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Comment by dirtyaura | Hacker News Reader

Can you get better rates that way? How does it work?

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.

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If the clients you're dealing with are scared by person/day rates, stop working with them. This is an observation Patrick Mckenzie has made here perhaps 100 times: as you raise your prices, the quality of your customers improves, often dramatically. Charge peanuts, work for monkeys.

I've raised my rates in the past, and it has both helped business and improved the quality of my clients, no doubt.

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.

If the clients you're dealing with are scared by person/day rates, stop working with them

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.

What you're talking about isn't "hourly" versus "project", it's "time and materials" versus "project". You can bill in person/week increments on a time/materials basis, and in fact that's what you should do. You can write a consulting proposal that reads identically to a project-based contract, break out your pricing in person/weeks, and then write a time/materials SOW with a "additional time will be billed in person/day increments at the rate specified in this contract" clause.

Be careful; project risk and your billing increment are orthogonal concerns.

Right sorry if I my writing seemed to imply differently, I was definitely talking about time and materials vs project. I was just adding cometary to the discussion and not trying to refute a position, I apologize if my wording did not convey that. what I was trying to say was if a person is scared of by a day rate, because they want a total rate then I tend to shy away from those projects. I will provide an estimate of what I think it will take, but there is an understanding that due to the nature of software development that estimate will change the first time they change their mind. Which always happens in software development.

Understood.

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 1% of a $100/hr bill rate.

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).

Aahaa. Thanks, I hadn't really thought about it from negotiation perspective. So far, it's been a negotiation of scope: a client have set budget and we negotiate scope down to do it in budget. I'm probably not good enough negotiator/seller yet to get to the price negotiation phase: so far it's been that either client goes immediately away or we end up negotiating on scope.

This is the most convincing argument you've made yet (and you've made several good ones). I've definitely had clients say to me, "It's not my money," when talking about billing.

I've found with small customers to begin with a small, fixed price project. Show them the world and experience of their dreams.

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.

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