1-person agency: lessons on negotiation after 6 years
Every negotiation should start with “No” - Chris Voss
In Poker, the losers tend to be the ones who revealed to much, the winner tend to be the player who revealed the least. In contract negotiations, it pays to just let the client do most of the talking, let them give up their hand, and you to just listen and ask questions.
When I started I charged my clients an hourly rate. I had about 6 years of professional experience, I aimed for $150k/y salary. As a contractor you should charge about 1.5x what a salaried employee should get, so around $225k/y. This roughly comes to around $110/hr.
Your hourly rate is your calling card, it reflects your skill level and your reputation. I subscribe to a school of thought to NEVER lowball your rate, even if you have neither skill nor reputation. Always ask for more than you’re comfortable with because you can always offer discounts.
Especially in enterprise sales, all the budget has already been calculated and allocated at a fair market price by the purchasing department. Them asking for your rate is just a song and dance to catch suckers who might be behind the curve - a cost saving. Once you enter at a lower rate, you might literally *never get your normal rate back,* because the purchaser’s performance is measured by their ability to keep the rates the same. Do not enter this fight, you will lose.
For smaller clients, their objection to a higher rate might be more legitimate, such as they’re strapped on cash. It’s beneficial to know if that’s the case from day 1, so that you won’t have any surprised when the payment is due. I’ve never been cheated on a contract (ie. not get paid) because my rates typically sort out all the bullsh*t low-ballers ahead of the time, the people who squeeze every penny and do not value your work.
A good first goal to aim is to set your rate so that 2 months of work is above the small claims court amount in your jurisdiction. In Canada, above $35k owed can be a criminal offense, so I made it my first mission to get my minimum monthly rate to be around $16k as fast I could.
* Principle #1, never lowball your rates.*
When your client push back, you should offer discounts. What kind of discount?
Discount with project scope, or with deliverable depth, or with long-term support, or with scheduling flexibility. Some of these non-financial perks are more valuable to your clients than the monopoly money they're spending out of IT budget - all the more reason not to send an "amateur" signal with a below-market rate. Don't discount with rate if you can possibly avoid it
I’ve offered many “discounts” to close a deal, that doesn’t involve me dropping my rate, for example:
* Offered a 2-weeks discovery project period with walk-away clauses for both parties. * Created extensive project documentation to enable my client to apply for Canadian government R&D grant (SRED) that can recover 35% of project expenditure. * Represented my client as an internal senior dev to close large extension contracts with their clients. * Connected my client with an AE at Stripe, landed them $100k worth of free credits. * Scoped MVP to predictively get my client’s product to market 50%+ faster.
* Principle #2, offer discounts, the money kind last.*
I've got 4 more, but I'm limited by the 4k char limit. Rest of it is on a notion doc here.
https://spacestationlabs.notion.site/Explosive-Solo-Dev-Agency-Playbook-Price-and-negotiate-like-a-pro-bc70b925f037414fa1b8370a1a2c4f9e?pvs=4