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Thomas gave me this advice several months ago, and it made my life as a consultant less stressful and more lucrative. It worked particularly well with a menu proposal: here are three different engagement lengths with expected project details for what we can accomplish, which one works best? Instead of them quibbling about my rate, they just said "The difference between B and C doesn't matter too much to us, so we'll drop the last week and pay you the B rate. Cool?". Worked perfectly for both sides, and I got a week with family.

You are absolutely correct about this. People at all ends of the market spectrum have a very strange psychology about hourly rates; for some reason, if you hand them a quote that foresees 10 hours at 175/hr and is expressed that way, that strikes them as an eye-poppingly high number. They start comparing your services to the prices to those of high-end attorneys and accountants and so on, exercising prejudices about how programmers should be paid less than that because they are more like plumbers or electricians than litigators, and general wheel-dealing, bargaining, nickel-and-diming, etc.

In addition to that, the large-scale body shops serving the enterprise market, the ones we all know about that darken the skies with individually-billed people and squeeze as many hours as they can without the impression of efficiency, have left such a bad taste in the mouths of many people who no longer work in enterprise that you invariably have to fight against it every time you sell your services.

But if you hand them a quote for 1750, even with the 10 hour estimate baked in for their mental math to operate on (but especially if it's not, and once you quote an aggregate price itemising the time apart from overall delivery time frames for the most part ceases to be necessary), some switch flips in their brain. I cannot say what it is, or why -- it just does. Somehow, the combination of shifting the risk for overages onto you and the more opaque number causes them to start evaluating the overall sum more in terms of business value and less in terms of whether anyone should be making "that kind of money." It's really odd, but it has been overwhelmingly the norm in my line of consulting trade.

I wonder how much of it is that if you bill $175 an hour, they instantly compare it to their own salary.

If it is someone in purchasing, it is higher than them. If you bill someone at an executive level it is equal to them (and they will think of this as below them), if you bill an engineer they will think it is higher than them.

Now, I'd argue that is a fair rate if you are that much more productive than the average developer, but it instantly makes people offended.

I still like the idea of billing by the hour though.

Perhaps, but the idea that a comparison of a contract hourly rate for a short-term project vs. a salary is in any way, shape or form apples-to-apples is absurd. That doesn't stop some people with no elementary business sense from failing to realise it, though.

If you quote the rate, and the project takes more time, it becomes their problem; they have to pay more now.

If you quote the overall price, and the project takes more time, it's not much of a problem for them; they won't end up paying any more than they would have otherwise.

Stop! There is no reason why you have to assume the project risk just because you chose a more sensible metric to quote the price with.

Provide a top-line project cost number as an estimate, and then add an "additional time can be added to this project as needed at a rate of $XXX per day" clause.

The question of who assumes project risk is orthogonal to the question of how you choose to break out project cost.

I'd rather that part of my service is to give my client a sort of guarantee on the cost, given the requirements[1]. How many hours I work? What technologies I use? What OS do I work on? What's my text editor? What version control system do I use? These are things they shouldn't have to concern themselves with -- I'm a black box.

Do you ask Apple how much it cost them to make that iPhone? No!

[1] If the requirements change, then of course, my price will change (most likely increase).

Well, yes. Exactly. :)

I think you both make good points. I'm more in agreement with you than the author, but I voted up the article for this line which is a gem:

> Any client will have grand dreams of his product. He will constantly ask for new things, and think those were naturally implied from his vague sketches. If you have quoted a fixed price, and you were smart enough to have a detailed contract, you will need to fight him on every step, saying "we didn't spec that". Whereas, with an hourly rate, you can say "sure, let me estimate how much will this be". The client can then decide if it's worth the money.

Perhaps his method is better for projects with unclear scopes or first time buyers, and yours for clear scopes and veteran buyers? I see merit and potential uses for doing it either way, depending on the circumstances.

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.

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.

This is typical, and is expected by enterprise customers. Additionally, it's expected that 1 billable day could end up meaning anything from 5 minutes telling a staff tech which wire is crossed, or 15 hours working an exceptionally challenging problem. ymmv, and it all evens out in the end. If you feel like you're getting the shaft over the course of several projects, that's when you know it's ok to raise your rate (or that you need to improve your skills).

It depends:

- With some customers with large budgets and long projects I found that hourly quotes gives me a quick way to increase the team instead of negotiating a whole price. Say you have a team of 1 project leader, two developers and one QA and you found that you need two more developers because requirements changed, some customers just say "yes" and you are billing without too much sales and negotiation overhead.

- With agressive negotiators it's better to go to the fixed price (adding % of risk to your total).

Also when we quote by hour (indeed by days) we set a minimum budget for the project, so the customer can't reduce the project to just... three weeks, small projects can be a pain.

Because many projects we did involve reverse engineering and research we bill for that if the time required to know if a solution exists is more than 3 days and can't be solved in the pre-sales stage.

All I'm really saying is that "hours" is the wrong unit to negotiate prices in:

* $400/hour sounds expensive to anybody. But $32,000 might be cheap as far as project budgets go.

* Conceding $400 -> $350 is, first of all, more expensive than it sounds, and second of all is a concession that will last endure across all your projects. On the other hand, there are many levers you can pull to get $32,000 to $27,500 if that's where the client's budget needs to be.

At the end of the day, your "hourly rate" doesn't mean anything. Clients don't buy "hours", they buy outcomes (or checkboxes). Thinking about things in terms of your hourly rate is a good way to box yourself into bad engagements.

We obviously do a lot of reversing work too, and of course we bill for it --- it's part of the "Discovery" phase of projects that require it. There've been a few times when I've had to bust out IDA or a debugger to write a proposal, but they are rare.

$400/hour sounds expensive to anybody. But $32,000 might be cheap as far as project budgets go.

I think the use cases you describe are very different from most of us. You said you could spend upto 3 days just working on a proposal. For some of us, 3 days of billed work with one client is the average size of a complete project. Can you see then how it may not be efficient to spend a day just working on a proposal and spec'ing things?

Like you, I always believed that as a client you pay me to achieve objectives--not hit keystrokes on my keyboard. In the past two months, I've refunded or canceled three fixed-price projects where it was simply cheaper for me to end it than proceed. One of them involved over 40 hours of work when my initial estimate was that it would be a 20 hour project. I refunded the guy's original deposit.

It's easy to say that I am just underquoting. But no matter what quote I give, I feel it's rather arbitrary given I cannot invest time like you to really delve deep into the project and get a real sense of the work involved. I have gone the whole "I am not going to underquote" route and after doing that for a sample set of projects, my post-martem revealed that I was either overbilling or underbilling clients. In essence I had some clients subsidizing the other clients.

This past week I've been working on my first "by the hour" gig. I've put in over 80 hours in the last 10 days. It's been a living hell for me work-wise. But at least I know I'll be compensated for it! And fairly! There was no way I could quote this client a flat fee and c

Additionally, if someone is hiring a contractor, that contractor may have a rate of $x/hr, but the customer is most likely going to pay them monthly because it's so much easier to work larger numbers into a fixed budget.

- With agressive negotiators it's better to go to the fixed price (adding % of risk to your total).

I tend to be very careful when dealing with aggressive negotiators. Yeah, they might negotiate aggressively up front, then be decent down the line, but I've had so many experiences with 'aggressive negotiators' attempting to change the deal later that I generally price in a lot more scope creep up front, and I make sure to charge them for things like phone calls or emails; things I might do for free for an easier to deal with client. I'm also much more aggressive about getting paid on time when I know I'm dealing with an aggressive negotiator than I am normally.

The thing is, good negotiators put a lot of effort into putting you into a situation where it's expensive for you to walk away, then they ask for more work before they pay you. I've seen guys who are several months late paying ask for another milestone before they send the cheque. The key when dealing with these sorts is to stay out of situations where it's expensive to walk away. Give the person a credit limit, (you are, after all, loaning them money when you do work post-paid) and if they exceed that credit limit, stop work until you get paid.

(I think one needs to be careful here; I don't think it's acceptable to threaten to break things if you aren't paid... but I think it's completely reasonable to just stop, and in my experience, stopping work is ridiculously effective. Every time I've tried it I've gotten a cheque overnight.)