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Why I bill hourly

229 points by cwan 16y ago

pan69 16y ago
I tend to bill on a daily basis. I will present my clients with my hourly rate and then explain to them that I bill per day instead. My daily rate is slightly slower than 8 times my hourly rate. The reason I do this is to prevent nitpicking on time sheets etc and to be accountable for every single hour of the day. The last thing I want to do is have a clock sitting next to me measuring my every single move. Some days I do some overtime (1 maybe to 2 hours max) and other days I find myself working slightly less. In the end it all works out fine. The estimates that I give my clients are based on days, not hours. If they want me to do a 4 hour job, cool, I still charge them for the entire day. Most clients are cool with that. Since most projects I do tend to have time-frames that go into weeks it's much easier that way for everyone involved.
- tome 16y ago
  Do you force yourself to work on only one customer's project on any given day?
  - pan69 16y ago
    No I don't and it depends whether I work on-site or from my own home office. To work as a contractor has both benefits and downsides, which are typically the reverse of being full-time employed. My hourly (daily) rates are based on the fact that I might not be able to fill 40 hours of work week after week. So, in a sense, my clients also sort of pay me for the time I'm not working. That's why my rates are set to a certain level, and it's also the reason contractors are more expensive than full-time employees. If I happen to be working from home and I do work for 2 clients and both jobs take me 4 hours, than in that single day I earn twice as much. However, the next two days I might not be able to bill anything. Pros and cons of contracting I guess.
    - jimbokun 16y ago
      Do you make this clear to your clients? If I was told I was being billed for "one day" of your time, I would expect that you were spending about 8 hours working on my task. To find out otherwise, I would feel that I had been lied to.
      - pan69 16y ago
        Yes. I make this perfectly clear to my clients. If they give me 4 hours worth of work I still charge them for 1 entire day. And to be quite frankly, what I do with those other 4 hours is none of their business.
- tehjones 16y ago
  I get paid by the day in my normal employment. It is fair enough on an 8 hour days, but when you fill 24 the hourly rate drops to shit.
  - pan69 16y ago
    If you let it come to that than you're doing something wrong. It either means you didn't estimate well enough or you didn't inquire about the project time-line. E.g. If you estimate a job to take 40 hours but the deadline is in 2 days then you have a problem. Getting paid for the 40 hours is not going to make you happy if you have to work 2 days around the clock. In other words: Estimating is one thing, but it also has to fit into an achievable time-line.
- jimbokun 16y ago
  A good point from the article is that estimating a single task at more than 4 hours is more or less saying "I have no idea how long this will take, actually." Do you find that when you estimate something to take "one day" your estimates are generally accurate?
quizbiz 16y ago
For those that bill hourly, do you go off of a monthly retainer and sort of use that as a budget for hours? If I am starting to outsource (not off shore, just with partners, specific tasks), I'm just struggling about how to approach that from a billing perspective. I would like to make a small margin.
- mark_l_watson 16y ago
  For active projects/customers, I bill 1 hour minimum per week. I also bill a minimum of 15 minutes a day if I do any work at all. This is fair since there is some "context switch" cost for me, even when I just answer an email or take a short call.
gte910h 16y ago
I find iterative fixed fee kinder to people hiring out their first few times. It gives them strictures on what they can do so they don't shoot themselves in the metaphorical foot. However, hourly definitely has it's place as well. I find offering both a good compromise.
thibaut_barrere 16y ago
I find that using acunote to lay down the estimate (then remaining work with burndown) and freckle to track the hours and remaining budget works nicely.
- joshfraser 16y ago
  I've done both hourly and fixed price contract work and found that fixed price works better for me. In an industry that is known for software taking 10 times longer than estimated, clients have good reason to try and protect themselves with upfront pricing. The fixed pricing forces me to become better at planning ahead and giving good estimates. The trick is to document every detail of what they get for $XX and agree that any changes to that will cost extra. Software development depends largely on inspiration. Sometimes I'll crank out a weeks worth of code in one day. Others I'll stare at a screen all day and produce very little. In the end it all averages out, but I do feel bad billing for the unproductive hours even if I know it's fair in the end.
nfriedly 16y ago
Here's a faster loading coral cache link: http://orestis.gr.nyud.net/blog/2010/11/06/why-i-bill-hourly/ http://orestis.gr.nyud.net/blog/2010/11/06/why-i-bill-hourly... (The site took > 60 seconds when I first tried to load it.)
three14 16y ago
We would love to bill hourly. We tend to work for large companies, and they need to figure out how much to budget, so we then end up saying, "this will take between 10 and 12 hours," and then being forced to swallow the costs when it takes us 14. And of course, if it takes 8, they win. If anyone has suggestions other than "just tell them it will take what it takes," we'd really appreciate hearing them. Edit: Usually, just stopping when the hours run out isn't a good choice either, because most of the projects we have won't provide a partial solution. It's all or nothing. Example: converting data between two formats. We discover a quality issue when we've run out of time, so the converted data is unusable.
- dasil003 16y ago
  In that case they are asking you take all the risk, so you need to factor that into the cost. You need detailed specs up front in order for this to be at all sane (developing the specs could be an independent project without obligations on either side). Depending on the uncertainty left in the spec, you need to have a multiplier on the expected costs. 5x, 10x, or even 50x would not be out of the question if there is sufficient uncertainty. Yes this costs the company more, but if they expect you to take on their budgetary risk, then you are providing insurance, and that is potentially worth a lot more than the actual development.
- warren_s 16y ago
  How are you "forced" to swallow costs, unless you're contractually bound to deliver in 10-12 hours? If your client wants an estimate, by all means, give them a non-binding estimate. If you find yourself over-running your estimates, then it's either your fault or the client's fault - why should you have to bear the cost in both cases?
  - three14 16y ago
    We do have a "non-binding" estimate, but they can't turn the wheels in their large organization to get payment for more than the high end of our non-binding estimate. And no one takes us seriously if we say "probably 10 to 12 hours, but this kind of work occasionally has problems that will balloon the costs to 20 hours."
kristiandupont 16y ago
For larger projects and clients, I recommend you look into agile contracts: http://www.bestbrains.dk/Blog/2009/06/03/CollaborativeAgileContracts.aspx http://www.bestbrains.dk/Blog/2009/06/03/CollaborativeAgileC...
rapind 16y ago
I agree whole-heartedly this is a great way to work if you're client is cool with it. In my experience that's a big if though. If you can always afford to walk away then this could actually work. I always give my client's the option of fixed or hourly and really emphasize the benefits of hourly. However I've only been taken up on the hourly offer a few times with recurring clients. I think it's a great thing to strive for but my advice to freelancer's starting out is not to flat out refuse fixed quote unless you can afford to. Fixed, while not quite as accurate, is still workable once you get a feel for defining requirements on smaller projects. And any larger project can be broken down, so long as you're getting paid for the spec. Whatever you do don't spend a riculous amount of time specing out a large project without being compensated. I've gotten so many RFPs that are obviously the product of spec work and I'm positive most were unpaid. In fact I guarantee there are forums dedicated to tactics and advice for getting spec work done for free.
- warren_s 16y ago
  I know it sounds trite, but if you can't afford to walk away from a project, you probably shouldn't be contracting to begin with. I say this from hard experience, the jobs I've taken against my better instincts are the ones that have bitten me badly. Another thing that's important is to know WHO you are pitching to. I charge predominantly T&M, and my ideal clients are existing dev teams that are looking for an extra pair of hands for a particular project. Matching your billing model with the kind of clients you want to work for greatly increases your chances for success.
  - rapind 16y ago
    I may not have been clear enough. When I say if you can always afford to walk away it's meant within the context of the post. Meaning that if you can always afford to walk away from clients who are only interested in fixed quotes, not just one job. Which in my experience anyways has been about 90% of the time (of actual contracts, not just leads). I can't afford to turn down 90% of my work... yet. After reading some of the other comments I've decided to stop even giving them the option of an hourly rate. Works been very steady (too busy ATM) and like I said there's been very little uptake on the hourly option anyways. I agree that it definitely makes sense to change your model to reflect the type of client.
tptacek 16y ago
Why you should never quote prices in hours: because it provides prospects with a frame of reference for price negotiation in which (a) you always sound very expensive, and (b) price movements that seem reasonable to the prospect can end up being very painful for you. If you're going to end up haggling over your price, far better for you to be doing it over numbers like $15,250 which are tied to the specific project than over numbers like $125/hour which are affixed to you for the rest of your relationship with the client. You should never, ever be budging on your rate anyways. Give an inch on your rate and you will never get it back; companies hire whole departments to ensure that rate concessions, once taken, are never surrendered. Negotiate over project scope, not rate. The question of whether you should go fixed price or time-and-materials is a reasonable one (and it's a negotiating point), but if you're going to bid time-and-materials, price in billable weeks, and estimate the number of weeks up front. Save the details about billable phone call minutes (and, seriously?) for your S.O.W.
- davidw 16y ago
  I'm not 100% in agreement. I think you should quote prices according to the project or client in question. Some big long projects call for billing by the week or month, many work well with days, but sometimes you have someone who just needs something quick, and you can't reasonably charge them for a full day because they realize full well it's not going to take you that long. They're going to be happier with a high hourly rate and feel that you're being very careful to only charge them for the hours worked. This is, after all, how lawyers work, amongst other professionals. IMO, at least - I think it depends a lot on what sort of clients and work you're doing.
  - tptacek 16y ago
    I may be biased towards high-end consulting, but my response to this is "1 billable day, minimum". Flexibility is something that is valued by clients, which means it has a price. Strong relationships are something that has value to me, so if I reasonably can, I'll tend to just do stuff that takes an hour or so for free. Every consulting proposal I write takes 2-4 hours from my life, minimally. The last one I wrote required a 3 person research project over several days. We'd never charge for a proposal, so I'm not going to freak out over 1-2 hours. (Dave, Jeremy, and Cory might disagree with this assessment.) If you're ever wondering why I have zero sympathy for designers complaining about "spec work", there you go.
bambax 16y ago
I sometimes would like to be able to bill hourly, but find it impossible: 1) When I'm thinking about the project in the shower (where all the real thinking is being done) shouldn't the meter run? Apparently from the original post, the only billable time is the typing time, which is a little bit funny. 2) How do you know if you're fast or slow? Are you even consistent? Sometimes a stupid feature takes me half a day; sometimes something really complicated snaps together in an instant. 3) Even more so, the client has no clue of what time it takes to do something (and how could he, given that I haven't got many clues either, beforehand). If I tell him that it took me 3 hours to do X and 5 minutes to do Y he will be shocked! He will think I'm crazy, or bullshitting him, or that I'm trying to convey some other message that he'll spend the next week trying to decode. 4) What about warm-up time? When I get back to a project I left a week ago, it takes about an hour to get up to speed; how should this hour be billed? Besides, every theory of pricing tells us that price should NEVER be based on costs. Price should be based on value because that's what it is: price == value. The problem of course is that the client won't tell you what the value is. What I end up doing is: - if I can get an idea of the client's budget, and I find this budget acceptable, then that's my price - if not, my personal rule of thumb is (maybe counter-intuitively) to bid low on things that are new for me (and interesting), because I really want to learn the skills and get the reference on my portfolio; and to bid relatively high on things I know well, because I don't really care to get the project or not, and if I do get it I expect it to contribute financially to all the other stuff. (So if you want to hire me cheap, make me do something I've never done). Also, it's been my experience that clients care about the price before the project begins, but never after.
- tptacek 16y ago
  If you're finding yourself worried about being able to bill for phone calls, or for shower thinking, or ramp-up, your rates are too low. Stop trying to put price tags on tiny scraps of your time, and instead put an appropriate price on the value you're providing to clients.
  - bambax 16y ago
    > put an appropriate price on the value you're providing to clients My point exactly... Actually, my whole point was that I try to bill: (value to client) div (my willingness to do this particular project)
Tichy 16y ago
One reason why I think hourly works better than fixed price: might help getting priorities right. For example, suppose the budget is 20000$, and you have 2000$ left to spend on the almost finished software. With hourly, the money could be spent on useful enhancements, or on the most useful features still missing. With fixed price, you probably agreed up front on some stupid things like "all source code has to be documented", so you probably spend the remaining hours on writing crappy documentation everybody will hate to read anyway. Since you agreed on features x,y and z up front, you might end up doing a hush job on features x, y and z, rather than doing a good job on x and negotiating that y, z will better be scoped.
mattwdelong 16y ago
tptacek hit it dead on. Don't bill hourly; bid on a project basis. Why? First of all, you can end up doing work for a client and you know how you can save them $2,000/month by fixing something they can't. It only takes you five hours to complete the project, so what, you bill them 5 * hourly rate? You just saved him $24,000 year. That`s worth much more to him than an hourly rate. Know what you want per hour, ALWAYS get that, but quote what you're worth to your client and nothing less. Secondly, tptacek is right again. Once you bid $125/hour, you're stuck at $125/hr. Even if you save your client that $2,000 month for 5 hours work, they`ll expect to pay you $625 and nothing more. Be warned, this post is spot on if you always want to earn the same amount of money but you will never grow a company with this billing method.
- davidw 16y ago
  > Be warned, this post is spot on if you always want to earn the same amount of money but you will never grow a company with this billing method. OTOH, if you want to do fixed bids, you better have a really good idea of exactly how much time it's going to take you. This means that you should concentrate on doing only things you've already done, or that are very similar to them. Otherwise you'll run into something you didn't even know you didn't know and blow your estimate and eat the losses yourself.
  - alnayyir 16y ago
    There's a trade-off to be made here and it can be compensated for by knowing really good people.
- Encosia 16y ago
  I'm not necessarily against fixed bid work; I do a bit of both depending on the situation. However, fear of being stuck at a particular rate isn't a good reason to avoid hourly billing. I've raised my rates at least a dozen times over the past decade, and not a single client has complained. It just requires clear communication and a reasonable ~month's warning.
- MortenK 16y ago
  The billing method has next to nothing to do with growing a company. High-end consultancy companies, law firms, financial services etc, very typically charge by the hour. Also, who says you are stuck at your initial rate? Whenever you want, you can increase it. Many clients will have no problems with this, if you are worth it. Some will, but that's typically the kind of clients you can afford to loose anyway.
geekdesigngirl 16y ago
I have to agree with a lot of the posters here that fixed bids are better than hourly. I've been doing the freelance thing for a while, as well as working for another company, and have a very good understanding at how long it takes me to complete task X. When looking at a new project, I can usually estimate the time it will take me to within a few hours and then I always add an additional 25%. I don't ever bill a client for phone calls or emails and even when the project is completed will answer emails/phone calls from them to assist. Yes, my prices are a bit higher than average but my clients don't mind paying it and don't mind passing my name along. When dealing with a new project that I haven't a clue as to how long it will take me, I give an estimate about how many hours I believe it will take me and, if it gets close to that, the client is immediately told and we decided together how to move forward. My contracts are also pretty detailed. I learned early on that specs that aren't spelled out in a contract have a way of coming back to bite you.
hippich 16y ago
I am doing hourly work. But this is for clients I have high level of trust. They believe me. Most other clients are more concerned to know fixed amount of time and if project took less - they want to get it back, although I negotiate that successfully so far =) The worst case is - estimate in hours. =)
ora600 16y ago
I find that billing hourly can make for a more pleasant relationship with the customer. Provided that you give good justifications for the hours you bill. On fixed price contracts there is lots of haggling over the exact scope, requirements, changes and meaning of words in the contract. Hourly billing lets me smile and say "sure thing" to more requests, something that I actually prefer doing.
juddlyon 16y ago
Fixed bid gives you a greater incentive to be efficient in my experience. If you're significantly quicker than your peers (e.g., have your own processes, frameworks, macros, etc.) then you can have large margins and happy clients if you can estimate decently. Another reason: you only have so many billable hours.
loewenskind 16y ago
What about using Scrum and billing by the story point?
mattiask 16y ago
Well, there's two sides to that coin. By having the client pay hourly you put the "risk" of the project on his shoulders, but you also limit yourself to earning only a hourly rate. Why is that bad? An experienced programmer might accomplish a task/project quickly due to having done similar projects and have an arsenal of code/examples/tools at his disposal. An experienced programmer might be able to get 20%-30% markup on his hourly fee but he might finish the project five times as fast as another less experienced programmer might. You won't be able to leverage your gray hairs and the time they save you as efficiently with an hourly fee. If the project is well-defined you might be tempted to accept a fixed price and crank it out quickly which will net you more money per hour. I'd advice holding of atleast a week even if you do it in a day or two or the customer will start questioning your price ;) If the project/customer is fast and loose with the spec and functionality (as most projects are) you're in dangerous terroritory where constant changes keeps eating away at your time. If you can get a high hourly fee and the project is fuzzy, go for it, meetings and stuff like that will earn you a bunch anyways. Another strategy is to split the project into discrete parts and charge a fixed price for each (negotiating each one), that way it's easier to define the scope of the project and it eliminates risk both ways. It also gives you and the customer have a chance to get to know each other before committing to the project and helps avoid being in the clutches of a psychopath customer.

229 points by cwan 16y ago

pan69 16y ago

I tend to bill on a daily basis. I will present my clients with my hourly rate and then explain to them that I bill per day instead. My daily rate is slightly slower than 8 times my hourly rate. The reason I do this is to prevent nitpicking on time sheets etc and to be accountable for every single hour of the day. The last thing I want to do is have a clock sitting next to me measuring my every single move. Some days I do some overtime (1 maybe to 2 hours max) and other days I find myself working slightly less. In the end it all works out fine. The estimates that I give my clients are based on days, not hours. If they want me to do a 4 hour job, cool, I still charge them for the entire day. Most clients are cool with that. Since most projects I do tend to have time-frames that go into weeks it's much easier that way for everyone involved.

tome 16y ago
Do you force yourself to work on only one customer's project on any given day?
- pan69 16y ago
  No I don't and it depends whether I work on-site or from my own home office. To work as a contractor has both benefits and downsides, which are typically the reverse of being full-time employed. My hourly (daily) rates are based on the fact that I might not be able to fill 40 hours of work week after week. So, in a sense, my clients also sort of pay me for the time I'm not working. That's why my rates are set to a certain level, and it's also the reason contractors are more expensive than full-time employees. If I happen to be working from home and I do work for 2 clients and both jobs take me 4 hours, than in that single day I earn twice as much. However, the next two days I might not be able to bill anything. Pros and cons of contracting I guess.
  - jimbokun 16y ago
    Do you make this clear to your clients? If I was told I was being billed for "one day" of your time, I would expect that you were spending about 8 hours working on my task. To find out otherwise, I would feel that I had been lied to.
    - pan69 16y ago
      Yes. I make this perfectly clear to my clients. If they give me 4 hours worth of work I still charge them for 1 entire day. And to be quite frankly, what I do with those other 4 hours is none of their business.
tehjones 16y ago
I get paid by the day in my normal employment. It is fair enough on an 8 hour days, but when you fill 24 the hourly rate drops to shit.
- pan69 16y ago
  If you let it come to that than you're doing something wrong. It either means you didn't estimate well enough or you didn't inquire about the project time-line. E.g. If you estimate a job to take 40 hours but the deadline is in 2 days then you have a problem. Getting paid for the 40 hours is not going to make you happy if you have to work 2 days around the clock. In other words: Estimating is one thing, but it also has to fit into an achievable time-line.
jimbokun 16y ago
A good point from the article is that estimating a single task at more than 4 hours is more or less saying "I have no idea how long this will take, actually." Do you find that when you estimate something to take "one day" your estimates are generally accurate?

quizbiz 16y ago

For those that bill hourly, do you go off of a monthly retainer and sort of use that as a budget for hours? If I am starting to outsource (not off shore, just with partners, specific tasks), I'm just struggling about how to approach that from a billing perspective. I would like to make a small margin.

mark_l_watson 16y ago
For active projects/customers, I bill 1 hour minimum per week. I also bill a minimum of 15 minutes a day if I do any work at all. This is fair since there is some "context switch" cost for me, even when I just answer an email or take a short call.

gte910h 16y ago

I find iterative fixed fee kinder to people hiring out their first few times. It gives them strictures on what they can do so they don't shoot themselves in the metaphorical foot. However, hourly definitely has it's place as well. I find offering both a good compromise.

thibaut_barrere 16y ago

I find that using acunote to lay down the estimate (then remaining work with burndown) and freckle to track the hours and remaining budget works nicely.

joshfraser 16y ago
I've done both hourly and fixed price contract work and found that fixed price works better for me. In an industry that is known for software taking 10 times longer than estimated, clients have good reason to try and protect themselves with upfront pricing. The fixed pricing forces me to become better at planning ahead and giving good estimates. The trick is to document every detail of what they get for $XX and agree that any changes to that will cost extra. Software development depends largely on inspiration. Sometimes I'll crank out a weeks worth of code in one day. Others I'll stare at a screen all day and produce very little. In the end it all averages out, but I do feel bad billing for the unproductive hours even if I know it's fair in the end.

nfriedly 16y ago

Here's a faster loading coral cache link: http://orestis.gr.nyud.net/blog/2010/11/06/why-i-bill-hourly/ http://orestis.gr.nyud.net/blog/2010/11/06/why-i-bill-hourly... (The site took > 60 seconds when I first tried to load it.)

three14 16y ago

We would love to bill hourly. We tend to work for large companies, and they need to figure out how much to budget, so we then end up saying, "this will take between 10 and 12 hours," and then being forced to swallow the costs when it takes us 14. And of course, if it takes 8, they win. If anyone has suggestions other than "just tell them it will take what it takes," we'd really appreciate hearing them. Edit: Usually, just stopping when the hours run out isn't a good choice either, because most of the projects we have won't provide a partial solution. It's all or nothing. Example: converting data between two formats. We discover a quality issue when we've run out of time, so the converted data is unusable.

dasil003 16y ago
In that case they are asking you take all the risk, so you need to factor that into the cost. You need detailed specs up front in order for this to be at all sane (developing the specs could be an independent project without obligations on either side). Depending on the uncertainty left in the spec, you need to have a multiplier on the expected costs. 5x, 10x, or even 50x would not be out of the question if there is sufficient uncertainty. Yes this costs the company more, but if they expect you to take on their budgetary risk, then you are providing insurance, and that is potentially worth a lot more than the actual development.
warren_s 16y ago
How are you "forced" to swallow costs, unless you're contractually bound to deliver in 10-12 hours? If your client wants an estimate, by all means, give them a non-binding estimate. If you find yourself over-running your estimates, then it's either your fault or the client's fault - why should you have to bear the cost in both cases?
- three14 16y ago
  We do have a "non-binding" estimate, but they can't turn the wheels in their large organization to get payment for more than the high end of our non-binding estimate. And no one takes us seriously if we say "probably 10 to 12 hours, but this kind of work occasionally has problems that will balloon the costs to 20 hours."

kristiandupont 16y ago

For larger projects and clients, I recommend you look into agile contracts: http://www.bestbrains.dk/Blog/2009/06/03/CollaborativeAgileContracts.aspx http://www.bestbrains.dk/Blog/2009/06/03/CollaborativeAgileC...

rapind 16y ago

I agree whole-heartedly this is a great way to work if you're client is cool with it. In my experience that's a big if though. If you can always afford to walk away then this could actually work. I always give my client's the option of fixed or hourly and really emphasize the benefits of hourly. However I've only been taken up on the hourly offer a few times with recurring clients. I think it's a great thing to strive for but my advice to freelancer's starting out is not to flat out refuse fixed quote unless you can afford to. Fixed, while not quite as accurate, is still workable once you get a feel for defining requirements on smaller projects. And any larger project can be broken down, so long as you're getting paid for the spec. Whatever you do don't spend a riculous amount of time specing out a large project without being compensated. I've gotten so many RFPs that are obviously the product of spec work and I'm positive most were unpaid. In fact I guarantee there are forums dedicated to tactics and advice for getting spec work done for free.

warren_s 16y ago
I know it sounds trite, but if you can't afford to walk away from a project, you probably shouldn't be contracting to begin with. I say this from hard experience, the jobs I've taken against my better instincts are the ones that have bitten me badly. Another thing that's important is to know WHO you are pitching to. I charge predominantly T&M, and my ideal clients are existing dev teams that are looking for an extra pair of hands for a particular project. Matching your billing model with the kind of clients you want to work for greatly increases your chances for success.
- rapind 16y ago
  I may not have been clear enough. When I say if you can always afford to walk away it's meant within the context of the post. Meaning that if you can always afford to walk away from clients who are only interested in fixed quotes, not just one job. Which in my experience anyways has been about 90% of the time (of actual contracts, not just leads). I can't afford to turn down 90% of my work... yet. After reading some of the other comments I've decided to stop even giving them the option of an hourly rate. Works been very steady (too busy ATM) and like I said there's been very little uptake on the hourly option anyways. I agree that it definitely makes sense to change your model to reflect the type of client.

tptacek 16y ago

Why you should never quote prices in hours: because it provides prospects with a frame of reference for price negotiation in which (a) you always sound very expensive, and (b) price movements that seem reasonable to the prospect can end up being very painful for you. If you're going to end up haggling over your price, far better for you to be doing it over numbers like $15,250 which are tied to the specific project than over numbers like $125/hour which are affixed to you for the rest of your relationship with the client. You should never, ever be budging on your rate anyways. Give an inch on your rate and you will never get it back; companies hire whole departments to ensure that rate concessions, once taken, are never surrendered. Negotiate over project scope, not rate. The question of whether you should go fixed price or time-and-materials is a reasonable one (and it's a negotiating point), but if you're going to bid time-and-materials, price in billable weeks, and estimate the number of weeks up front. Save the details about billable phone call minutes (and, seriously?) for your S.O.W.

davidw 16y ago
I'm not 100% in agreement. I think you should quote prices according to the project or client in question. Some big long projects call for billing by the week or month, many work well with days, but sometimes you have someone who just needs something quick, and you can't reasonably charge them for a full day because they realize full well it's not going to take you that long. They're going to be happier with a high hourly rate and feel that you're being very careful to only charge them for the hours worked. This is, after all, how lawyers work, amongst other professionals. IMO, at least - I think it depends a lot on what sort of clients and work you're doing.
- tptacek 16y ago
  I may be biased towards high-end consulting, but my response to this is "1 billable day, minimum". Flexibility is something that is valued by clients, which means it has a price. Strong relationships are something that has value to me, so if I reasonably can, I'll tend to just do stuff that takes an hour or so for free. Every consulting proposal I write takes 2-4 hours from my life, minimally. The last one I wrote required a 3 person research project over several days. We'd never charge for a proposal, so I'm not going to freak out over 1-2 hours. (Dave, Jeremy, and Cory might disagree with this assessment.) If you're ever wondering why I have zero sympathy for designers complaining about "spec work", there you go.

bambax 16y ago

I sometimes would like to be able to bill hourly, but find it impossible: 1) When I'm thinking about the project in the shower (where all the real thinking is being done) shouldn't the meter run? Apparently from the original post, the only billable time is the typing time, which is a little bit funny. 2) How do you know if you're fast or slow? Are you even consistent? Sometimes a stupid feature takes me half a day; sometimes something really complicated snaps together in an instant. 3) Even more so, the client has no clue of what time it takes to do something (and how could he, given that I haven't got many clues either, beforehand). If I tell him that it took me 3 hours to do X and 5 minutes to do Y he will be shocked! He will think I'm crazy, or bullshitting him, or that I'm trying to convey some other message that he'll spend the next week trying to decode. 4) What about warm-up time? When I get back to a project I left a week ago, it takes about an hour to get up to speed; how should this hour be billed? Besides, every theory of pricing tells us that price should NEVER be based on costs. Price should be based on value because that's what it is: price == value. The problem of course is that the client won't tell you what the value is. What I end up doing is: - if I can get an idea of the client's budget, and I find this budget acceptable, then that's my price - if not, my personal rule of thumb is (maybe counter-intuitively) to bid low on things that are new for me (and interesting), because I really want to learn the skills and get the reference on my portfolio; and to bid relatively high on things I know well, because I don't really care to get the project or not, and if I do get it I expect it to contribute financially to all the other stuff. (So if you want to hire me cheap, make me do something I've never done). Also, it's been my experience that clients care about the price before the project begins, but never after.

tptacek 16y ago
If you're finding yourself worried about being able to bill for phone calls, or for shower thinking, or ramp-up, your rates are too low. Stop trying to put price tags on tiny scraps of your time, and instead put an appropriate price on the value you're providing to clients.
- bambax 16y ago
  > put an appropriate price on the value you're providing to clients My point exactly... Actually, my whole point was that I try to bill: (value to client) div (my willingness to do this particular project)

Tichy 16y ago

One reason why I think hourly works better than fixed price: might help getting priorities right. For example, suppose the budget is 20000$, and you have 2000$ left to spend on the almost finished software. With hourly, the money could be spent on useful enhancements, or on the most useful features still missing. With fixed price, you probably agreed up front on some stupid things like "all source code has to be documented", so you probably spend the remaining hours on writing crappy documentation everybody will hate to read anyway. Since you agreed on features x,y and z up front, you might end up doing a hush job on features x, y and z, rather than doing a good job on x and negotiating that y, z will better be scoped.

mattwdelong 16y ago

tptacek hit it dead on. Don't bill hourly; bid on a project basis. Why? First of all, you can end up doing work for a client and you know how you can save them $2,000/month by fixing something they can't. It only takes you five hours to complete the project, so what, you bill them 5 * hourly rate? You just saved him $24,000 year. That`s worth much more to him than an hourly rate. Know what you want per hour, ALWAYS get that, but quote what you're worth to your client and nothing less. Secondly, tptacek is right again. Once you bid $125/hour, you're stuck at $125/hr. Even if you save your client that $2,000 month for 5 hours work, they`ll expect to pay you $625 and nothing more. Be warned, this post is spot on if you always want to earn the same amount of money but you will never grow a company with this billing method.

davidw 16y ago
> Be warned, this post is spot on if you always want to earn the same amount of money but you will never grow a company with this billing method. OTOH, if you want to do fixed bids, you better have a really good idea of exactly how much time it's going to take you. This means that you should concentrate on doing only things you've already done, or that are very similar to them. Otherwise you'll run into something you didn't even know you didn't know and blow your estimate and eat the losses yourself.
- alnayyir 16y ago
  There's a trade-off to be made here and it can be compensated for by knowing really good people.
Encosia 16y ago
I'm not necessarily against fixed bid work; I do a bit of both depending on the situation. However, fear of being stuck at a particular rate isn't a good reason to avoid hourly billing. I've raised my rates at least a dozen times over the past decade, and not a single client has complained. It just requires clear communication and a reasonable ~month's warning.
MortenK 16y ago
The billing method has next to nothing to do with growing a company. High-end consultancy companies, law firms, financial services etc, very typically charge by the hour. Also, who says you are stuck at your initial rate? Whenever you want, you can increase it. Many clients will have no problems with this, if you are worth it. Some will, but that's typically the kind of clients you can afford to loose anyway.

geekdesigngirl 16y ago

I have to agree with a lot of the posters here that fixed bids are better than hourly. I've been doing the freelance thing for a while, as well as working for another company, and have a very good understanding at how long it takes me to complete task X. When looking at a new project, I can usually estimate the time it will take me to within a few hours and then I always add an additional 25%. I don't ever bill a client for phone calls or emails and even when the project is completed will answer emails/phone calls from them to assist. Yes, my prices are a bit higher than average but my clients don't mind paying it and don't mind passing my name along. When dealing with a new project that I haven't a clue as to how long it will take me, I give an estimate about how many hours I believe it will take me and, if it gets close to that, the client is immediately told and we decided together how to move forward. My contracts are also pretty detailed. I learned early on that specs that aren't spelled out in a contract have a way of coming back to bite you.

hippich 16y ago

I am doing hourly work. But this is for clients I have high level of trust. They believe me. Most other clients are more concerned to know fixed amount of time and if project took less - they want to get it back, although I negotiate that successfully so far =) The worst case is - estimate in hours. =)

ora600 16y ago

I find that billing hourly can make for a more pleasant relationship with the customer. Provided that you give good justifications for the hours you bill. On fixed price contracts there is lots of haggling over the exact scope, requirements, changes and meaning of words in the contract. Hourly billing lets me smile and say "sure thing" to more requests, something that I actually prefer doing.

juddlyon 16y ago

Fixed bid gives you a greater incentive to be efficient in my experience. If you're significantly quicker than your peers (e.g., have your own processes, frameworks, macros, etc.) then you can have large margins and happy clients if you can estimate decently. Another reason: you only have so many billable hours.

loewenskind 16y ago

What about using Scrum and billing by the story point?

mattiask 16y ago

Well, there's two sides to that coin. By having the client pay hourly you put the "risk" of the project on his shoulders, but you also limit yourself to earning only a hourly rate. Why is that bad? An experienced programmer might accomplish a task/project quickly due to having done similar projects and have an arsenal of code/examples/tools at his disposal. An experienced programmer might be able to get 20%-30% markup on his hourly fee but he might finish the project five times as fast as another less experienced programmer might. You won't be able to leverage your gray hairs and the time they save you as efficiently with an hourly fee. If the project is well-defined you might be tempted to accept a fixed price and crank it out quickly which will net you more money per hour. I'd advice holding of atleast a week even if you do it in a day or two or the customer will start questioning your price ;) If the project/customer is fast and loose with the spec and functionality (as most projects are) you're in dangerous terroritory where constant changes keeps eating away at your time. If you can get a high hourly fee and the project is fuzzy, go for it, meetings and stuff like that will earn you a bunch anyways. Another strategy is to split the project into discrete parts and charge a fixed price for each (negotiating each one), that way it's easier to define the scope of the project and it eliminates risk both ways. It also gives you and the customer have a chance to get to know each other before committing to the project and helps avoid being in the clutches of a psychopath customer.