How I learned to charge my customers • Hacker News Board

Re: How I learned to charge my customers

#41

Post by bob1029 » Thu, Sep 17, 2020, 5:28 PM UTC

I am working with a small company and this is an ongoing debate regarding how to best bill our customers for the work we do. Our product is an extremely long-term, high-value proposition. It effectively replaces & automates large swathes of our customers' legacy business processes.

For our customers, an hourly rate is a non-starter, despite the appealing nature of using a rate-based billing approach to head off scope creep and change requests. They need something more concrete with comprehensive up-front terms. We are starting to look at a model where the features are on individual contracts based upon their specific complexity:

" will cost you $X to implement, another $Y/year to support and will take ~W months to reach acceptance testing phase. Minimum contract term is Z years."

This gives each customer an opportunity to prioritize specific sub-components of the product that are most important to them so that we are not implementing things without net positive business value.

We also figured out that we need to push acceptance testing and delivery timing back onto the customer so that they understand that longer timetables are a direct consequence of scope creep, change requests or their non-participation in the process. Since this is kind of a marriage between the organizations, we have built a "core" product that is a lower-stakes implementation and covers a few basic business processes. This allows for a less intense trial phase of the product where the customer can see how the overall process works for them. If they decide it's what they are looking for (i.e. they can see the business value), then we talk about tacking on the additional discrete feature modules and signing longer-term contracts.

I think our most important realization is that not all customers are compatible with our product, how much it costs, or the way we go about implementing it. The core piece of this equation is the customer being able to see through all the noise to the business value. If we cannot make the value clear to them, then we are not in any position to be talking about pricing or which features should be implemented in what order.

Re: How I learned to charge my customers

#42

Post by [deleted] » Thu, Sep 17, 2020, 5:37 PM UTC

ibudiallo wrote: post #29

Hey 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 l…

[deleted]

Re: How I learned to charge my customers

#43

Post by CyberDildonics » Thu, Sep 17, 2020, 5:45 PM UTC

simonswords82 wrote: post #35

emteycz wrote: post #26

Earlier quoted context omitted.

The catch for me is looking for businesses interested in this kind of arrangement. How do you approach that?

I could write a book on it because there's a lot to it but I'll try to summarise. Success = Connections x (Niche knowledge + Skills) For connections: Given the current state of the world networking is hard but not impossible. However you go about it, you need to build trust with people rather than hard sell them which doesn't work in 2020 (unless what you are selling is a commodity). Note that I said people, you're s…

Why wouldn't you just sell one program as a service at that point instead of making custom software for each client?

Also everything you said here is extremely generic, it doesn't address the initial problem of finding a problem that a company needs solved and will pay for, but wouldn't solve themselves internally.

Re: How I learned to charge my customers

#44

Post by curiousllama » Thu, Sep 17, 2020, 5:55 PM UTC

sova wrote: post #14

curiousllama wrote: post #8

Very interesting that the author doesn't address outcome-based pricing. The rule of thumb I use is 10% of total value - if it's less than I want to make, I decline. It doesn't make sense for them to pay me, so it doesn't make sense for me to work. "Urgency" strikes me so much less compelling of a pricing conversation, but I guess it works.

So if you help someone build a $3M empire the fee would leave them with $2.7M ? Not bad. Seems to be a more astute way to charge for services rendered because the client will actually have revenue to pay you, and the cost/benefit is fairly clear from the get-go. Do you typically both [client and creator] agree on how much value the work will bring in, and is it based on time? (This much in the first year, etc)

The former - I mostly work with large non-tech corporates, so you need to have a business case to get anything of significance approved anyway. I typically start off at 10% of "the big number on the slide."

If I'm independent, I always work fixed fee & payment schedule. When I've had a big company at my back, I've also worked at X% of realized revenue, capped at $Y.

Now, the important thing this implies is ownership of the outcome. I'm not building "a website;" I'm building "an e-commerce product" (or whatever) with all the expectations that come with it.

Back to the article... looking at the rates again, I think this is the author's next step in pricing. They're obviously very good. To make it as an independent developer, you need to have a clear understanding of value anyway - so why not just estimate the outcome ahead of time and benchmark against it?

Re: How I learned to charge my customers

#45

Post by bavell » Thu, Sep 17, 2020, 6:02 PM UTC

chadash wrote: post #25

rgbrenner wrote: post #22

Earlier quoted context omitted.

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…

Yep, there's a lot of value in risk reduction. People and businesses will pay for peace of mind and to remove unknowns from the equation.

Re: How I learned to charge my customers

#46

Post by brtkdotse » Thu, Sep 17, 2020, 6:02 PM UTC

chadash wrote: post #4

I 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…

This is right on the money (heh). For further reading, check out patio11 (https://training.kalzumeus.com/newsletters/archive/consultin...) and Jonathan Stark (https://jonathanstark.com/)

Re: How I learned to charge my customers

#47

Post by justaguyhere » Thu, Sep 17, 2020, 6:10 PM UTC

kova12 wrote: post #19

That explains why all the recruiters on LinkedIn are trying to low-ball me so much. The actual rate they charge is double!

This makes me soooooooo mad. Instead of LAMP, I spelled out Linux/Apache... etc in my resume. One recruiter spent 10 minutes arguing with me that LAMP is not the same as Linux...

Why do they deserve 50% of the billing rate (they can't even bother spending 30 seconds to google and note down what these terms mean)? Is their service that valuable? Heck, compared to them even the freelance websites that take 20% (Fiverr etc) seem like saints.

Another recruiter changed my resume without my knowledge. I found out during the interview. All kinds of shady stuff going on with these people.

Re: How I learned to charge my customers

#48

Post by bavell » Thu, Sep 17, 2020, 6:11 PM UTC

lsorber wrote: post #40

simonswords82 wrote: post #24

Earlier quoted context omitted.

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…

Sounds great until the client realises they can hire someone else who does charge by the hour, saving them a massive 100k - 10k = 90k compared to your proposition.

Or they look at your proposal for $100k and say, "Mmmmm... maybe next year" and the project never happens.

Really depends on the client and your reputation though, you can definitely pull it off with the right pitch to the right people at the right time.

Re: How I learned to charge my customers

#49

Post by bavell » Thu, Sep 17, 2020, 6:22 PM UTC

CyberDildonics wrote: post #43

simonswords82 wrote: post #35

Earlier quoted context omitted.

I could write a book on it because there's a lot to it but I'll try to summarise. Success = Connections x (Niche knowledge + Skills) For connections: Given the current state of the world networking is hard but not impossible. However you go about it, you need to build trust with people rather than hard sell them which doesn't work in 2020 (unless what you are selling is a commodity). Note that I said people, you're s…

Why wouldn't you just sell one program as a service at that point instead of making custom software for each client? Also everything you said here is extremely generic, it doesn't address the initial problem of finding a problem that a company needs solved and will pay for, but wouldn't solve themselves internally.

IMO for smaller markets, it's oftentimes easier to build a one-off custom solution than to make a generic one-size-fits-all solution. Custom software is high margin but low volume so there aren't as many opportunities to scale up.

I'm working with a client right now at a 30h/wk retainer. I solve problems for them and communicate with the team regularly as if I were an employee. In my experience it's easier to sell your value to the C-suite because they focus more on outcomes than line items or specific tasks. Relationships, reputation and positioning are key.

Re: How I learned to charge my customers

#50

Post by chadash » Thu, Sep 17, 2020, 6:36 PM UTC

andi999 wrote: post #27

chadash wrote: post #4

I 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?

The work I do is fairly specialized and takes me a relatively predictable number of hours. Sometimes I'm wrong and it takes me more, but a good amount of unpredictability is baked into my charge.

If you charge more for a fixed cost, then it doesn't really matter if you are off 3x one time. Yes, it's annoying, but you make up for it with the majority of times where you work the estimated number. If you are consistently underestimating, then you need to up your estimates.