I spent 10 years freelancing. If i can give an humble advice: you don't cost your customer some money, you produce some extra value for him. Charge between 10% and 30% of the extra value you provide to your customer. Charging per hour is a trap. It is nice to start, it is easy to read, easy to calculate but it makes you a commodity. Don't be a commodity, be an expert.
How I learned to charge my customers
21–30 of 85 posts
Re: How I learned to charge my customers
#22I do some consulting on the side and I won't charge by the hour if I can avoid it because: 1) I hate keeping track of time. 2) hourly rates aren't how my customers think of the issue. They think: "this product will make (or save) me $20,000/year" (making up numbers here). If I tell them that I can do the job for $5,000, that sounds like a great deal to them. But if I tell them I can do it for $200/hour, and I estimat…
Yes, I've noticed this too... Many people have a visceral reaction to high hourly rates and never actually compare it to the value delivered. I think it's for a couple of reasons:
1) The average person gets paid $27/hour. Even the average software dev gets only ~$50/hour. Since many people interact with people getting paid around this amount, they see high rates as greedy/outrageous. Less likely to get this reaction from clients that are used to interacting with other high pay/skilled work. If you give them a flat rate, they get imagine you’re putting in more hours.
2) If they don't have extensive experience working in the space, I think there's a belief that someone cheaper will deliver the same value.. because they don't understand the variation in skill among those in the same field. Especially in a field like software development, and the client comes from a field that's more structured and slower changing (which is most fields).
There's also a delivery risk that could increase the bill substantially.. but it seems to me that there's more to the reaction than just analyzing the risk and value.
Re: How I learned to charge my customers
#23I spent 10 years freelancing. If i can give an humble advice: you don't cost your customer some money, you produce some extra value for him. Charge between 10% and 30% of the extra value you provide to your customer. Charging per hour is a trap. It is nice to start, it is easy to read, easy to calculate but it makes you a commodity. Don't be a commodity, be an expert.
How do you estimate that and sell someone on it?
Re: How I learned to charge my customers
#24I spent 10 years freelancing. If i can give an humble advice: you don't cost your customer some money, you produce some extra value for him. Charge between 10% and 30% of the extra value you provide to your customer. Charging per hour is a trap. It is nice to start, it is easy to read, easy to calculate but it makes you a commodity. Don't be a commodity, be an expert.
How do you estimate that and sell someone on it?
By understanding their business really really well.
For example, if I know that an automation that I can create for a client is going to take me 100 hours to setup and save them £20,000 per month I can either:
Charge 100 x £100 per hour - so a one off income of £10,000. Seems like I'm earning good money right??
OR
I can charge them £100,000. They'll make that back in just five months. A BARGAIN. Most businesses would bite your hand off.
The catch for achieving number two is knowing the value I'm providing. I can only do that when I know their business really really well.
Re: How I learned to charge my customers
#25I do some consulting on the side and I won't charge by the hour if I can avoid it because: 1) I hate keeping track of time. 2) hourly rates aren't how my customers think of the issue. They think: "this product will make (or save) me $20,000/year" (making up numbers here). If I tell them that I can do the job for $5,000, that sounds like a great deal to them. But if I tell them I can do it for $200/hour, and I estimat…
Yes, I've noticed this too... Many people have a visceral reaction to high hourly rates and never actually compare it to the value delivered. I think it's for a couple of reasons: 1) The average person gets paid $27/hour. Even the average software dev gets only ~$50/hour. Since many people interact with people getting paid around this amount, they see high rates as greedy/outrageous. Less likely to get this reaction…
Agree. And on top of this, there's a value to predictability. If I go to my boss and ask permission to spend $10,000 to save $20,000, they can OK that pretty easily since it's simple math... they spend money and save more, so the purchase makes sense. When I go to them and say I want to hire a consultant for $200/hour in order to do a project that'll save $20k, suddenly the math is more complicated... how many hours is this person going to work? What if they go over? People pay more for assurance and predictability.
Re: How I learned to charge my customers
#26Earlier quoted context omitted.
How do you estimate that and sell someone on it?
By understanding their business really really well. For example, if I know that an automation that I can create for a client is going to take me 100 hours to setup and save them £20,000 per month I can either: Charge 100 x £100 per hour - so a one off income of £10,000. Seems like I'm earning good money right?? OR I can charge them £100,000. They'll make that back in just five months. A BARGAIN. Most businesses would…
The catch for me is looking for businesses interested in this kind of arrangement. How do you approach that?
Re: How I learned to charge my customers
#27I do some consulting on the side and I won't charge by the hour if I can avoid it because: 1) I hate keeping track of time. 2) hourly rates aren't how my customers think of the issue. They think: "this product will make (or save) me $20,000/year" (making up numbers here). If I tell them that I can do the job for $5,000, that sounds like a great deal to them. But if I tell them I can do it for $200/hour, and I estimat…
I like it, but how did you solve the hard problem of estimating hours needed? Worst guess x3?
Re: How I learned to charge my customers
#28Earlier quoted context omitted.
I hire freelancers sometimes and this is exactly right. We agree on scope, price, and timeline. Helps me budget, helps you know when the project is done. Hourly fills me with dread as a client. I have no idea how much this is gonna cost or when you’ll be done and I can use it. Retainers work well for ongoing work. Like when you need someone to do X, Y, and Z misc tasks every week. Fundamentally I pay for results, tim…
If you are hiring someone who does not know how to tell how long it will take them.
Since I pay for results that’s their problem. At least financially. Dealing with delays is easier if they don’t come with crazy extra costs.
Imagine paying someone an extra $10,000 because they missed the deadline. That’s how hourly works.
Re: How I learned to charge my customers
#29Hey everyone, author here.
My experience is that customers will always want more features than they initially ask for. That's why I make sure to tell them my hourly rate, then give them an estimate. For example, I can say $5000 for a 1 month project. Here I'll break down the average time I will work a week as a courtesy.
This helps me justify charging them again when we are at month 3 and the project is not done. I learned this the hard way, charging a flat fee and continue to work long after I had spent all my earnings.
Re: How I learned to charge my customers
#30Those rates seem low. 20 years ago consultancies were charging $150/hr + materials. Their employees might see $30-50 depending on how much unallocated time they had. For a solo, the average including down time (sales) could reach $80-100, charging that same $150 to the clients. Have rates fallen so far?
Some anecdotal stats from my experience being a consultant with both megacorps and smaller gov contractor. The hourly rate is about $200 an hour on average. This is for a senior, highly specialized, engineer type role. Megacorp paid me about $60 per hour where the smaller firms paid me closer to $80. Both as an employee with benefits. When I first joined a startup we would go as low as $120 per hour and pay $30 an hour too a junior/mid level consultant.
I'm sure someone super specialized and in a hot market could get up to $300 an hour if they are delivering value.