Ask HN: Should I lower my rates for small startups?

#1

Post by goldscott » Thu, Nov 01, 2012, 2:05 PM UTC

I've been freelancing for over a year now (doing embedded software engineering). I raised my rate a few months ago from $52 to $64 per hour. Things are going well and I plan on raising them again soon.

Recently, I've had some very small, bootstrapped start-ups contact me for quotes to do projects. They can't afford my normal rates. I ended up doing a very small project for one company for what came out to about $25/hour.

Recently another small start-up contacted me about doing a project which I estimated would take about 4-6 weeks working part-time. A fixed rate of $2000 (about $20/hour). This is for building/programming the first prototype/MVP. It's an exciting project and I think it will be successfully launched, but I can't work for that little.

How can I get more compensation for my work? Cash - they don't have much. Equity - no idea. Promise of future work - I have no problem finding work. Share in future profits - that would be nice.

Any advice or recommendations?

Re: Ask HN: Should I lower my rates for small startups?

#2

Post by olalonde » Thu, Nov 01, 2012, 2:10 PM UTC

Same problem here. I usual offer a small discount on my rate for startups and suggest simply reducing the scope if they can't afford paying me too many hours. Thinking about it now, I think next time I will offer to work at a lower rate in exchange of having the possibility to open sourcing (parts of) the project.

Re: Ask HN: Should I lower my rates for small startups?

#3

Post by kls » Thu, Nov 01, 2012, 2:22 PM UTC

Personally, I would not do it without some other form of agreement, either equity or an agreement that future work will come to me and that the rate will slowly rise to your preferred rate. This also really depends on the start-up and how comfortable you are with them. I have seen many small businesses abuse the "we are small, can you help us out" card, so you really have to get a gut feel for if they are on the up and up or will they expect that lowered rate for the entirety of your relationship and them move on once you will not provide it. Equity is obviously the most secure way for you to allow them to defer cost will still ensuring your compensation, other than that, you really have to ask yourself if they are truly just cash strapped.

Re: Ask HN: Should I lower my rates for small startups?

#4

Post by gexla » Thu, Nov 01, 2012, 2:28 PM UTC

This is an easy one. A big part of freelancing is saying "no." This is a good opportunity to exercise that skill.

Freelancing is a partnership. Much more so than so many other client - provider relationships (getting your oil changed for example.) In many cases, a bad client can put a serious hurt on my earnings and I could put a serious hurt on the client as well. There is a lot of trust there, and each party needs to be highly professional. This isn't a lemonade stand.

If someone approaches me asking me to do something for far lower than my normal rate, then their ability to be a good partner takes a serious hit from my view. It's not about the money, it's the fact that they could make the offer comes off as them being clueless. Not good for a partnership.

At 20 / hour they would be lucky to find someone from a developing nation who barely speaks English.I would direct them to Elance.

Re: Ask HN: Should I lower my rates for small startups?

#5

Post by gms » Thu, Nov 01, 2012, 2:30 PM UTC

Take equity if you think they are a promising startup. If you don't think they are promising, then you're effectively doing charity work.

Re: Ask HN: Should I lower my rates for small startups?

#6

Post by pc86 » Thu, Nov 01, 2012, 2:56 PM UTC

A few points:

You're not charging nearly enough. If you're good enough to build a startup's MVP there's no reason for you to charge less than $80-100/hr. It doesn't matter where you live, either; code written in New York City works the same way as code written in Omaha.

I'm going to second the general consensus and say that no, you shouldn't, unless you're getting something else out of it with a potential upside above your current rate. If you're going to risk getting paid nothing more than a fraction of your already low rate, the upside needs to compensate for that.

Personally, I don't think you should take equity. Too many startups fail and even for successful startups equity generally means squat unless you're raising a ton and can take some off the table, or you're profitable and can get a disbursement.

If I were in your position, I'd agree to the $2k flat rate, capped at n hours (100?). If it goes over, $20/hr thereafter. Ask for a royalty off the top of every subscription/widget/sale, something like the lesser/greater of $x or y% depending on their model. Instead of someone skimming profits that will most likely never materialize, you're a cost of doing business before they become profitable.

Asking for equity guarantees you a slice of what will most likely be nothing. Asking for a royalty gets you a small sum with every sale. And you've still got the $2k.

Re: Ask HN: Should I lower my rates for small startups?

#7

Post by cschmitt » Thu, Nov 01, 2012, 6:26 PM UTC

gexla wrote: post #4

This is an easy one. A big part of freelancing is saying "no." This is a good opportunity to exercise that skill. Freelancing is a partnership. Much more so than so many other client - provider relationships (getting your oil changed for example.) In many cases, a bad client can put a serious hurt on my earnings and I could put a serious hurt on the client as well. There is a lot of trust there, and each party needs…

I totally agree.. In the end all you are doing is devaluing your service. You are basically saying.. sure I want $64/hour but the work is really worth $20/hour.

Take the extra time you would have spent on those clients to beef up your skill set so you can start offering more services or charging more.

Re: Ask HN: Should I lower my rates for small startups?

#8

Post by codewright » Thu, Nov 01, 2012, 6:28 PM UTC

Small startup CTO and ex-contractor here:

Raise your rates and don't make a special exception for small startups.

Equity/royalties for contract-work is awful dodgy. Equity/revenue share is generally reserved people who want to make a long-term investment in the company, either through money or time.

Re: Ask HN: Should I lower my rates for small startups?

#9

Post by keywonc » Thu, Nov 01, 2012, 11:06 PM UTC

At a startup, every contractor work counts.

Two cases where I'd accept reduced rate are:

1) You're into who we are and what we're doing, and potentially want to become a part of us. In this case we are testing each other out, and there is a mutual risk and cost as the startup will have to make extra effort figuring out how to work well with you.

2) We're mutually doing a favor, concurrently, or in the future. e.g., we're in the same field or town and we want the both of us to succeed to increase our pie; we're personal friends who've been helping each other.

Otherwise, I would not want anything other than your best work for my startup, and will pay the fair price for it.

Re: Ask HN: Should I lower my rates for small startups?

#10

Post by moegdaog » Fri, Nov 02, 2012, 12:00 AM UTC

There's exceptions i guess, if you like the startup founder's ..the idea and feel that your contribution as tiny or as big as it may be will put this great product out to market quick, then why not drop your rates. Other than friends/family referrals, ide stick to your normal rates. You never know what your " serendipity" karma may come back to you and that small startup you helped remembers what you did for them and does something awesome for you. i dunno i guess my two cents.