Poll: As a freelancer, how much do you bill per hour?
How much in USD do you bill clients by the hour as a freelancer? Alternatively, if you quote a flat rate for a project, what would it breakdown to as an hourly rate?
A Freelancer is a 26 year old who will design you a logo in her spare time. A Consultant is a man in his late 30s with 15 years experience and a tie. Since nobody can tell the difference via email, you get to choose which one you'd like to be viewed as.
Usually it's the consultants who hire the "freelancers" to do the work they proposed in their consulting.
Still, sometimes I find myself saying "I solve business needs with technology." Means what it should to the people who will sign my cheques, and I don't care to explain what I do to anyone else.
Since a consultant isn't the first thing people might assume when they look at me, I think it's important to remember it just comes down to being likable, genuine, curious, responsible, and caring enough to follow through. Respect is my currency and assholes filter themselves out.
Call yourself whatever you want, if the project was completed above my expectations, I'll gladly pay you whatever you asked for for the next project.
- Raised by a woman to not be a mommas boy.
They're just people. Treat them accordingly.
(I don't mean to imply any ill will on your part. I just thought you should know.)
I didn't mean to put anyone on a pedestal, patronize or be kind out of charity. It's the best lesson I've learnt. I spent 10 years of my life complaining about women and consequently found nothing but women to complain about.
As soon as I realized I complained because I cared I met the one of my dreams.
She's my heart, my compass, and the sunshine keeping me where I need and want to be... even when my mighty intellect forgets to breath, feel, love, and live for a living.
So now, I compliment freely from my heart. The most important things in my life haven't been understood because of my mind, but with my heart and gut.
Hope that clarifies, didn't mean to offend anyone, only live in gratitude a bit more. It's the new year ;)
But the main thing to watch out for is projecting that out onto "women" as a whole. It's perhaps obvious that some women are not naturally warm, or good at female-stereotypical skills, and may even be far more socially-inept-egghead than you are. And hence not exactly happy to hear "no, stay a woman (in spite of the well-known earnings gap) because we so value your feminine skills" or anything remotely resembling that.
I hope this helps a bit... I'm still figuring stuff out myself, of course, and expect to be for the rest of my life. True for everyone, I imagine, though many folks stop trying at some point.
Love:
I don't believe in being fanatically dependant or fanatically independent. Both leave you alone and without yourself. I do, more and more appreciate the middle ground of interdependance, which in turn helps us build up the things we need to get better at.
About love "lasting": Loved and lost several times. Death, cheating, and more. Glad to have the sobering reminder and well wish, though. ;)
Love, though, is one of those few things that must be understood with the heart, not the mind. Most pain occurs when we try to understand something using our mind when we should be using our heart, or vice versa.
Relationships:
Where I've seen others succeed, a solid relationship of any kind (love, friendship, business, family) is about relating. To ones self, each other. We can only relate as deeply as we can connect. We can only deeply connect to others as deeply as we can connect to ourselves. Developing this connection is key. Developing communication, caring and most importantly learning to ask "What else could this mean?" and assume the best, instead of the worst brings people together.
The #1 barrier in the way to our own happiness and fulfillment are the barriers we need to remove within ourselves. Instead of being the cynical bastard I enjoyed being for many years, I found it worthwhile and more fulfilling to keep kindness and giving fashionable. It's not a curse that I'm wishing on women, or my fellow beings on this earth.
Approach:
Through it, while I am a worst case strategist, I don't dwell in worry. Worrying/Doubt is paying interest on money I'll never borrow. Resentment is taking poison myself and waiting for someone else to die.
Too much doubt isn't healthy. Neither is too much hope. It's good to be aware of what might be possible, worst and best case, but not to use it as an excuse to not try.
To me, it's about becoming a well rounded individual. What I learn with someone, from someone, I forever get to keep. The shortcomings in myself I get to bridge, are my rewards I get to keep. The same goes for when others randomly get something from something we say or do. Some of the best relationships are ones that are mutually, and indirectly committed to the growth of another.
My better halves:
When we, automatically assume the worst (doubt) about someone, or something, we divide.
About "female-stereotypical skills", I have no clue what you're talking about. I simply said women are men's superior in every way. How free thinking open-mindedness might choose to interpret that and stick it into a box of stereotypes is not tied to what I said or implied in anyway.
With social awkwardness, in the thousands of folks I've met in business, volunteering and life, there's far more males than females who suffer from this. Wishing someone to be open, warm, kind, giving is not a curse or a judgement, or a stereotype. It's just becoming, and being a well-rounded individual.
On the whole, females learn much more the social side of being human from the playground onwards. Women are far more socially, emotionally aware than men, regardless of their disposition.
When you've been in the trenches with both genders, you realize women truly have some gifts of intellect, emotion, and more, where they are far easier able to grasp and live by than most guys.
What's the saying, a guy will figure it out weeks later? :)
I agree wholeheartedly about a balance between dependence and independence, and have posted on this subject before.
Stereotypes: roughly, that women are better at supporting/nurturing roles, are good with children and the infirm, are better at navigating the social world -- like knowing how to smooth ruffled feathers, etc.. Whereas men as more tone-deaf socially, but are better at raw intellectual or physical tasks -- "getting the job done". Which are the activities that, coincidentally, our culture also values more than "soft skills" (follow the money).
(Please note I am not saying these gender stereotypes are accurate or useful).
This is what I was hearing echoed in this: "She's my heart, my compass, and the sunshine keeping me where I need and want to be... even when my mighty intellect forgets to breath, feel, love, and live for a living."
See? You don't see "mighty" used to describe anything about women very often.
I hope I'm not coming across as judgmental, I'm just very wary of talking about groups in this way at all. It's not useful or factual to say that "women are men's superior in every way" -- if I were even in the business of saying which people are superior to which other people (I'm not) then I have to imagine it would be a big muddle of both genders.
We are first individuals, then we can be split up into groups by gender, origin, age... lots of factors, but we are individuals first.
So I still don't like talking about characteristics of "women" as a whole, as if they applied to all women (including specific, individual women you encounter in comment threads). It's not fair to the socially awkward, mighty-intellect women for one thing, and I don't think it's very helpful even to naturally warm and giving women either -- it praises them and limits them at the same time. If a person's gender gets credit for how wonderful they are, the individual doesn't.
It's better to praise the specific women in your life, I think. I seem to have ended up with most of my close friends being female, but that doesn't mean I like every woman I meet, or dislike every man. They're all individuals first, right? We're all better off working to avoid making assumptions based purely on something like gender, and simply dealing as much as possible with individuals.
My sense of it is that a lot of people talking on HN about freelancing could stand to do that right now.
None of this has anything to do with what you call yourself. No two clients will give you the same answer about what differentiates a "consultant" from a "contractor" from a "freelancer".
this is Zen
Precisely, it's why it's up to us to figure out which relationship they're looking for and do it if we can.
A good idea is always to dress well, speak well, write well, and be pro-active/thoughtful in ways that count. That always comes across excellently in reinforcing your value no matter what you do at any rate.
(b) Raise your rates.
I don't care what your reason is for charging less. I don't care if money isn't important to you. Try it. Talk less about why you charge this or that. Challenge your own assumptions and try raising your rates.
It's fine to benchmark yourself in $/hr, but you should quote project rates or person/day or (even better) person/week rates.
How many hours a day you work has nothing to do with how many "hours a day" (ugh) you bill.
You, in particular, and an impossible consultant to find on the general market. For even the best-capitalized companies in the world, people like you do not exist. They are hiring PCI consultants from body shops to validate new cryptographic protocols. I know this, because I read the reports they give their clients before demolishing those same protocols.
I know a couple other people with the same portfolio of talent. They, too, want to work in sub-day increments. And they do. But they bill project rates, because they can.
You are billing yourself out like a graphic designer. Stop doing that. Or don't, but don't pretend like you're being clever about things for undercharging.
To be clear, if someone calls me up and says "I want you to do 10 minutes of work for me", I'm going to say no. The sort of consulting I most enjoy is where I'm going to be doing 50+ hours in total, spread over many months. It's not project work; it's expert-on-call work, and if I had to quote a project rate every time someone wanted to ask me a quick question, they wouldn't ask quick questions.
In between projects, you make it known that you are a friendly guy, and bending your ear for a few minutes is free. N.b. This is how lawyers will generally work. This is to maintain customer loyalty for the five figure engagements. Plus, since you're doing it out of the goodness of your heart, you have an instant, built-in non-excuse for unavailability.
One thing that I don't like is getting into situations where any one customer expects too large of a fraction of my time: I work for two reasons, making money and new experiences. Perhaps it is because I usually only work for very technically saavy customers, but I find that I learn a lot from my customers and the work that I do.
I was in a situation all last year were I was working over 25 hours a week for a childhood friend's company and although both he and some of his co-workers were wizards, there was a large opportunity cost of not being able to do much work for my other customers.
Since I work remotely and thereby compete with offshore talent I don't charge much for my time ($60/hour) so the experience that I get has a fractionally large value. That is why I don't personally like the idea of weekly or monthly billing. I understand how it might be different for people who work onsite and bill a hefty rate.
Most, if not all customers are in the software business somehow and don't know the first thing about managing software as you said.
I have a recent customer wanting me to babysit a developer in house for him. I told him I don't run daycares and he's free to setup a full development team in-house which I'll completely help with transitioning and then relieve myself.
He didn't write back.
Have you tried raising your rates?
I work almost 95% remotely for multiple clients across North America charging on the higher end of this poll. I get my work through referrals for the most part, but have learnt the art of closing a lead on twitter.
This arrangement doesn't work under all circumstances, but on the rare occasions when I've agreed to commit myself to full-time work with a single client, I've found that it cost me on all three of these measures. It does mean that I've sometimes had to say "no" to potential clients for whom my style isn't a good fit.
I have been working a long time (since early 1970s, but I have almost never worked more than 32 hours/week). While it is easy for me to say since I am financially very stable, I believe it is such a mistake to maximize financial wealth instead of experiences and general lifestyle. Real wealth is mostly family, friends, travel, etc., once one has the material essentials. Based on seeing your open source projects and writing, you may agree with me.
I'm still (yes, still...) working on my PhD, but I'm consulting full time nowadays, and have been for a while.
I do tend to work far too many hours, but it's mostly because I'm enjoying what I'm doing, and am learning as much as I'm doing for clients. That said, I feel very fortunate that I spent a lot of time with my children, and that I have the flexibility to help my wife out and work on other things (e.g., the PhD) along with paying the mortgage and such. We've taken a 10-day family vacation to Europe for the last two summers, as well; travel can indeed be addictive!
I don't think that there's a tension between maximizing profit and family/friends. On the contrary, one of the reasons why I'm interested in the discussion here is that I'd like to make more during the hours that I do consult, so that I can work fewer hours and have more time to work on personal projects, sleep (!), and family, not necessarily in that order.
If a client demands per-hour when you've delivered a per-week quote, tell them "I don't work in hourly increments; if I spent an hour on your project in a day, I can't effectively work for any other client that day, so my minimum billable increment is a person-day". You can do that with weeks, too: "sorry, the tempo of my work is in multi-week projects, and if I work only part of a week for you, I've ruined that week for any other client".
A client that demands a statement of work broken out into hours may be pathological (bear in mind that lots of F-500 companies have idiotic time-tracking software that bills their internal people by hour, and bear in mind that every F-500 company has a "purchasing" department that exists almost entirely as a hazing ritual for outside vendors, and you probably shouldn't blame your actual customer for their purchasing department --- just don't change your terms for them.)
Vendor hazing ritual is a great analogy.
Lol, you just put several years of my life into a clear statement. Entirely the reason I don't do enterprise stuff as much unless I'm dealing with high enough decision makers who can clear the path for me (which is not often enough)
You don't need to go through that whole song and dance. Simply make your hourly rate higher than your daily rate.
Alert clients will prefer to hire you by the day every time. As for the less alert clients, if you are in a kind mood you could tip them off to the savings they'd enjoy if they hired you by the day instead.
Modify your hourly rate upwards depending on just how averse you are to working more than an hour a day even for the least alert and/or deep-pocketed clients.
Incidentally, I'll happily work an hour for people I like (and it never bothers me when people ask). I just don't bill for it.
If they are paying at least your daily rate, why would you mind that your day is shot for your other clients? They are, effectively, hiring you for the entire day and paying what you've determined you deserve for it.
If they are inattentive/crazy enough to actually pay you more than your daily rate for an hour (or any number of hours up to the maximum number of hours you'd work in a day anyway), then that's just pure gravy. Same for the case when it takes you less than a day to do the work you're getting paid at least your daily rate for.
In your original post, you'd said "I can't effectively work for any other client that day, so my minimum billable increment is a person-day" so in recommending the raising of your hourly rate to more than your daily rate, I was going on the assumption that your daily rate would have been sufficient for you to accept the job in the first place.
Of course, if you can't afford to work a day for your new client because of other commitments, you'll either have to refuse the job or raise your rate to the point that it is worthwhile for you after all. Perhaps that's what you were referring to when you cited the 8x daily rate.
For example if you say to me that you charge $500 per hour for three hours of work to secure my system that sounds expensive. But if you say the charge is a total of $2000 to secure my system then I am evaluating if $2000 seems reasonable without regard to what you are charging per hour.
We are currently using hourly rates (around 100€/hour (130$/hr)). Rate is quite reasonable for our expertise level in our area. However, I have noticed that it scares smaller customers away.
I honestly don't know which one would be better approach: crude week estimates and price tag of 4000€/week/person, or detailed hourly estimates and 100€/hour/persons. Of course value based rates would be best, but not really possible in most of the iOS projects that we do.
But what's the reasoning behind giving weekly prices, why does it result in better rates? I'm sincerely curious about this.
A $1 discount is ~0.1% of an $800/day bill rate.
A $1 discount is ~0.025% of a $4000/week bill rate.
A $1 discount is ~0.001% of an $8000 project.
In what increment do you want to negotiate your rate? In full percentage points, or in hundredths of a percent?
And what figures do you want to be negotiating in: amounts that are low enough that your client can immediately get their heads around, like $100 vs. $150, or the real amounts their company will pay in the end, like $8000 vs. $7900, where an individual person at the company is less likely to feel like they should have a strong opinion?
Remember this: your clients are not paying you with their own money. It is monopoly money to them. It comes out of a budget, not their own pockets.
(To say nothing of the fact that when you bill hourly, you give your clients tacit permission to ask for your time in hourly increments).
I agree, there are no other industries where a professional will take on the business risk of another party with the exception of legal, and when they do they expect 30% of the case winnings. But for the vast majority of legal they charge for every hour worked. There is no reason for freelancers to work on a project compensation basis, they are shouldering unnecessary risk, that is usually due to the client not understanding development. Per project pricing immediately sets the freelancer up to have to defend against every change that inevitably comes in. Unless it is routine work, I rarely take on custom development work as anything other than an hourly arrangement.
Be careful; project risk and your billing increment are orthogonal concerns.
But in Israel, I've found that anything over $100/hour scares off everyone, including the very largest potential clients. They're used to paying $60/hour for top brass at a consulting firm, which makes it difficult to convince them that my higher rates are worthwhile.
I'm not saying that convincing them is impossible; I've made a living in this way for 15 years now, helped in part by my willingness to negotiate and discount my rates in exchange for long-term agreements. But whereas the US and Europe might have large, wealthy companies with technical needs who don't flinch at $150/hour or even $200/hour, such rates would get you tossed out on your ear in Israel.
That said, I haven't tried charging by the day, and will give it a shot at the next opportunity. I'm very curious to see what happens then.
Working with smaller customers does often mean a more limited budget so you can help them focus on getting the best bang for the buck. Help the customer grow and they'll have more money to spend with you.
The thing you can do with small businesses is pick the winning horses and bet on them. Find the owners that 'get it' while small and help them grow. This might be 1 in every 7-15 customers.
I have a customer I did at $5K project for a complete workflow management. It was a favor to a ex-vp of a company who had opened up his own business. Originally they wanted me to fix PHP bugs for that much but I just rewrote the thing in a few weeks. At the end I realized it was easily 3 or 4 times the cost and I made sure they knew this was it. I resumed my normal billing rate (they had no problems with it) after a problemless launch. They had been trying to build the same system for almost 2 years with someone else and were pretty happy.
4 years later they don't have a budget for me: as in, they spend whatever they want because they've at least added 20,000 sales/customers to their system. While this didn't happen because of my software alone, (they had an excellent manual paper system), helping automate their systemization sure helped them take off.
Do this kind of work not as your primary but maybe 20-30% of your time. It can really be enjoyable to help a good small company grow.
If you don't know whether you'll be in court for 3 hours or all day, you need to charge for a full day. Otherwise, if you estimated 3 hours in court and then back to the office to bill someone else for the next 5, but instead you're stuck waiting for the judge for 6 hours, someone has to make up the difference.
Simplest solution is to just always charge for the full day.
If you can bill $350-$450/hr in groups of 40-80 hours at a time without blinking, please disregard my advice.
Case in point: About a year ago, I started to charge on a daily basis for courses that I teach. (Previously, I had just given them my hourly billing rate, and multiplied it out by the number of hours/days in the course, plus for preparation.)
I was pleasantly surprised to discover that this simultaneously decreased pushback and haggling, while increasing the amount that I could charge for a course.
A daily bill rate aligns your incentives with your clients. Instead of scrounging for hours to bill, you estimate how long things are going to take, and get a premium for getting things done quickly. Everybody wins.
I thought it meant that I price my time in 8-hour increments. Which means that if I have to leave early, and put in a 4-hour day, then I only charge them for half of that.
Are you saying that if I bill daily, then I can charge for a full day even when I work only half a day?
I'm all in favor of finding a formula that removes the impression that I'm trying to gouge clients, or that I'm taking advantage of the blank-check aspect of hourly billing.
Of course, at the end of the day, it all comes down to trust. Fortunately, in almost all cases, my clients learn that they can trust me to be aligned with their business interests, and that I'd rather help them to succeed than find new ways to charge them without working. However, if there's a way for me to profit more while simultaneously increasing their trust (or reducing the time it takes to build such trust), then I'm all in favor.
What you do is, quote your client an estimated time to completion for your project in (in order of preference) weeks, days, (or only if required) hours. You have a minimum increment, which could be a week, or could be a day, but shouldn't be an hour.
Then you get the work done as quickly as possible and charge your client using that minimum increment.
But yes, I can very easily see how someone could take advantage of hourly billing.
As for how weekly billing works, I'm afraid that I didn't understand your example. It sounds like I estimate a project as taking two weeks (i.e., 10 days). One week into the project, it looks like it'll take one more week than I originally expected (i.e., a total of three weeks). So I tell the client that it'll now cost them for three weeks of my time. Did I understand you right? And if so, how is this a win?
You do a proposal for a client. You give an honest conservative estimate of how much time it's going to take.
Say it's a Rails CRUD app with no special domain code. Ok, 2 weeks, broken out into 2 billable weeks. The proposal says something like:
Week 1: 5 person/days, $5,000 (Setup, Discovery, Backend)
Week 2: 5 person/days, $5,000 (Front-end, testing, delivery)
TOTAL PRICE: $10,000
This project will be billed on a time/materials basis, starting Monday January 23rd and continuing for 10 contiguous business days through February 3rd. If additional time is required to complete this project, it will be billed at a rate of $1,000 per person day, provided that notice is provided within 1 week of February 3rd.
Presto, a proposal for a project that costs $10,000 billed time/materials at $1k/day (again, lowball figs).
Now, 2 weeks to complete this project is conservative. Also built into every proposal, whether you like it or not, is the collection of moments in every working day where you are not productive. So ask yourself, if I took 100 provigils† and eliminated ALL NON PRODUCTIVE TIME from my schedule for the entire next 2 weeks and completed this project in 7 days instead of 10, who should get that $3,000 of value I just generated?
The answer to that question is "you".
You don't generally want to rig your contracts so that they are padded out with unproductive time the client pays for; that's called "rustproofing" and it's bad business. But at the same time, clients actually value determinism more than they value any single billable day. If the client accepts a project for $10,000, they are going to be way more irritated if the project takes 15 days to finish than they are if you finish in 9 days instead of 10.
You have knobs to turn here too. Say you finish in 9 days instead of 10 because you drug yourself into working 18 hour days. Keep the $1,000. Say instead you finish in 5 days instead of 10 because the project turns out to be way simpler than you expected. Well, in that case, give the client their $5,000 billable week back. Think of this in terms of a minimum billable increment, where you don't credit partial weeks --- if you had to work at all in that week, that week is shot for other clients --- but will credit full weeks.
You see now how it's maybe not in your best interests to have your minimum billable increment be "one hour"?
† Please don't do drugs.
This comes closer to per-project pricing from the client's perspective, which they prefer because they want to know how much they're paying. (As you put it, "deterministic pricing.")
I tend to time-slice my weeks, so I don't think that it would work for me. But it might well work for the people who work for me, who do tend to work complete weeks on projects.
I do have to wonder how Israeli companies would react to this sort of thing. My guess is that they'll do the math, and then complain about the high hourly rate.
But the only way to find out is to try, and you've definitely inspired me to give this system a whirl. Thanks so much for sharing.
No, I'm a professional, and I expect to be compensated appropriately for my time and effort, just like the lawyers and accountants and other professionals I pay in turn.
I don't understand your unwillingness to accept this way of working. You seem to assume that it will result in a lower total income. I have encountered no evidence that this is how real life works. Maybe it's how the game is played in your particular field and/or your particular location, but it's certainly not universal.
Also, like some others posting here, I do value the ability to work on multiple projects simultaneously. I don't want to commit an entire week of work to a single client on a single project, if that is neither interesting for me nor providing good value to the client.
Also also, I like not being expected to stick around free of charge for another two hours after an 8-hour meeting 100 miles from home because my client wants a quick chat. Indeed, if my clients need me to attend a meeting 100 miles from home, I'll be happy to do so, but they're paying my full consulting rate for the travel time as well. When you're working on a day rate, particularly a relatively high one, it's funny how often your days start to become more like two of my days.
None of the rest of what you said has anything to do with hourly versus daily billing.
I can see the argument for fixed price vs. T&M billing. I guess I just don't see why going as far as daily/weekly billing doesn't net a significant part of the downside (no hard limit on hours vs. compensation, no clear cut-off where clients have no claim on any work I do other than for their project) without necessarily netting much upside.
As I said, perhaps that's the way the game happens to be played in whatever markets you've been working in. I'm certainly not saying you're wrong about your own situation. I'm just suggesting that your comments here are black-and-white but don't necessarily apply to everyone else's situations as well.
If I am billing weekly, but in practice I do 2.5 days of work for each of two clients, do I bill both for the entire week? Most of Thomas's arguments for rounding up in these longer increments on the basis of opportunity cost demonstrably don't apply in this context, because clearly I can use the other time to work for another client. The best outcome I see if someone I'm working for finds out is that I have an unhappy client and probably lose the contract -- which is fair enough, frankly, if I'm billing for a week but only actually working for them for half of that time.
For the avoidance of doubt, I'm not arguing against having a reasonable minimum billing period so clients don't mess you around and so you can manage your time sensibly. I'm just challenging the notion that "hourly" is not a reasonable period for some of us, and pointing out that "daily" or "weekly" can have serious drawbacks too.
Freelancer, Contractor, Consultant.
Each has it's own mindset. I wish I knew it when I started 12 years ago full time. When a customer asks something, they're asking for one of these three relationships.
When we get upset customers aren't listening, it's often a disconnect of which relationship the customer wants, and what you are offering. It's helpful to know which role you're being asked to play (and be paid for).
FREELANCER - Someone who you use from time to time to do a part of what you need. Directions provided. Generally freelancers work more part time than full time.
Typcially with freelancers you have to give notice on the order of 1-2 weeks.
CONTRACTOR - A regular expert who you provide detailed work instructions to. Customer cares more about your opinion but the strategy is still set by them.
If I'm asked for a design that leads to work, it's a quote. Typically the customer knows what they want, how they want it, or why, I'm just a hired gun.
Typically with freelancers you have to give notice for work from 0-7 days based on your arrangement.
CONSULTANT - A dedicated expert who is asked for their opinion of the best strategy to take, as well as delivering on it. Consultants can be part time, but most are full time. If all I'm being asked for is my professional opinion (and no ensuing work) I bill for that time.
Consultants are needed when you need expertise around at the drop of a hat to tend to things, or an ongoing basis to develop/manage/direct/drive internal business processes and hand them back in-house once management would like so you can focus on the next thing for them.
Customers who use consultants properly know it's not what it costs them, but what consultants save, or make them. Sadly, this type of relationship can often be perverted by consultants as well and I inherit people who have been burnt.
Me: I spent my 20's getting 20 years of experience in 10. That makes me about 40+ work wise, in my 30's. Consulting is heroin once you become capable at delivering value.
I am moving out of hourly/daily based consulting and moving to value based consulting, and entirely out of consulting as reasonably possible. If I do something that saves a customer $3,000/3 years forever, I ask for 20-30% of it regardless of whether it takes 5 minutes or hours.
I spent 15-20 man years working to learn how to do something in 5 minutes that will take someone 5 hours, if the customer is willing to pay for my 5 years to learn to do it in 5 minutes, I will bill them for 5 years, and then for 5 minutes.
I love learning and seeing this from different perspectives, let me know what you think too!
I don't have just one because I was all over the place until the last few years.
Long of it:
I've worked in tech sales, hardware, networking, repair, warranty, manufacturing, and software development, spending at least a few very focused years in each since the mid 90's. Some things, like web apps, I've been doing since the mid/late 90's.
My niche/expertise is learning why someone does something a certain way and make sure the software amplifies that competitive advantage. Otherwise I go about learning the business/need to find "how it should be."
Being able to understand and connect the dots from top to bottom is my drug.
The only title/position I've found some lasting comfort with is System Architect/Integrator.
I'm now in custom software development and transitioning into my own products.
I'm converting my consulting practice into into an automated business that lets my team be well paid for self-managing, and only uses me where I add value (customers hire our attention to detail, rarely our talents beyond that).
I want to be free to find the next great startup adventure I'll be a part of, but don't want to dishonor the customers that have supported me to learn what I have about myself and where I want to go in my life.
Not easy to do, and Finance/Procurement doesn't like it.
Disclaimer - I work in large enterprises. YMMV
The benefit with the value based model is you need to know your stuff to price it right for everyone. It's easy to consult a client once, hard to do it over and over. You're only as good as your last few projects and the best you can do in business is win some favor, loyalty rarely exists. Most of my clients have been with me for 4-10 years. They do my intros and referrals.
Pricing wise, sometimes when I'm asked to do something, I find out how long the task is taking an employee right now. Other times I come across a waste myself. Employees are quick to tell you their biggest mundane pains.
I estimate how many hours per week/year it takes, estimate their percentage of yearly salary towards, cut it down by 20% and use that as my value estimate on what to base it off.
It's realy compelling when you can walk in with a conservative cost of $X,000 a year for a particular task in a department and offer to get rid of it forever for 20-30% of it. It takes writing up a business case, having managers and employees sign off on it, and the trust and a track record to get it done. The customers that I've earned the trust of typically just tell me now to make sure I have a business case signed off on file and quit wasting the management's time with approval, and just report what I got done.
Screw that up once, and I'm toast. Keep it right, and it's good for everyone. Kind of like hiring a Lawyer and Accountant to get the details right. Would you lose your mind if your lawyer or accountant forgot a detail on your mortgage or accounting? Probably not. I just try to remember that's how much I'm being counted on and it definitely can have it's ups and downs.
I have worked Small up to medium enterprise (low billions) and nothing makes them happier when you can talk their language -- getting more done with the same staff.
My heart, though, is in SMB, there's nothing quite like it.
Sorry, for all the writing I did I totally should have not used any acronyms, lame of me. :)
You sound like someone who others may want to follow up with off-line. Please put some contact info in your profile. (Hint: the "email" field in your Hacker News profile is invisible. You also have to put it (in some form) in the "about".)
I recently discovered the collection of your posts and find myself nodding like a bobble-head. The like-mindedness on HN is a great feeling to be a part of and contributing to after lurking for far too long.
I have added publicly viewable contact info to my profile. Slowly but surely learning how things work around here. :)
However, I'm mostly intrigued by the idea of value-based consulting. I've spoken with colleagues about it in the past, and the concept makes sense to me, and is much more attractive than billing out by the hour or day. But it's not at all obvious to me how I would price, in a value-based way, the work that I do for my clients.
It seems to me that some jobs are more appropriate for value-based pricing than others, but if people could give some examples of how it works, that would be really helpful.
More immediately, you might ask whoever is buying your services for some insight into how your tasks fit into their business goals and the ROI they expect to get from the $ they spend on you. Someone at their org should have this. If not, you get to help them develop such a model which will likely be favorable to you.
Note that you will have to work with the business side to make value-based pricing work at all.
Crack my head open for re-flashing
- An open heart - Dalai Lama
- Love is the Killer App - Tim Sanders
- The Man who mistook his Job for a life
Consulting:
- High Impact Consulting - This book taught me to only do tiny but really painful items for new customers to build momentum. By getting short term, high impact/pain point items out of the way, it clears the table to say "This consultant has learnt my business and why we do things the way we do". Big projects land themselves. I call it dating before I get married.
All I know is most people start as freelancers, become contractors (more focused in an area), lead into consultants (enough focused experience to give advice and oversee it).
I've included one way I value based price above. It's simple, makes sense for everyone, and is measurable.
.. it takes a lot of time and experience to know the ideas that should be executed (and how), and if you can be rewarded for that, then all the better.
To run is easy, but to run and obtain health and not illness is the key.
Knowing which ideas to execute, when is the key.
Knowledge isn't power, acting on that knowledge is.
Similarily, Ideas are worthless without education.
There's a funny email I saw once about a consultant finding a faulty gauge amongst hundreds in a nuclear plant or something. He charged $10,000 for finding the bad gauge. Customer got outraged. So he modified the invoice. Fixing the gauge - $1, Knowing which gauge to fix, $9,999.
The flip side of this is when knowledgeable consultants don't get things done quickly. If you're going to hire someone at $5 overseas for 1000 hours, why not just pay someone more capable $5000 locally to get it done in a month (160 hours)?
I'm curious how many people are like me and handle home users and small businesses in the freelancer role.
Basic break/fix situations, software and hardware maintenance, and navigating the minefield that is consumer level equipment.
One of the big 'aha' moments I had was when I didn't have to bill my customer minimum 1 hour to drive to their site if they were in town. I offered to bill in quarter hour increments if I could try addressing it remotely, and if it didn't work, I'd come in. Having the keys to everyones offices is something I didn't enjoy, remote access made it a bit easier.
The other key 'ahas' that helped me transition from IT work to more software work were:
- Work to always replace myself. Most IT / developer types are of two categories. The ones that make you dependant on them, and the ones that make you independent. The consultants that charge you to do windows patches every month on purpose do it because that's often the ceiling of their talent. The consultants that are bored to tears by doing windows patches but do it to get other work with the customer often automate it to a point that they can say "spend the money you would on patching on other projects with me instead and I will always automate IT as much as possible".
- Solid Email based Case manager - This is the only piece of software that changed my life. One item per case number, tie it to a billing system. If you do go this route, make sure you use a solid email based case manager like Fogbugz (or anything) that is well suited to keeping your work visible in their inbox since they don't see your face much. For me, Fogbugz found me when I juggled too many things manually and I've been loyal since. There are several other capable tools too, find which one speaks to you the best.
The toolsets for managing things centrally (remote access, antivirus, firewalls) are so much more polished and integrated, if you can get your business doing remote IT support/maintenance, there is a good business there.
If this is a field you enjoy and want to continue growing, feel free to hit me up, I'll totally give you everything I've ever learnt or known about this so you can scale up to a .5-1 million/year revenue business pretty easily.
Example: a company I worked at spent about 2 years trying to get a project off the ground. It would involve hiring a bunch of consultants for $1.2MM, not to mention all the senior management time that was involved in approvals, spec interviews, etc.
6 months after I got there, they still hadn't managed to even get the project started. I spent a few days asking around to find out what the company actually wanted to achieve with this project. I then spent 2 hours implementing something that gave them the exact result they were looking for.
When negotiating a raise, do you think I mentioned how I spent a week building an Excel Pivot Table? Or do you think I talked about how I saved the company at least 2 million dollars and successfully completed a project that they'd been trying to start for nearly 2 years in under 3 months? (In reality, under a week-but I didn't want to make it sound too easy).
And that's how I became the youngest Sr. Analyst at the company before I left :)
If a client can give me visibility and ensure eg: 10 days per month for some months in a row, then I provide a discount on that rate.
I never do fixed-price projects and instead, provide best-effort estimates and bill by the hour.
So far this is the best advice I have seen in this thread. So +1 :)
I used to give fixed-price quotes and it burns you more often than not.
One way to put it is (and how I explained it to a client once): if you do fixed price and estimate 100, but end up having 120 of work, then you'd need to quote 140 (40 padding) to the next project estimated at 100, just to make up for your previous loss. In the end the uncertainty costs everyone.
For people willing to find how to do better estimate, I can warmly recommend following Mike Cohn training:
http://www.mountaingoatsoftware.com/agile-estimating-plannin...
(and related books), as well as acunote which I use to estimate, plan and manage my projects:
The key to either is being accurate at estimating, which in turn means being able to find the number and size of potential unknowns/gotchas in an estimate.
Get good at that and it's a lot easier, especially on projects you have built from scratch, which lend themselves a lot better to fixed-price quotes.
After working in this space for many years this is still a problem to 'sell' to many customers in our space (entrepreneurs (especially 1st time) and startups building web applications). Many people still think in terms of "how much this project will cost with this exact but not-really specified feature-set and deadlines".
There is this expectation for a consultant to assume the business and development risks.
Recently I think I found the explanation that seems to 'click'. When a client comes to us their primary problem is not having sufficient in-house r&d capacity and thats the exact problem that we can solve.
If they had the in-house r&d capable of delivering the project most wouldn't be looking for any outside help.
But with the in-house team no business risks would go away, scope and budget would still have to be tightly managed.
The fact that instead of the internal r&d team an outside company is handling the development will not somehow magically remove the risks from the picture.
and the fact that client would happily use in-house team means that removing those risks was never the real need.
An interesting follow-up question for the freelance community could be how many of us employee freelances beneath us.
I've added a freelance copywriter and designer to my team and it's a joy to be able to work with and support another freelancer as they develop their practice. It's also a joy to have some of the capacity problems resolved by the addition of another set of hands. (:
If you can see yourself billing out $90/hr in June, 2012, why not try this experiment: bill yourself out at $90/hr (actually, $720/day, please) in January. See what happens.
If there is one thing HN people get wrong about consulting, it is that they relentlessly undercharge. It's easy to see why: the stuff they do seems easy to them. It's not easy. There is a worldwide shortage of real, viable talent. Companies are falling over themselves to attract and retain dev talent. The stuff you are doing is not cheap.
If you are billing at a rate that matches what a good full-time Google employee makes, you are wildly undercharging; freelancing is expensive (you are responsible for all your own taxes and your own benefits, and for providing a cushion for yourself for dry spells) and the service you provide (flexible, on-demand work without bringing a full-timer on) is extremely valuable.
CHARGE MORE.
I have to say I find that hard to believe.
Now, to be fair I don't actually know if I am talented or not. It is impossible to accurately judge oneself, though I like to think I am. I've had the opportunity to play lead on some pretty big and successful projects for some major businesses using many of the technologies that are said to be hot right now. A present co-worker said something to me along the lines of "I have worked with a lot of programmers, and you are by far the best of them" and it seemed genuine. Take from that what you will.
Anyway, I've entertained the idea of working with some other organizations. Some have not been interested in me at all, and the rest were no longer interested after a short chat. Nobody has been interested in seeing the actual quality of my work. I'll accept that I just don't have that talent, but given the above, it seems to me that it is really just my marketing skills that are lacking – Which makes sense; I spent my spare time becoming a better programmer, not becoming a better marketer.
Given that, I remain skeptical of the talent shortages. How much comes down to companies just having no clue about how to hire people?
Is the market efficient? I'm sure not.
And it is completely fair for a business to seek a well rounded person. If you want someone who is good at marketing and development, you are more than welcome to look for that. You are under no obligation to hire anyone less. But it is not the technical talent that is tight.
Anyway, hopefully I don't come off as sounding bitter or something. I have an amazing job already and respect anyone who feels I am not a good fit for their organization. I just have to wonder if the shortage of talent is real, or if companies are passing over real talent for other reasons unrelated to the lack of skill in technology.
Edited to add: We're located in the SOMA district of San Francisco.
Edit: not to say you're necessarily wrong btw, just that there may be a higher standard for "talented" out there. Local maxima and all that.
Good. You need to be a problem solver, not a programmer. You need to listen to your customers and find solutions. That's how you show up the value you make.
I farm as a hobby, so I see lots of unique problems. In typical programming jobs you're just stringing together the work of others. There's lots of book learning to do, but not much actual problem solving.
There are people solving real problems, but those kinds of jobs are fairly rare, and often not very well paying when done in academia. Implementing working implementations based on those already found solutions are where the jobs are.
I need to remind myself of it more often than not, but it was once again driven home to me last week. A new (prospective) client wanted something (an electronic design) so trivial I couldn't believe he was even asking. But the point was that it represented real value to him (read: stuff he can resell for lots of $$$) for me to connect two simple parts together with a bit of wire.
There, you just more than doubled your income and your customers will not perceive you as being more expensive. (I know I know I know trust me on this. If they were mental math experts then they would be programmers and you would have money.)
You're basically handing people free money and they're too busy adjusting their plastic sheriffs badges to accept it. As if it were somehow dishonorable to charge your value in the marketplace. Craziness.
Regardless, people in Israel totally freak out when I tell them that I want to charge $100/hour. For Web technologies, that's considered an unheard-of high price. If I were to ask people for $150/hour, they wouldn't even negotiate; they would say "no." And I speak from experience.
(In case you think that I've only worked with small startups that are hard-up on cash, I've negotiated consulting deals with large Israeli and multinational firms in Israel. The response was similar.)
Charging more for a valuable skill set is totally OK. But you can't assume that every consultant on HN can simply increase their rates and get what they're asking for.
I should add that one solution I've had to this issue is to get some work outside of Israel, working remotely for people in the US, who tend to be more flexible on consulting rates.
Rather than viewing your pool of clients based on geography, it's more sensible and realistic to view it based on potential clients' need for your particular skillset or language or system, wherever they are.
US is still likely the main source of work, and some want US-based people only, but I'd say that's a minority. And it sounds like your English is native, which probably helps.
> What do you do?
Marketing strategy, SEO, Social, Websites, Adwords, Print.
> Why not try this experiment: bill yourself out at $90/hr in January. See what happens.
You're right. There's nothing that will happen that qualifies me for $90/hr in 6-months. All that changes is charging more for the work.
Thanks for the encouragement, tptacek.
Edit: For an American at least. I guess what I am more curious about is, what is the overhead for things like taxes, decent health care coverage, and insurance against dry spells?
* You own both halves of payroll tax
* You're out probably $500/mo in benefits
* You have no paid vacations or sick days
* You need to smooth out income for dry months
On top of that, contractors offer companies a huge benefit: getting work done on (relatively) short notice (plan-hire-rampup for an FTE can take 6-9 months) with no commitment (you can't hire an FTE to build a simple CRUD app and fire them when they're done). Your prices should reflect not only the (probably superior) technical acumen you offer, but also the structural benefit of working with contractors and not FTEs.
Long story short, you should be making MUCH more --- on a "per project, projecting the rate over an entire year" basis --- as a freelancer than as an FTE.
As a full-timer working for a big corporation, where would I even begin to start getting freelance work? I'm thinking about a change in my career path and see freelancing as a potential way to go about doing that, but I'm honestly scared about where to even start.
Go to a few meetups to build your contact network. Against the intuition, developer meetups can be a surprisingly good place to find new gigs. Startup meetups can work too, there's more biz people there, but in general startup gigs are usually not very good freelance work: high expectations, small budgets, lot of people biz people who know too little about software dev.
Sooner you get to big customers with bottomless pits of money, easier your contracting life will get. This was the biggest lesson for me. For big customers, you can do projects that save them big bucks. Boring, maybe, but pays the bills and you can use the free time to do fun things. So if you want to get your contracting life off the ground, don't focus what is fun, but what is most profitable.
If you don't have those contacts, you need to speak up and get your name out there within the community where you want to find work. Blog about the technology you work with, and show off cool personal projects. Join a local user group. If there is group discussion at the meetings, show that you know your stuff. Go to conferences and make sure you find people to chat with during the day and later on when everyone goes out for dinner and/or drinks at night. In short, it's up to you to show and tell people how great you are before they'll want to work with you.
For ala carte or ongoing work, I sell prepaid blocks of hours. I offer 10, 20 and 35 hour blocks; 10 hour blocks are at my highest rate, but if the client buys more then the hourly price goes down. If they don't use up all the hours, then they can bank them for later.
damn, freelancing sucks
I'm moving into freelance/contractor/whatever soon, but have zero "official" experience. It's a complete career shift. I code in my freetime and have started to build demonstration projects to throw up on github, but I look new right now.
Should I just charge a "can't beat this price" so I can get some experience and then up my prices to what everyone suggests? Or just pretend I know what the hell I'm doing and charge those rates from the beginning?
I'm already prepared to factor in unbilled, learning time but am not sure what to do on the actual billing side.
If you want to go through what talents you have that you don't think are valuable (but actually are) feel free to connect with me I'd be happy to share anything I know, I started doing the same in 2nd year uni about 12-13 years ago and haven't looked back.
I think a lot of "freelancers" must end up going through headhunters instead of finding clients directly? You might want to ask what your headhunter is making if that's the case -- I know of one body shop that only offers $50/hr to its contractors, while the client company is paying the headhunter $150/hour.
You can't even get a desktop support person out around here for less than $75/hour...
And when you're considering what you think your annual income should be keep in mind that you have to cover your own vacation, insurance, self-employment tax (depending on where you file), and assorted other expenses.
If we assume 4 hours a day, five days a week, 50 weeks a year of billable time you'll need to up the rate to make that amount as in-your-pocket cash.
50 * 5 * 4 * 120 = 120,000.00
If you are working backwards from a fixed salary you have to also add in the dollar value of additional taxes and insurance, plus whatever other benefits you might be getting.
$120K salary at a regular job > $120K in paid invoices from clients.
If you're a consultant or contractor or whatever, even if you work 8 hours a day they are not all billable hours. There's the tedious business work to look after (record keeping, business development, etc.)
I only know this because the person who was my supervisor slipped up and told me... I didn't stick around there too long after that and have built up a great group of consistent clients of my own.
Penny pinchers = lowest rate, but only as a discount when buying an hour block in advance. Rates are double for afterhours/emergency work.
Waffles = Project based billing so they have to describe clearly what they want. Then changes are additional, or rolled into the next project.
Rich/Busy/Business types = Hourly rates billed monthly net 30. These will generally just cut a check so long as 'X' problem goes away, and you're not a problem to deal with yourself. Best customer type to have. Just make sure you include the scope of what you've handled with the bill. Even better if you figure out what their approval limits are and stay under that.
Only being available for work two-ish days a week greatly reduces my client pool. Being 8 hours away from most of them doesn't help much either. (I don't like working locally because everyone puts too much effort into trying to rip you off)
Also highly relevant - Fuck you, pay me: http://vimeo.com/22053820?utm_source=swissmiss
Having a solid contract doesn't mean that you can't trust people. They just make everything legally binding so that if trust deteriorates (and it will if you do this long enough) that you'll be covered.
Also don't let the title of the video deter you, it's a (mostly) tongue-in-cheek title.
Why? You need some ability to walk away from the client without losing your shirt if the customer decides to go a completely different direction or completely rejects the result of your work. It at least keeps some food on your plate while you're doing the work.
I do 20% retainer of the original estimate upfront, which is on the low end compared to other contractors.
It's fair to increase your rates 2-3% every year for inflation, send out a letter 2-3 months in advance and it teaches your customers that things cost more every year.
I'm thinking I could move up to $75, if I didn't get benefits (very expensive and worth it here in the US)
If I thought I was working with a product where there were more people with experience around - I'd ask for less.
ALSO: LOWER RATE = MORE CLIENTS WHOM DON'T KNOW WHAT THEY'RE TALKING ABOUT AND DON'T WANT TO PAY FOR THINGS THEY DON'T UNDERSTAND.
I do agree that the lower hourly rate you seek/accept/charge to clients, generally the worse quality clients you get. Clients that want lower rates tend to be more clueless, less experienced, more tight-fisted with cash, more likely to try scope creep on every milestone, and they tend to concentrate too much on rate but not on total hours or quality or other positive qualities. They're more likely to think hard things are simple and simple things hard. This latter point especially is true of most non-technical clients, but in general it's more pronounced with the cheapskate/rate-focused clients, I've noticed in my experience.
My most significant customers so far have been impatient non-profits that want results yesterday. I don't know if that will remain my primary demographic. (c:
Fixed quotes aren't that common, though, unless the client already has a scope set out, or is willing to agree to one.
Time to move abroad perhaps.
Are the developers in USA really 10x more effective than in Asia/poorer parts of Europe, to warrant the 10x higher salaries? To me the answer is obviously not (I live in Eastern Europe), but perhaps there is some magical quality one acquires upon moving to the US :-)
Once remote, does it really matter that much whether the other party lives on the same continent? http://37signals.com/svn/posts/3064-stop-whining-and-start-h...
EDIT: Obviously charge western rates if you can :) My point is it's hard to justify the imbalance of market value that you mention, in case of IT freelancing.
I have been thinking about an interesting idea. Would anyone be willing to relocate to Bangalore for a 1 year freelancing gig? There will be lifestyle compromises to make, but you can save about 4k/month or more. It is insanely hard to find talented developers here, and I am thinking there is a limited opportunity for outsiders to come and work here.
Sort of like outsourcing backwards. I can help set it up if a group of people are interested in this.
(About to get into a plane, so will be replying only after 3 hours)
webbeetle - who tries to compete with rates around $30-40
If I'm looking to start consulting on the side, is it reasonable to charge lower rates at first to attract business and get some experience (something in the $50/hr range)
While I want to be paid fairly for what I'm worth, I also don't want to overcharge clients while I figure out what I'm doing (processes and services etc).
Anyone who's established will be easier to philosophize about why you shoudl charge more.
At the end of the day, no one pays your bills for you but yourself. Getting any work is more important than getting good work. Getting great work is more important than getting good work.
I don't know if I am doing it the best way but I did start ($50/hr in 1999) doing absolutely anything anyone would pay me for at that equivalent rate.
Also, figuring out your processes and services is complete BS. You never stop developing and improving them. I've trashed my entire setup and rebuilt/programmed it from scratch 5 times in 10 years only to finally settle on a happy-ish medium of Fogbugz and Freshbooks.
As another example, an ad firm I interviewed with a few months ago were charging $1,000 per day to develop a website, brand, 'strategy' etc. The $1,000 got you a developer (really just a mid-range non-programmer), a copyrighter, a graphic designer, and a project manager.
One thing I've learned is never do a flat rate, no matter what. Projects will always be different than what you estimate so do time and materials only.
That's just for general workstation & network support. Other 'projects' come with different pricing...