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How I learned to charge my customers
- logicOnly 6y agoAhh yes I've charged $100/hr and I have gotten almost no work despite being both an engineer and programmer. I can make half that with employment. If I have a sales team, maybe we can split the $100/hr labor once I find a company willing.
- edmundsauto 6y agoYour $50/hr with employment is more like $75/hr with overhead accounted for.
- projektfu 6y agoThose rates seem low. 20 years ago consultancies were charging $150/hr + materials. Their employees might see $30-50 depending on how much unallocated time they had. For a solo, the average including down time (sales) could reach $80-100, charging that same $150 to the clients. Have rates fallen so far?
- Y-Bopinator 6y agoPeople are trying to pay minimum wage or below, always have always will. That’s why I’m unemployed.
- johnward 6y agoSome anecdotal stats from my experience being a consultant with both megacorps and smaller gov contractor. The hourly rate is about $200 an hour on average. This is for a senior, highly specialized, engineer type role. Megacorp paid me about $60 per hour where the smaller firms paid me closer to $80. Both as an employee with benefits. When I first joined a startup we would go as low as $120 per hour and pay $30 an hour too a junior/mid level consultant. I'm sure someone super specialized and in a hot market could get up to $300 an hour if they are delivering value.
- __sisyphus__ 6y agohaving been employed by agencies directly, and having worked as a freelancer working with agencies as well as other businesses directly, these rates are right in line with my experience.
- chadash 6y agoI do some consulting on the side and I won't charge by the hour if I can avoid it because: 1) I hate keeping track of time. 2) hourly rates aren't how my customers think of the issue. They think: "this product will make (or save) me $20,000/year" (making up numbers here). If I tell them that I can do the job for $5,000, that sounds like a great deal to them. But if I tell them I can do it for $200/hour, and I estimate it will take me 20/hours, then I just look like an expensive consultant. Notice that in the first scenario, I made more money and still seem cheaper.
- Swizec 6y agoI hire freelancers sometimes and this is exactly right. We agree on scope, price, and timeline. Helps me budget, helps you know when the project is done. Hourly fills me with dread as a client. I have no idea how much this is gonna cost or when you’ll be done and I can use it. Retainers work well for ongoing work. Like when you need someone to do X, Y, and Z misc tasks every week. Fundamentally I pay for results, time is an implementation detail. Why should I care how long it takes you?
- afarrell 6y agoIf you are hiring someone who does not know how to tell how long it will take them.
- Swizec 6y agoSince I pay for results that’s their problem. At least financially. Dealing with delays is easier if they don’t come with crazy extra costs. Imagine paying someone an extra $10,000 because they missed the deadline. That’s how hourly works.
- afarrell 6y agoIf you've hired someone who doesn't know how to predict how long the project will take and they suddenly stop development midway through, it is probably also your problem. > Imagine paying someone an extra $10,000 because they missed the deadline. That’s how hourly works. Yes it is. You should probably ensure you only hire people who have experience predicting the costs of the projects you hire them for.
- curiousllama 6y agoVery interesting that the author doesn't address outcome-based pricing. The rule of thumb I use is 10% of total value - if it's less than I want to make, I decline. It doesn't make sense for them to pay me, so it doesn't make sense for me to work. "Urgency" strikes me so much less compelling of a pricing conversation, but I guess it works.
- sova 6y agoSo if you help someone build a $3M empire the fee would leave them with $2.7M ? Not bad. Seems to be a more astute way to charge for services rendered because the client will actually have revenue to pay you, and the cost/benefit is fairly clear from the get-go. Do you typically both [client and creator] agree on how much value the work will bring in, and is it based on time? (This much in the first year, etc)
- neymgm 6y agoI too am interested in seeing how that negotiation plays out. Though it is still just potential value. There has to be some sort of payment for the early stages if you’re not planning on taking the same risks along with your client. I have never worked on building any project like that so I’ve no idea but I guess the maintenance and future work could be tied to a percentage of the revenue generated for the company.
- curiousllama 6y agoThe former - I mostly work with large non-tech corporates, so you need to have a business case to get anything of significance approved anyway. I typically start off at 10% of "the big number on the slide." If I'm independent, I always work fixed fee & payment schedule. When I've had a big company at my back, I've also worked at X% of realized revenue, capped at $Y. Now, the important thing this implies is ownership of the outcome. I'm not building "a website;" I'm building "an e-commerce product" (or whatever) with all the expectations that come with it. Back to the article... looking at the rates again, I think this is the author's next step in pricing. They're obviously very good. To make it as an independent developer, you need to have a clear understanding of value anyway - so why not just estimate the outcome ahead of time and benchmark against it?
- deleted 6y ago[deleted]
- kova12 6y agoThat explains why all the recruiters on LinkedIn are trying to low-ball me so much. The actual rate they charge is double!
- johnward 6y agoUsually more than double.
- justaguyhere 6y agoThis makes me soooooooo mad. Instead of LAMP, I spelled out Linux/Apache... etc in my resume. One recruiter spent 10 minutes arguing with me that LAMP is not the same as Linux... Why do they deserve 50% of the billing rate (they can't even bother spending 30 seconds to google and note down what these terms mean)? Is their service that valuable? Heck, compared to them even the freelance websites that take 20% (Fiverr etc) seem like saints. Another recruiter changed my resume without my knowledge. I found out during the interview. All kinds of shady stuff going on with these people.
- jen20 6y agoEvery time I encounter a shady recruitment agency (or their practices) I'm reminded of this blog post [1], although this is an archived version rather than the original. In the UK, everyone even close to tech-adjacent has similar stories. [1]: https://gist.github.com/CumpsD/696599d1bd4cd472a0565869672933da https://gist.github.com/CumpsD/696599d1bd4cd472a056586967293...
- sokoloff 6y ago> One recruiter spent 10 minutes arguing with me that LAMP is not the same as Linux 8 of those minutes are partly/mostly on you. (I’d give ‘em 1-2 minutes and then just hang up.)
- cvhashim 6y agoI’m a software consultant at a large software firm. I make a reasonable amount of money per hour for my region and is around the going rate of a developer of 2-3 years of experience (Im only 2 years out of school). But my firm charges clients around 4x what they pay me hourly.
- pauletienney 6y agoI spent 10 years freelancing. If i can give an humble advice: you don't cost your customer some money, you produce some extra value for him. Charge between 10% and 30% of the extra value you provide to your customer. Charging per hour is a trap. It is nice to start, it is easy to read, easy to calculate but it makes you a commodity. Don't be a commodity, be an expert.
- CyberDildonics 6y agoHow do you estimate that and sell someone on it?
- simonswords82 6y agoBy understanding their business really really well. For example, if I know that an automation that I can create for a client is going to take me 100 hours to setup and save them £20,000 per month I can either: Charge 100 x £100 per hour - so a one off income of £10,000. Seems like I'm earning good money right?? OR I can charge them £100,000. They'll make that back in just five months. A BARGAIN. Most businesses would bite your hand off. The catch for achieving number two is knowing the value I'm providing. I can only do that when I know their business really really well.
- emteycz 6y agoThe catch for me is looking for businesses interested in this kind of arrangement. How do you approach that?
- simonswords82 6y agoI could write a book on it because there's a lot to it but I'll try to summarise. Success = Connections x (Niche knowledge + Skills) For connections: Given the current state of the world networking is hard but not impossible. However you go about it, you need to build trust with people rather than hard sell them which doesn't work in 2020 (unless what you are selling is a commodity). Note that I said people, you're selling to people - not businesses. You can shortcut this by leveraging existing contacts, ideally in a niche that you already have knowledge in because you worked in it. For niche knowledge + skills: With your connections at first you might need to find ways to cheaply provide value. Build up trust. Grow relationships. Get referred. You'll make your life easier by specialising in a niche. So for example mine is financial services. A niche in a niche is even better. Again, for example mine is asset management, which sits within financial services. So now you have your niche in a niche and detailed knowledge of that niche. You know what problems they have (the knowledge), and you can add your skills to solve their problems. It's not easy, it takes years - but it's possible. Once you have all the elements of the above formula, you can switch your pricing from by the hour to by value.
- ibudiallo 6y agoHey everyone, author here. My experience is that customers will always want more features than they initially ask for. That's why I make sure to tell them my hourly rate, then give them an estimate. For example, I can say $5000 for a 1 month project. Here I'll break down the average time I will work a week as a courtesy. This helps me justify charging them again when we are at month 3 and the project is not done. I learned this the hard way, charging a flat fee and continue to work long after I had spent all my earnings.
- grawprog 6y agoWhen I was doing consulting for small websites, data work and programming through craigslist, much like the original article. I charged $35/h with a minimum one hour charge. This was 6 or 7 years ago and at the time, I wasn't really thinking about making it full time work. I did a lot of research before hand on average rates for the type of work I was doing and my experience level, checked out other ads things like that. I chose my rate because it was higher than the spammy looking cheap ads but was on the lower end for consulting rates. I got a decent amount of work. I had one customer specifically tell me he chose me after finding out my rate because I charged more than the people with the cheap ads that had done poor quality work. I never had anyone quibble about the rates. Luckily, my customers were mostly business owners and stuff. I got some tine tracking software that also helped keep work stuff seperate from hone stuff. If I clocked in, I was working, I kept a list of tasks. In the end though, nobody really asked to see or check, they just wanted the bill. Don't be afraid to charge a rate you feel is reasonable for your work ans don't feel bad when you hand over that invoice.
- bob1029 6y agoI am working with a small company and this is an ongoing debate regarding how to best bill our customers for the work we do. Our product is an extremely long-term, high-value proposition. It effectively replaces & automates large swathes of our customers' legacy business processes. For our customers, an hourly rate is a non-starter, despite the appealing nature of using a rate-based billing approach to head off scope creep and change requests. They need something more concrete with comprehensive up-front terms. We are starting to look at a model where the features are on individual contracts based upon their specific complexity: "<Some Business Feature> will cost you $X to implement, another $Y/year to support and will take ~W months to reach acceptance testing phase. Minimum contract term is Z years." This gives each customer an opportunity to prioritize specific sub-components of the product that are most important to them so that we are not implementing things without net positive business value. We also figured out that we need to push acceptance testing and delivery timing back onto the customer so that they understand that longer timetables are a direct consequence of scope creep, change requests or their non-participation in the process. Since this is kind of a marriage between the organizations, we have built a "core" product that is a lower-stakes implementation and covers a few basic business processes. This allows for a less intense trial phase of the product where the customer can see how the overall process works for them. If they decide it's what they are looking for (i.e. they can see the business value), then we talk about tacking on the additional discrete feature modules and signing longer-term contracts. I think our most important realization is that not all customers are compatible with our product, how much it costs, or the way we go about implementing it. The core piece of this equation is the customer being able to see through all the noise to the business value. If we cannot make the value clear to them, then we are not in any position to be talking about pricing or which features should be implemented in what order.
- amingilani 6y agoIf I were to write an article on this topic, it would be a similar story. I don't think this would have helped us answer the question when we were starting out though.
- keithnz 6y agoI've done by the hour, fixed price, and with a friend of mine recently I just said pay me what you think its worth when you want. All of them have worked out pretty reasonable. Only time I haven't thought it was worth it if the job was too small.
- aronpye 6y agoCompanies tend to internally budget using hourly rates and time cards, so I can’t see how charging an hourly rate like most consultancies and professions, such as law, would not sit well with client companies. Also, charging a fixed price makes you very vulnerable to having to absorb additional costs if the project takes longer than anticipated. An hourly rate removes this risk as you amortise your costs into your hourly rate. As an individual going up against an entire company you want to protect yourself as best you can, charging by the hour helps ensure that. Also make sure you get yourself liability insurance.
- s1mon 6y agoWhile this may be somewhat tongue in cheek, I often think of this post from Anil Dash: "I talk to a lot of consultants, freelancers, and small businesses who do web work, and I used to be a freelancer myself, so sometimes I get asked for advice on how to price one’s goods and services. I think I came up with my best suggestion today, and it involves only two simple steps: Slap the client in face. Tell the client your hourly rate. If the person looked more shocked, horrified, offended, hurt, saddened, or wounded by the slap in the face, then you are still pricing yourself too low. Your mileage may vary, this is not to be construed as legal advice, eye-poking may be substituted for slapping in some states." https://anildash.com/2005/05/12/pay_by_the_hour/ https://anildash.com/2005/05/12/pay_by_the_hour/