19 ms·

How to calculate your hourly rate

149 points by mipapage 14y ago

richeyrw 14y ago
I've also done it by working backwards. This can be useful particularly in smaller consulting firms. Say you have three tech guys who want to start consulting, you start by saying how much do you want to make each year? How many hours do you want to work a week? Then how many people do you want to hire to help? How much would you have to pay them? From this you have some variables you can tweak to see what various numbers of subordinates and various annual salaries get you as an hourly rate.
lazyjones 14y ago
That's a good approach before you take into account the effects of marketing/positioning. Customers will not always hire the cheapest freelancer, they will often (irrationally?) believe that successful developers with a high hourly rate must be particularly good. When I founded my company (with a different business, i.e. not around web development for clients) in 2000 after a year of freelancing, I set my hourly rates ridiculously high (about 18 times my previous rates) because I didn't really want to do any development for clients at that time and to my surprise, I still got some clients who felt that I must be particularly good. So while you cannot generelly expect to make more money on average by setting your rates very high, it's foolish to set them based on your cost calculation and general demand only.
philiphodgen 14y ago
Note the inherent flaw in "by the hour" billing: if you want to increase your income you either must work more hours or raise your rates. In other words, hourly billing guarantees a built-in cap to your annual income. You have a maximum, but no minimum income. This is a world that I do not want to live in: a voluntary upper limit on my achievements. Hourly billing is a method of setting prices by looking at the cost of the product you are selling. In fact a customer does not care what it costs for you to deliver a product or service. You could be delivering a product that is made of diamonds and unicorn horns. It doesn't matter. What matters is the value of your product or service to the customer. Your job, as a business owner, is to set your price based on the customer, not based on your costs. Set your price based on the value that you deliver. Then adjust the inputs (hours of worker time, etc.) until you can deliver the value at that price. Mercedes Benz adjusts the inputs for a C-class car until it hits the target price. It adjusts the inputs differently for an E-class or S-class car. There is a lot of information out there in the wide world about this. It is not "fixed pricing." Call it "value pricing." Fixed pricing is just computing the cost of your inputs, adding a margin, and declaring a price. Value pricing is a matter of working backwards from the customer's value desires to set the price. For you math people, this is an "area beneath the curve" problem. I'm an international tax lawyer. I make far more money (and have happier customers) when I charge a declared price than when I bill by the hour. All that being said, one of the points in the article is exactly right: raise your prices and you will get better quality customers. Go see www.verasage.com as a jumping-off point for discussions of pricing in professional service firms. All business are alike. Don't think that advice to an accounting firm is inapplicable to you. It's not. It's all "delivery of a service to a human being in exchange for money".
- makalumhenders 14y ago
  Philip, if you can raise your rates, then how is there a maximum income? We raised our rates until supply balanced demand.
  - philiphodgen 14y ago
    I have raised my rates again and again and I am still overworked. (Full disclosure: currently I am $800/hour). The difference is that now I am working on much bigger deals for people who appreciate my value. I cannot tell you how important this is to my general sense of happiness.
    - lifeisstillgood 14y ago
      That last is the killer - clients who are willing to pay more, turn out not to be fools but actually respect quality and don't waste your time.
    - jacquesm 14y ago
      How many hours do you book at $800 / hour?
      - philiphodgen 14y ago
        Not too damn many, because of the pressing needs of running a business. If I can hit 100/month I am doing well.
        jacquesm 14y ago
        That's still pretty damn good! Congratulations!
- bguthrie 14y ago
  Measuring value in software development is difficult. If you can tie your activities directly to either higher revenue or lower cost, that's great. As an international tax lawyer, I'd think you have a relatively straightforward way to demonstrate value: it's proportional to the money your clients save on their taxes. patio11 has the same advantage: consulting time spent optimizing conversions through A/B testing can be directly tied back to increased revenue. But what if you end up working on a product for a company that never makes them any money at all? You haven't provided any direct business value, although you may have done quite a lot of work--maybe months or years. Are you going to charge them nothing? Rates are a proxy for value that accounts at least in part for the risk of project failure. High-risk individuals might account for this by trading equity for hourly rate or accepting some other form of in-kind compensation, as many startup employees do. But you have to be a strong believer in the project in order to do so, and most freelancers, to put it bluntly, aren't. Otherwise they'd be employees. Nonetheless, don't start at the bottom by calculating costs. There's a market value for your services in the area where you live. If you can, start by asking other freelancers and consulting firms. The value of a good is what people will pay to get it, not what it costs to make.
juanpdelat 14y ago
Please correct me if I'm wrong. So, in order to make the same $75k/year the employee makes in the example, the manager would have to hire around 6 employees with the same structure and have at least 6 projects per year.
- jtbigwoo 14y ago
  Most consulting companies that I've worked with don't have very many non-billable employees. For a company of under 50, you probably only need a handful of sales and support folks. For billable employees, that other 30% is supposed to cover management and business development tasks. Once a company got the size of needing non-billable managers, I assume that you'd add a fraction of that person's salary to the overhead numbers.
- rm445 14y ago
  In practice the manager/director is billable at a higher rate and has some hours on every project, if only reviewing the work. But you're right in the general case, that a company whose income is from billed hours needs to bill enough to cover the whole company.
- driverdan 14y ago
  Operating a dev company on a 15% margin would be crazy. 30% is more realistic.
artumi-richard 14y ago
The rule of thumb I was told is 1000 billed hours per year. If you want to earn £40k, and are billing by the hour, charge £40 per hour. That gives you the room to be flexible. The original article adds extra in as they have a different structure, but they start with $75k and year and end up with $85 an hour. Which seems to me to be close enough. I used it when I started by company. I think it was good advice.
- tome 14y ago
  One thousand billable hours per year seems reasonable, but if you want to earn equivalently to someone who's on a £40k salary you should aim for substantially higher than £40k of revenue.
TamDenholm 14y ago
Like others have mentioned, charge by the value you provide. I know a few parables that illustrate my point that i often tell people, this is one, excuse my terrible paraphrasing. "Guy walks along and sees Pablo Picasso chilling in a cafe watching the world go by, the man goes up to him and asks, 'Wow nice to meet you, can you draw me a sketch on this napkin? I'll pay you for your time!' Picasso scribbles on the napkin for a minute or two and hands it to the man, the man asks 'Thats great, how much?' Picasso replies '$5,000', astounded the man says, 'but it only took you a few minutes! I'm not paying that much!', Picasso says 'Yes, but it took me decades to be able to do that in a few minutes, you're paying for the decades of experience, and in decades to come, that drawing will be worth a lot more.'". My point being that you shouldnt be leasing your time, you should be providing $100k worth of value and charging $20k for it, regardless of how long it takes. And if i'm the customer and i know that you can provide $100k of value to my company, then i'll happily pay you $20k to do it.
- makalumhenders 14y ago
  Tam, it's not easy to determine value. Are you going to charge for the value you might deliver, or the value you actually deliver? How will you determine the value you actually deliver? It's a tricky issue, I admit. But keep in mind that IDEO, having studied this issue hard, ultimately settled on charging by the hour.
- ghaff 14y ago
  Charging for value is a nice idea. How practical it is depends on a lot of things including how predictable the outcomes are and what the standard practice is. And, as your parable suggests, if you do bill by the hour/day, your rates are going to have to reflect (assuming you want to make a decent living and stay in the business) what percentage of your time can realistically be billable. When I was doing IT advisory work for vendors, a fairly small percentage of my time was spent doing direct billable work for clients over and above annual subscriptions many of them paid us. The rest of the time was spent researching, being briefed by companies, talking to journalists, writing, etc. When we did do a specific project (for which we generally charged for a deliverable--although that deliverable could be a day of advisory work), we charged what would seem to most people a really high hourly rate because we had to capture all the non-billabel time (and, of course, because our rates were in line with industry norms for this type of work and companies apparently felt we delivered sufficient value to capture those rates). By contrast, I did some legal work as well and for that was paid on an hourly basis at a much lower rate. But, because it was a big block of work and I could charge for any time related to the project--including travel, background reading, etc.--it was pretty good work.
Jabbles 14y ago
patio11 has good advice on this: https://training.kalzumeus.com/newsletters/archive/consulting_1 https://training.kalzumeus.com/newsletters/archive/consultin...
ruswick 14y ago
My first thought when reading this was "Jesus Christ are Germany's PTO policies generous." In nations that are more work-centric (eg. the US) the possible billable hours will be nontrivially higher and thus the hourly rate will be significantly lower. For instance, I know people who get only 10 days off per year minus holidays, meaning that they take a maximum of 10 days per year total. This also entails working ~8 Saturdays per year, which comes out to roughly 1850 hours per year. It seems as though this type of calculation will vary widely based on location.
- sputknick 14y ago
  Similar, my first thought was "Wow... you get to do proposal work during your 8 hour day!?" When I was a consultant at a global firm that was what you did on the weekends.
- drakeandrews 14y ago
  Remind me never to leave the EU. Seriously. Ten days, total, per year? I'd likely be dead within six months.
- Spooky23 14y ago
  That's crazy. One of the incredibly attractive things about my job now is that I get 40 days of discretionary PTO. Sick time is separate. I took a reasonable paycut to get the gig, but its totally worth it. 10 days off a year is a joke.
dworin 14y ago
Enough people have pointed out the importance of value pricing over hourly billing that I don't have anything to add there. But I will bring up a neglected point, which is that this formula assumes that all employees hours are equal, or at least indistinguishable enough that you can take an average, and completely ignores the idea of leverage in professional services. Leverage is how you make a professional services firm a profitable, growing business, and not just a series of contractors that you farm out. To start thinking about leverage, you need to realize that not all of your employees are the same, so a globally blended rate doesn't make sense. Some of them are junior level employees who are smart and capable, but still learning the ropes. They benefit from your firm's intellectual property, so they're able to add value greater than their salary would indicate. At the top, you have the firm's principals or partners, who tend to have less time to spend doing work, because they're busy trying to market the firm and win new business. So even though their rate may be higher, it's spread across fewer hours. In the middle are either technical experts or managers who are able to command a higher rate, and can mentor others, but aren't quite ready to bring in new business on their own. As your employees learn and become capable of better work, they also become more valuable to you, which means you should pay them more, which means their rates should go up accordingly. But now you need them to do more valuable work, so you also need to find new junior people to replace them. This is how you help your employees grow, and it's how you help your firm grow. Your firm's profitability comes from the fact that you can charge greater than an employees costs to your clients. That's the basic idea behind a services business, otherwise you're all just independent contractors. So your source of profits is the amount you charge on top of your employee costs, and that could vary by level. The number of people at each level, and the amount you charge for them, depends on the nature of your work and your firm. Figuring out the rate balance and the right growth rate is one of the most important parts of managing your firm (probably second to creating a great culture, although the two are related). The reason that the firm in the article is able to raise more revenue by raising prices is because they've been undervaluing their own work this whole time. Once the price starts to better reflect value, the way you grow is by sustainably hiring in new people and growing them with the firm - the price mechanism is money that's currently being left on the table, it's not a growth mechanism.
- DougWebb 14y ago
pnathan 14y ago
One thing I always wonder is how to break into the consulting business. The earning potential looks considerably above the salary employee potential. My current skills & expertise are very much "backend", and I don't have networking connections with people who could offer significant amounts of cash for the solutions I could offer. (Put another way, I only know very small business owners, as they are the dominant employer in the area). It seems as if the best way in is to get hired at a consulting firm and really understand how tech can drive business value. Am I off?
- scarecrowbob 14y ago
  Personally, I just found built up some savings to give myself a runway, found two small-ish but workable projects/clients, and quit my job... It was a bit easier because I was not making a lot at the job anyhow-- I basically had to sell one small project a month to replace the income on the job (maybe 3 or 4 days of work), but after that I simply tried to be nice to folks, super available, and really knowledgable. Your situation may be different. It doesn't hurt that I'm 90mi outside of Austin, so there are a) no jobs here to tempt me, and b) a whole lot of possible work within a small drive. But I also have to have a lot more going on than just my specific tool chain of computer skills-- I have to do a lot of business strategy and networking things, even if that usually just means eating lunch with folks I've worked with just to keep in touch.
- Spooky23 14y ago
  It's all about the networking that you do. Also, the small business market is pretty brutal, and ends up being a numbers game... Your rate is too low to make a living without scaling out. Big consulting companies are all about applying a predefined framework to business problems. VARs or similar companies partner with bigger fish to provide pro services to markets that aren't valuable enough for the parent company. An IBM partner will peddle servers and implement IBM products, etc. A freelancer is all about subject matter expertise. Your either an expert in technology x, or an expert in implementing technology x to vertical market y or integrating technology x with technology z. Your customer might be the end-user, or you may be a subcontractor.
kalid 14y ago
I made a calc to crunch the numbers, here: http://instacalc.com/10103 http://instacalc.com/10103 [Shameless plug since it's my own pet project :)]
dools 14y ago
The advice that everyone trots out on HN whenever someone mentions hourly rates of BILL BY VALUE CREATED!!1 goes beyond being trite: it's confusing and damaging. One of the most important things I ever did was work out my hourly rate, using exactly the method outlined in this post. If you're early in your career, you can't just waltz in and say you're going to charge someone $4,000 to write them an email responder sequence. By working out the inelastic base hourly rate at which you need to work in order to earn a level of salary you ensure that: 1) You know exactly what your opportunity cost is versus getting a job (ie. you are making a conscious decision to work for $40k/year instead of the $90k/year you could earn if you went and got a job somewhere) 2) You know that when it's time to scale, what you'll have to be able to charge in order to hire someone at "market rates" 3) It makes your negotiating position much much stronger - when people try to screw you down on price you know precisely where your "bottom line" is - at what point am I losing money here? If you want to bill based on value created, that's great and it's something you can achieve once you've developed a strong position in the market and a bit of a track record. Up until that point (and even afterwards) it's vitally important to know the base cost of an hour of your (or your employees time). Saying that someone shouldn't work out their base hourly rate because we should all be billing based on value created is like saying that you should run a retail shop and sell everything according to the maximum you think people should pay, but never look at the cost of purchasing the stock in the first place.
deleted 14y ago
[deleted]

149 points by mipapage 14y ago

I've also done it by working backwards. This can be useful particularly in smaller consulting firms. Say you have three tech guys who want to start consulting, you start by saying how much do you want to make each year? How many hours do you want to work a week? Then how many people do you want to hire to help? How much would you have to pay them? From this you have some variables you can tweak to see what various numbers of subordinates and various annual salaries get you as an hourly rate.

lazyjones 14y ago

That's a good approach before you take into account the effects of marketing/positioning. Customers will not always hire the cheapest freelancer, they will often (irrationally?) believe that successful developers with a high hourly rate must be particularly good. When I founded my company (with a different business, i.e. not around web development for clients) in 2000 after a year of freelancing, I set my hourly rates ridiculously high (about 18 times my previous rates) because I didn't really want to do any development for clients at that time and to my surprise, I still got some clients who felt that I must be particularly good. So while you cannot generelly expect to make more money on average by setting your rates very high, it's foolish to set them based on your cost calculation and general demand only.

philiphodgen 14y ago

Note the inherent flaw in "by the hour" billing: if you want to increase your income you either must work more hours or raise your rates. In other words, hourly billing guarantees a built-in cap to your annual income. You have a maximum, but no minimum income. This is a world that I do not want to live in: a voluntary upper limit on my achievements. Hourly billing is a method of setting prices by looking at the cost of the product you are selling. In fact a customer does not care what it costs for you to deliver a product or service. You could be delivering a product that is made of diamonds and unicorn horns. It doesn't matter. What matters is the value of your product or service to the customer. Your job, as a business owner, is to set your price based on the customer, not based on your costs. Set your price based on the value that you deliver. Then adjust the inputs (hours of worker time, etc.) until you can deliver the value at that price. Mercedes Benz adjusts the inputs for a C-class car until it hits the target price. It adjusts the inputs differently for an E-class or S-class car. There is a lot of information out there in the wide world about this. It is not "fixed pricing." Call it "value pricing." Fixed pricing is just computing the cost of your inputs, adding a margin, and declaring a price. Value pricing is a matter of working backwards from the customer's value desires to set the price. For you math people, this is an "area beneath the curve" problem. I'm an international tax lawyer. I make far more money (and have happier customers) when I charge a declared price than when I bill by the hour. All that being said, one of the points in the article is exactly right: raise your prices and you will get better quality customers. Go see www.verasage.com as a jumping-off point for discussions of pricing in professional service firms. All business are alike. Don't think that advice to an accounting firm is inapplicable to you. It's not. It's all "delivery of a service to a human being in exchange for money".

makalumhenders 14y ago
Philip, if you can raise your rates, then how is there a maximum income? We raised our rates until supply balanced demand.
- philiphodgen 14y ago
  I have raised my rates again and again and I am still overworked. (Full disclosure: currently I am $800/hour). The difference is that now I am working on much bigger deals for people who appreciate my value. I cannot tell you how important this is to my general sense of happiness.
  - lifeisstillgood 14y ago
    That last is the killer - clients who are willing to pay more, turn out not to be fools but actually respect quality and don't waste your time.
  - jacquesm 14y ago
    How many hours do you book at $800 / hour?
    - philiphodgen 14y ago
      Not too damn many, because of the pressing needs of running a business. If I can hit 100/month I am doing well.
      - jacquesm 14y ago
        That's still pretty damn good! Congratulations!
bguthrie 14y ago
Measuring value in software development is difficult. If you can tie your activities directly to either higher revenue or lower cost, that's great. As an international tax lawyer, I'd think you have a relatively straightforward way to demonstrate value: it's proportional to the money your clients save on their taxes. patio11 has the same advantage: consulting time spent optimizing conversions through A/B testing can be directly tied back to increased revenue. But what if you end up working on a product for a company that never makes them any money at all? You haven't provided any direct business value, although you may have done quite a lot of work--maybe months or years. Are you going to charge them nothing? Rates are a proxy for value that accounts at least in part for the risk of project failure. High-risk individuals might account for this by trading equity for hourly rate or accepting some other form of in-kind compensation, as many startup employees do. But you have to be a strong believer in the project in order to do so, and most freelancers, to put it bluntly, aren't. Otherwise they'd be employees. Nonetheless, don't start at the bottom by calculating costs. There's a market value for your services in the area where you live. If you can, start by asking other freelancers and consulting firms. The value of a good is what people will pay to get it, not what it costs to make.

juanpdelat 14y ago

Please correct me if I'm wrong. So, in order to make the same $75k/year the employee makes in the example, the manager would have to hire around 6 employees with the same structure and have at least 6 projects per year.

jtbigwoo 14y ago
Most consulting companies that I've worked with don't have very many non-billable employees. For a company of under 50, you probably only need a handful of sales and support folks. For billable employees, that other 30% is supposed to cover management and business development tasks. Once a company got the size of needing non-billable managers, I assume that you'd add a fraction of that person's salary to the overhead numbers.
rm445 14y ago
In practice the manager/director is billable at a higher rate and has some hours on every project, if only reviewing the work. But you're right in the general case, that a company whose income is from billed hours needs to bill enough to cover the whole company.
driverdan 14y ago
Operating a dev company on a 15% margin would be crazy. 30% is more realistic.

artumi-richard 14y ago

The rule of thumb I was told is 1000 billed hours per year. If you want to earn £40k, and are billing by the hour, charge £40 per hour. That gives you the room to be flexible. The original article adds extra in as they have a different structure, but they start with $75k and year and end up with $85 an hour. Which seems to me to be close enough. I used it when I started by company. I think it was good advice.

tome 14y ago
One thousand billable hours per year seems reasonable, but if you want to earn equivalently to someone who's on a £40k salary you should aim for substantially higher than £40k of revenue.

TamDenholm 14y ago

Like others have mentioned, charge by the value you provide. I know a few parables that illustrate my point that i often tell people, this is one, excuse my terrible paraphrasing. "Guy walks along and sees Pablo Picasso chilling in a cafe watching the world go by, the man goes up to him and asks, 'Wow nice to meet you, can you draw me a sketch on this napkin? I'll pay you for your time!' Picasso scribbles on the napkin for a minute or two and hands it to the man, the man asks 'Thats great, how much?' Picasso replies '$5,000', astounded the man says, 'but it only took you a few minutes! I'm not paying that much!', Picasso says 'Yes, but it took me decades to be able to do that in a few minutes, you're paying for the decades of experience, and in decades to come, that drawing will be worth a lot more.'". My point being that you shouldnt be leasing your time, you should be providing $100k worth of value and charging $20k for it, regardless of how long it takes. And if i'm the customer and i know that you can provide $100k of value to my company, then i'll happily pay you $20k to do it.

makalumhenders 14y ago
Tam, it's not easy to determine value. Are you going to charge for the value you might deliver, or the value you actually deliver? How will you determine the value you actually deliver? It's a tricky issue, I admit. But keep in mind that IDEO, having studied this issue hard, ultimately settled on charging by the hour.
ghaff 14y ago
Charging for value is a nice idea. How practical it is depends on a lot of things including how predictable the outcomes are and what the standard practice is. And, as your parable suggests, if you do bill by the hour/day, your rates are going to have to reflect (assuming you want to make a decent living and stay in the business) what percentage of your time can realistically be billable. When I was doing IT advisory work for vendors, a fairly small percentage of my time was spent doing direct billable work for clients over and above annual subscriptions many of them paid us. The rest of the time was spent researching, being briefed by companies, talking to journalists, writing, etc. When we did do a specific project (for which we generally charged for a deliverable--although that deliverable could be a day of advisory work), we charged what would seem to most people a really high hourly rate because we had to capture all the non-billabel time (and, of course, because our rates were in line with industry norms for this type of work and companies apparently felt we delivered sufficient value to capture those rates). By contrast, I did some legal work as well and for that was paid on an hourly basis at a much lower rate. But, because it was a big block of work and I could charge for any time related to the project--including travel, background reading, etc.--it was pretty good work.

Jabbles 14y ago

patio11 has good advice on this: https://training.kalzumeus.com/newsletters/archive/consulting_1 https://training.kalzumeus.com/newsletters/archive/consultin...

ruswick 14y ago

My first thought when reading this was "Jesus Christ are Germany's PTO policies generous." In nations that are more work-centric (eg. the US) the possible billable hours will be nontrivially higher and thus the hourly rate will be significantly lower. For instance, I know people who get only 10 days off per year minus holidays, meaning that they take a maximum of 10 days per year total. This also entails working ~8 Saturdays per year, which comes out to roughly 1850 hours per year. It seems as though this type of calculation will vary widely based on location.

sputknick 14y ago
Similar, my first thought was "Wow... you get to do proposal work during your 8 hour day!?" When I was a consultant at a global firm that was what you did on the weekends.
drakeandrews 14y ago
Remind me never to leave the EU. Seriously. Ten days, total, per year? I'd likely be dead within six months.
Spooky23 14y ago
That's crazy. One of the incredibly attractive things about my job now is that I get 40 days of discretionary PTO. Sick time is separate. I took a reasonable paycut to get the gig, but its totally worth it. 10 days off a year is a joke.

dworin 14y ago

Enough people have pointed out the importance of value pricing over hourly billing that I don't have anything to add there. But I will bring up a neglected point, which is that this formula assumes that all employees hours are equal, or at least indistinguishable enough that you can take an average, and completely ignores the idea of leverage in professional services. Leverage is how you make a professional services firm a profitable, growing business, and not just a series of contractors that you farm out. To start thinking about leverage, you need to realize that not all of your employees are the same, so a globally blended rate doesn't make sense. Some of them are junior level employees who are smart and capable, but still learning the ropes. They benefit from your firm's intellectual property, so they're able to add value greater than their salary would indicate. At the top, you have the firm's principals or partners, who tend to have less time to spend doing work, because they're busy trying to market the firm and win new business. So even though their rate may be higher, it's spread across fewer hours. In the middle are either technical experts or managers who are able to command a higher rate, and can mentor others, but aren't quite ready to bring in new business on their own. As your employees learn and become capable of better work, they also become more valuable to you, which means you should pay them more, which means their rates should go up accordingly. But now you need them to do more valuable work, so you also need to find new junior people to replace them. This is how you help your employees grow, and it's how you help your firm grow. Your firm's profitability comes from the fact that you can charge greater than an employees costs to your clients. That's the basic idea behind a services business, otherwise you're all just independent contractors. So your source of profits is the amount you charge on top of your employee costs, and that could vary by level. The number of people at each level, and the amount you charge for them, depends on the nature of your work and your firm. Figuring out the rate balance and the right growth rate is one of the most important parts of managing your firm (probably second to creating a great culture, although the two are related). The reason that the firm in the article is able to raise more revenue by raising prices is because they've been undervaluing their own work this whole time. Once the price starts to better reflect value, the way you grow is by sustainably hiring in new people and growing them with the firm - the price mechanism is money that's currently being left on the table, it's not a growth mechanism.

DougWebb 14y ago

pnathan 14y ago

One thing I always wonder is how to break into the consulting business. The earning potential looks considerably above the salary employee potential. My current skills & expertise are very much "backend", and I don't have networking connections with people who could offer significant amounts of cash for the solutions I could offer. (Put another way, I only know very small business owners, as they are the dominant employer in the area). It seems as if the best way in is to get hired at a consulting firm and really understand how tech can drive business value. Am I off?

scarecrowbob 14y ago
Personally, I just found built up some savings to give myself a runway, found two small-ish but workable projects/clients, and quit my job... It was a bit easier because I was not making a lot at the job anyhow-- I basically had to sell one small project a month to replace the income on the job (maybe 3 or 4 days of work), but after that I simply tried to be nice to folks, super available, and really knowledgable. Your situation may be different. It doesn't hurt that I'm 90mi outside of Austin, so there are a) no jobs here to tempt me, and b) a whole lot of possible work within a small drive. But I also have to have a lot more going on than just my specific tool chain of computer skills-- I have to do a lot of business strategy and networking things, even if that usually just means eating lunch with folks I've worked with just to keep in touch.
Spooky23 14y ago
It's all about the networking that you do. Also, the small business market is pretty brutal, and ends up being a numbers game... Your rate is too low to make a living without scaling out. Big consulting companies are all about applying a predefined framework to business problems. VARs or similar companies partner with bigger fish to provide pro services to markets that aren't valuable enough for the parent company. An IBM partner will peddle servers and implement IBM products, etc. A freelancer is all about subject matter expertise. Your either an expert in technology x, or an expert in implementing technology x to vertical market y or integrating technology x with technology z. Your customer might be the end-user, or you may be a subcontractor.

kalid 14y ago

I made a calc to crunch the numbers, here: http://instacalc.com/10103 http://instacalc.com/10103 [Shameless plug since it's my own pet project :)]

dools 14y ago

The advice that everyone trots out on HN whenever someone mentions hourly rates of BILL BY VALUE CREATED!!1 goes beyond being trite: it's confusing and damaging. One of the most important things I ever did was work out my hourly rate, using exactly the method outlined in this post. If you're early in your career, you can't just waltz in and say you're going to charge someone $4,000 to write them an email responder sequence. By working out the inelastic base hourly rate at which you need to work in order to earn a level of salary you ensure that: 1) You know exactly what your opportunity cost is versus getting a job (ie. you are making a conscious decision to work for $40k/year instead of the $90k/year you could earn if you went and got a job somewhere) 2) You know that when it's time to scale, what you'll have to be able to charge in order to hire someone at "market rates" 3) It makes your negotiating position much much stronger - when people try to screw you down on price you know precisely where your "bottom line" is - at what point am I losing money here? If you want to bill based on value created, that's great and it's something you can achieve once you've developed a strong position in the market and a bit of a track record. Up until that point (and even afterwards) it's vitally important to know the base cost of an hour of your (or your employees time). Saying that someone shouldn't work out their base hourly rate because we should all be billing based on value created is like saying that you should run a retail shop and sell everything according to the maximum you think people should pay, but never look at the cost of purchasing the stock in the first place.

deleted 14y ago

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