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> Why not bill on a daily/weekly/monthly rate?

I would need explanation on this. It's not that I disagree, just that I don't understand the reason of this recommendation.

I've read the other comments going in the same direction as you, and already saw it in the past written in tptacek's profile [1].

Do you mean that you always dedicate full days to a customer, and will always invoice them full days, even if you don't work all the time? If not, how do you do when you work, say 4 hours for one client?

How is billing daily/weekly/monthly more simple? Thanks for enlighting me.

[1]https://news.ycombinator.com/user?id=tptacek

Personally I work with monthly billing, and infrequently with weekly billing, so my experience is mostly with those two formats.

> Do you mean that you always dedicate full days to a customer, and will always invoice them full days, even if you don't work all the time?

When I'm on a monthly contract, it means "I will spend time this month doing X and Y to help your company achieve goal Z." There is no mention at all about hours. Nor does the actual time spent doing X and Y affect the rate. In any given month I am helping multiple companies reach various goals.

Some may wonder: "So how in the world does the client know you're actually doing anything?" Well, if after a month or two we're not any closer to goal Z, then I'd be out of work.

Not only does this turn the conversation toward ROI and real business value instead of counting hours, but it also gives both the consultant and company predictability: The company knows how much it needs to budget each month towards goal Z, and I can plan expenses ahead of time instead of living paycheck-to-paycheck.

Thanks, things are much clear now :)

Your first point is solid. On your second, I don't think the rate is tied to cost of living. It is setting a minimum rate necessary before the contract isn't profitable. The formula is:

Minimum Rate = (Potential Salary * 1.25 – Freedom Tax) / 1000

When negotiating with customers, the formula will be:

Offer Rate = (Potential Salary * 1.25) / 1000

Potential Salary is the area where your value is estimated. Since the customer will likely negotiate down, the minimum rate is simply the point that one should never go below.

bit low for contracting I would set my day rate at between 2x-4x equivelent gross salary for tech/location

eg for bog standard perl work in UK Central London) id be charging a minimum of $700-800 perday.

Basically $100/hour is a nice round number that seems to be roughly in line with the market for line of business application programming on a consulting basis. More specialized programming that requires particular problem domain expertise can command much higher rates, basically inversely correlated with the number of other devs who are able to do it.

No. "Potential salary" is a number based on a salary. Salaries are discounted almost arbitrarily because they include a long-term commitment from the client (employer) to the vendor (employee). How big that discount is depends on a lot of different factors, but: a 2-year 40-hour-a-week commit from a client at my last company would have garnered you a pretty freaking enormous discount.

You have to see the whole picture. There is always more being transacted than simply dollars for lines of code. When you grok that, you see that "salary" does not make sense as the "free variable" in your valuation equation.

Genuinely wondering what commitment you're speaking of. I've worked for some big names, in several states, but my employment has never had any commitment attached to it by the Employer.

If a company extended you a full-time job offer knowing that they were only going to use you for 2 months and then get rid of you, you'd be pissed, and so would HN when you told them about it. People would be disinclined to accept job offers from that company, once they found out what happened.

Legal commitment isn't the only kind of commitment.

Understandable, but I've seen several people let go because they didn't mesh with a company culture, within a probational period, and I think if it were me I wouldn't hold any hard feelings if such a thing were to happen.

I think we're talking past each other.

In a situation where everyone is negotiating in good faith, when a company offers you full time salaried employment they're expecting you to stick around for awhile. Depending on the company, this could be a year, two years, ten years. They don't expect to terminate your employment themselves. That's the commitment tptacek is speaking of. They're committing to buying all of your available work hours for an semi-defined period of time in exchange for a regular paycheck. Their legal commitment to you is generally extremely limited, but also not relevant to this discussion.

In consulting/contracting/freelancing terms, if a client accepts a multi-year retainer with a large number of hours, you'll likely give them a bit of a discount relative to your normal everyday rate. They're committing to continuing your business relationship for the duration of the contract, even though the contract will almost always state that either side can end it at any time with a certain amount of notice (just like full time salaried employment).

Here's my doubt about that: I like having control of my own time. I sometimes arrive later than others and often leave earlier. I get a lot done, though. But I am concerned that asking for 'daily' pay and not putting in the same hours might start to rankle.

If the company continues to get same substantial value from your work, yet they're bugging you about the number of minutes it took you to do it, then they have their priorities backwards.

There are cases when timing matters, such as if you're expected to collaborate with internal teams who have set schedules, but that has less to do with how many hours you spent doing X.

I think it's more a question of morale: if you're the freelancer who waltzes in and out when they please, how's that going to play with the guys who have set hours?

Hmmm.. I can see that, just like you wouldn't reveal your salary for morale reasons.

Maybe close a couple of issues/send a bunch of emails at night so that people see you are not done at 5PM sharp? Visibility does not have to be physical, like "body in the office", but digital also.

Although I understand what you mean, I don't think it's your job to worry about others' morale. Yes, they have to stay there while you get to come and go, but they have job stability and you don't. You are taking a bigger risk than them, and having flexible work hours is your reward.

That's a nice way to view it but as a contractor/freelancer part of your job is getting and retaining contracts. While a big part of that is the work you do and the results you produce, people pleasing and team fit play a part as well. It's a legitimate concern since FTEs often complain about different rules and regs for contractors while forgetting about their own holidays and other benefits. Yes, your supervisor/company contact should handle it and, technically, dictating your hours can be playing fast and loose with IRS 1099 laws but, depending on your relationship, it can be better to conform in some areas to have more leverage in others.

If you bill daily, and waltz in around 10am when the company has been open since 7, and then waltz out at 2 when they stay till 4... it may be a little challenging to convince anyone that you really accomplished a full day's work ("well, if you had been here that extra few hours, we could have gotten X finished today", etc...)

Nobody said when you charge daily/weekly you get to slack off. You absolutely have to deliver the value if you want to keep getting contracts and referrals. Billing daily or weekly helps to refocus the discussion from a metric that people very commonly attempt to micromanage and pick apart (hours) to a metric that actually benefits the client: the ROI of your services. Who cares if you worked 15 minutes extra on Tuesday and left 10 minutes early on Thursday when you can show to your client that your ROI is 300%?

When I leave at 3 in the afternoon because I'd like to pick up my kids from school for once, I'm not "slacking off", but I'm definitely taking time that could have been employed productively, so I don't think I would feel good about charging for a full day. When I stay until 8 to fix something, I kind of want to be reimbursed for the extra time I'm putting in.

You spent time on their stuff that day instead of working on something else or some other client. The opportunity cost to you is the same, whether you leave at 3pm or work until midnight. Charging by the day or week allows both you and the client to not think about low level implementation details like that.

The inverse may be true however. If you skip out 1 hour early every day but still accomplish a lot in your opinion, the company may feel that if you had stayed that one extra hour each day, over a week's time you billed them for a full day that they never received.

They may argue you could have accomplished the task 1 day early, saving them $X, etc.

I agree with your value proposition -- but I feel it's difficult to pull off in reality. I feel a lot more comfortable with billing Time and Materials rates, so basically if I skip out early one day, they aren't being billed for it, and the project goes on at it's pace.

I literally today sold a day-rate contract. It can be done.

If you end up working out of their offices and on their schedules, you're already blurring the line about being a contractor in the first place. More like a temp really.

but if your a Contrcator you dont want to let your client set the hours you work the IRS could take this as evidence of disgusied employment

That is a problem for management to deal with.

I've had this thrown at me on multiple occasions, at gigs where I've solved and addressed long-standing problems, hugely improved efficiencies, and taken systems from states of perpetual chaos to vastly smoother functioning conditions.

And the simple truth is, I will lose my effectiveness and sanity if I'm required to put in "face time" simply to maintain order elsewhere.

Ultimately I view complaints on that basis as an exceptionally strong indicator of management incompetence. Time to look elsewhere.

I'm being paid for my outputs, not inputs.

Then bill by project, not time spent.

>> Then bill by project, not time spent.

That's a very dicey proposition. How many projects do you really know the scope that well? You'll also need to define the deliverable in writing or the client may keep you around saying "it's not done", scope creep and all that...

You are 100% correct on both counts. Personally, I bill daily and roughly according to the value I'm providing. This particular article was outlining the steps I had to take before I could charge by value, by the day.

Some people are able to charge a ton right off the bat. For me, it was a gradual understanding of pricing that brought me up. Thanks for the comment!

Another good way to "break out" of the low-hourly-rate trap, for those reading this... Just give highest price you can say without laughing.

(Wish I could give credit to whomever I heard that from, but I can't remember...)

Anecdote: I was once on a call with a prospect, and it seemed we were both in complete agreement about value mattering more than hours spent doing X and Y.... Then when I mentioned my rate, the prospect immediately started doing calculations out loud such as "well I could get 40-50 hours per week out of a full-time employee for $X, yadda yadda yadda..." So they cared more about how many hours they can get out of someone than how much value... That's a company you don't want to work with.

This works until you run into those clients that contact you every day with changes because they want to get their money's worth. Even when you try to reason with them, they are usually the same clients that throw a tantrum.

Charging by the hour is fine if they are already hosting their own site, just make sure you charge enough. When clients know they are being charged hourly you can immediately see their thought process change from "I need this useless feature X this week" to "that feature isn't worth an investment yet".

If you're taking on more work than you can handle just keep increasing your rate.

No matter how you bill, there are always going to be pathological people to work with.

When you run into the "incessant stream of bogus requests" pathology, ask yourself:

"Does this person represent a business that can afford to pay serious market rates, and does this person have the juice inside the company to make real decisions?"

If so: raise your rates and change your packaging so that you're capturing some of the value they're asking for. The "incessant stream of requests" phenomenon is why there are retainer arrangements.

If not: jettison the client. Say no more. Say yes less.

> "Say no more. Say yes less."

It all seems to come down to this. Your pipeline must be strong, all the time. When it is, you can say no more and say yes less, and still have a steady stream of good work for good clients.

So the real key is, how do you keep your pipeline that robust? Can you offer some pointers about that?

Whoah. No. It's the opposite. The shittier your projects, the lower your rate, the more aggressive you have to be with your pipeline, for obvious mathematical reasons.

Ohhhh! (Light bulb). So you're saying, make your rate very high, which will weed out all but the best projects. Then, be willing to only work half the year (if necessary), but your rate will be high enough to cover it. Is that right?

Both of these points are dead on. The client that does ask you what you're doing with each of your hours better be paying a very steep rate indeed, because otherwise they're pathological and should be ejected from your pipeline.

I'm curious how this works when you are part of a team? I was brought into a project to help fix a mess and wasn't sure how to charge for value? The project consisted of 5 or so developers, and I was part of a new team of about 5.

Obviously, for the team lead, it's possible to wrap it all up into value based pricing (risky, hard, but possible) but for team members? The first question my team lead asked was 'what is your hourly rate'?

Any suggestions?

This sounds comparable to the dog-walking lady in the article. If I were you, I'd have walked away from that one. It sounds like the team lead wasn't interested in the value you'd provide, she just wanted a cheap developer.

"Clients–the good ones, at least–don’t CARE how many hours you’re spending to do X and Y, as long as you’re doing a damn good job at X and Y and adding significant value to their company"

amen...i've been discussing this concept with a frontend developer just this week, and could not agree more.

things have set market value, irregardless of how fast you can get it done, and undercutting this market value is a sure way to keep your bank account low.

FYI regardless is correct

or irrespective

>"Clients–the good ones, at least–don’t CARE how many hours you’re spending to do X and Y, as long as you’re doing a damn good job at X and Y and adding significant value to their company."

this resonates with me; In software we so often think in "hours" as value when we should be thinking in "what value does the product I am creating bring to my client"

We shouldn't be charging by hours, we should be charging by value; Product X is very useful and brings value to your company.

However, there is also the question of quality. If you charge the market rate of a product and the quality of the delivered product is poor, I suppose the customer can return it.

"We shouldn't be charging by hours, we should be charging by value; Product X is very useful and brings value to your company"

It's usually really hard for most people to be able to assign value to discrete pieces of work from a vendor.

For those who can do it, they're usually... sharp enough to drive a harder bargain.

I had a client project a few years back, and after working there for a bit, I discovered an area of their operations that was very ... bad. They knew it. Fixing and streamlining it would be worth at least $50k per year in reduced losses. When we got to the point about discussing that area of the business, I'd brought up attacking this. When we finally got to the point about pricing, I'd offered a couple options, but they quickly realized they'd be able to get someone to do the work for half of what I was proposing. For example (made up numbers), my 'cost' would have been, say, $25k over a few months, to net them an ongoing minimum $50k positive benefit. Once they realized the extent of the problem, they knew it needed to be addressed, but also knew they could get it done for half of my proposal terms. They knew the 'value' all too well.

You may have lost that one, but I've picked up enough contracts where I had to clean up a cheaper developer's half-finished project. Eventually, companies who go searching for cheaper labor will get what they pay for. There are exceptions, but that's the norm.

That company made the (usually bad) assumption that the output of you and the cheaper option will be equal.

This is the key point companies often miss :/

Edit: Grammar

This is a key point you need to convince them of.

I saw contractors on daily rates being abused - they always worked super long hours, which is the opposite of what I want to do.

If you saw them, they weren't doing it right.

> Why not bill on a daily/weekly/monthly rate?

Does anyone have experience with all three options? Which worked out best for you?

I've done them all. Here's my writeup on the pros/cons of each: http://doubleyourfreelancing.com/the-definitive-guide-to-pro...