general, software devs have very low overhead, don't spend half their productive time on marketing and promotion (perhaps they should), and the additional taxes you pay when self-employed in the US are either small (other half of SE tax, max ~8% but usually lower for high-income) or negative (you can write off a lot more). The reason to charge more is because you're delivering more value, not because you need more money. Clients don't give a shit what you need to make. Charge them based on the value you produce, whether that's 2x or 10x what they'd pay an employee.

mtberatwork 9y ago
Well, there's more than just self-employment tax that you are paying as a freelancer. There's also state and local taxes to consider. Depending on where you reside, your county may collect taxes on gross receipts or collect property taxes on office furniture/equipment. Furthermore, you will really want to have some form of business insurance (like errors and omissions) on hand as well as your own health insurance and retirement fund. All of this will come out of your pocket and needs to be considered when determining an hourly rate to charge.
- ryanwaggoner 9y ago
  Taxes like that are exceedingly rare and minimal where they exist. Property taxes on office furniture?
  - mattwinslow 9y ago
    Weirdly enough, I'm 95% sure that's a thing in New Orleans. Two of my coworkers are based there and it's come up in the past...iirc when they were purchasing monitors for the office.
  - acdha 9y ago

cylinder 9y ago

You can't just expect to use this conversion and always be able to make it work. Company you worked for might have proprietary tech, patents/IP, massive clients you'll never be able to get, etc and thus can pay you more. If I work for Google as a search engineer making $200k it doesn't mean I can leave and then suddenly earn $800k selling search consultancy services to DuckDuckGo and AskJeeves. If I'm an accountant at Deloitte making $120k auditing Fortune 10 companies it doesn't mean I can leave and make $480k revenue auditing sandwich shops and I probably won't be able to take any of my previous clients.

Mandatum 9y ago

In my experience this is false and also depends on the market and your specialty. (Sorry, I don't have data - but it is my experience when looking at freelance roles in the US or when talking to my North American counterparts.) For example in the United States, employees in many states have much less security than those in countries like Australia. My experience is that freelancers can charge 1.2x to 1.5x the hourly rate of their full-time employee counterparts. In places like Australia, where employees have a lot of security and there's no such thing as "at will" employment, freelancers are able to charge 2x minimum the hourly rate compared to their full-time employee counterparts. This is because employees get a lot of benefits, like 4 weeks of leave, premium health insurance, sick leave, up to 6 weeks notice for dismissal and redundancy payouts etc. I'm in a high-demand, high-value technical role and able to go above those multipliers here in Australia - but on average, say for a middle-tier generalist Java developer, 2x is very common. The only way I find you're able to charge 4x or more your hourly rate, is if you do public speaking, write books, author a blog and participate as a (dear I say it), "thought-leader" within your local tech community. At that point your title becomes consultant and you generally only cater to clients who are hopelessly clueless in your area and want the best advice, or those with a large bank-roll to "get shit done, properly, fast".

seattle_spring 9y ago

So if I have been making $300+k as a FE engineer at a big co, I should be charging $1200 / hr as a contractor?

mirimir 9y ago

I'm not sure about 4x, but 3x is certainly reasonable. Or at least, I've worked for consulting firms that billed clients about 3x what they paid me. Some of the difference is social security, health insurance, management, and other overhead. But much of it is profit. However, starting out as a consultant, it's unrealistic to expect that much. Unless you're already a star employee. But it is possible to get there, within a few years, if you're successful, and build a good reputation. I started out billing my first clients at about 2x what I'd earned as salary. Once I started getting inquiries from new clients, I negotiated for more. I negotiated the hardest when I had lots of work from old clients. What I billed new clients became my standard rate, going forward. Every year or so, I renegotiated rates with old ones, more aggressively when I had more work from new clients. But they always got a discount off my standard rate.

mvindahl 9y ago

I work as a freelancer on six month contracts, embedded into regular development teams at customer sites. Before that I have held regular SW developer positions. A bureau helps me out finding contracts so I spend very little time on self promotion. Also, I don't spend more money on equipment than I would otherwise have done (although, with tax deductions and all, I buy nicer equipment these days). Income tax is unavoidable either way. I'm charging market rate, which is about 1.5x to 2x what I would get in a regular job with the same amount of vacation and sick days. On top of that, the bureau takes a cut, the details of which I don't know (I invoice them, and they invoice the customer). On the negative side, being a freelancer is less secure and I may lose income between contracts. This hasn't happened to me yet, and in the current job market, it doesn't feel like an overhanging risk. I think the pay compensates. Disclaimer: Danish job market, YMMV