Comment by TamDenholm | Hacker News Reader

Comment by TamDenholm | Hacker News Reader

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.

In my experience its been much easier to pitch clients by quoting an hourly rate, every time I've tried to do a project rate it falls flat. I can't tell if its sticker shock or my presentation of the value isn't very good.

Love to hear if there are tips out there for the sales pitch when doing these kinds of bids...

What kind of projects?

Usually web development, sometimes design + dev

Small (<10 people) companies that I've worked for will sometimes quote an hourly rate, however they quote different hourly rates for different types of work, or different roles. An individual may (or may not) be able to do the same thing. Bill $500 an hour for managing/consulting, $25 an hour for super simple HTML editing (making text bold), and various rates for everything in between.

Will you happily pay $20k if you know that someone else, billing by the hour for the same quality of work, will cost you $10k?

This is a great point that people rarely make in these discussions.

If you want to do value based pricing, you need to have a sales pitch that differentiates you from the market, or risk pricing yourself out of said market.

Making a lot of money per <hour|day|week|...> doesn't come down to just asking for it. You have to market yourself.

Yes, because the value consultant charges more but also provides more. In addition to understanding the technical aspects, he also understands the business aspects and can speak the client's language (business goals) freeing the client from having to micro manage or go deep into the weeds of the tech nitty-gritty. Best of all, the value driven consultant knows what's truly important and can intelligently focus his technical efforts on those areas which provide the biggest payoff.

As others have stated elsewhere in this thread: there are people who are willing to pay you a lot of money so you can free up their time and let them focus on activities that generate a boatload more money than $10K. These are the people who will happily choose the $20K offer, and these are the people you want to work with.

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.

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.

Great point, but in the analogy the drawing probably still looked like crap ...

That was a Saturday Night Live sketch starring Jon Lovitz yelling, "I'm Picasso!" and trying to pay his tab with a scribble on a napkin. I think Kevin Nealon played the waiter.

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