I made a calc to crunch the numbers, here:
[Shameless plug since it's my own pet project :)]
How to calculate your hourly rate
51–60 of 66 posts
Re: How to calculate your hourly rate
#52Earlier quoted context omitted.
Measuring value in software development is difficult. If you can tie your activities directly to either higher revenue or lower cost, that's great. As an international tax lawyer, I'd think you have a relatively straightforward way to demonstrate value: it's proportional to the money your clients save on their taxes. patio11 has the same advantage: consulting time spent optimizing conversions through A/B testing can…
"But what if you end up working on a product for a company that never makes them any money at all?" This isn't something that happens to you, this is something you choose. It's your responsibility as a consultant to pick your clients carefully. If you're talking about a project that everyone expects to have an enormous upside, but doesn't, and it's not your fault, you base your rates from the outset on the client's e…
> It's your responsibility as a consultant to pick your clients carefully.
In the mobile industry, (and the web dev industry as well), the market functions on the basis that 90% or so of projects won't make the return, and the industry is carried by the 10%. In some sectors (consumer) this is higher, in others (B2B) it's lower, but it's about the right frame of reference give or take for most projects that ordinary people on HN perform.
Now if you are a professional investor a 90% failure rate is easy because you just do 20 projects at once and you're fine. Similarly, if you are a large size consulting shop you're basically an investor with other people's time, so same story, just do 20 projects and 2 or so blow it out of the park and the rest are a waste and you get the quarterly bonus.
However, if you're an individual or a couple of guys in a broom closet somewhere, 20 projects is a very long time. Unless you are independently wealthy and can just float many years of work, you can't make any money. And if you are independently wealthy, you have a higher chance of success becoming the large consulting shop or being a professional investor (or starting your own startup) than you have doing lots of free projects for other people.
So what you are saying is nice in theory but for the average mobile/web developer thinking about contracting they don't have the volume necessary to assume the risk that the market ordinarily bears for development projects.
Re: How to calculate your hourly rate
#53Like 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 napk…
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...
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.
Re: How to calculate your hourly rate
#54Earlier quoted context omitted.
> but your client certainly is aware of the value you're bringing In a small company, probably, but in Enterprise contracting, I would be surprised if this is usually true.
Your point is fair, but they know order of magnitude. They know you're (likely) not bringing $10B annually of value, and they know it's more than your current billing rate (or they wouldn't waste time with you). The point is to talk with the client and try to pin the number down to bring your rate closer to the value. Somebody in the enterprise is responsible for ensuring that projects aren't run without any expectat…
I would grant that they know within three orders of magnitude. If they think you're bringing $10m in value, you're probably bringing at least $100k. I'm not sure I'd concede anything more specific than that, though. A lot of enterprise consulting is the blind hiring the blind, or people hiring partisans for some kind of internecine battle. I haven't even sought it out, but I've seen, at pretty close proximity, millions of consulting dollars go directly down the drain.
Re: How to calculate your hourly rate
#55Note the inherent flaw in "by the hour" billing: if you want to increase your income you either must work more hours or raise your rates. In other words, hourly billing guarantees a built-in cap to your annual income. You have a maximum, but no minimum income. This is a world that I do not want to live in: a voluntary upper limit on my achievements. Hourly billing is a method of setting prices by looking at the cost…
I've tried fix-rate project delivery. It's a nightmare. Either you spend so much energy up-front to document in detail the finish line, or you spend so much energy on the backend fighting scope creep. Maybe I did it wrong the times I've tried.
Re: How to calculate your hourly rate
#56My first thought when reading this was "Jesus Christ are Germany's PTO policies generous." In nations that are more work-centric (eg. the US) the possible billable hours will be nontrivially higher and thus the hourly rate will be significantly lower. For instance, I know people who get only 10 days off per year minus holidays, meaning that they take a maximum of 10 days per year total. This also entails working ~8 S…
Remind me never to leave the EU. Seriously. Ten days, total, per year? I'd likely be dead within six months.
Re: How to calculate your hourly rate
#57My first thought when reading this was "Jesus Christ are Germany's PTO policies generous." In nations that are more work-centric (eg. the US) the possible billable hours will be nontrivially higher and thus the hourly rate will be significantly lower. For instance, I know people who get only 10 days off per year minus holidays, meaning that they take a maximum of 10 days per year total. This also entails working ~8 S…
That's crazy. One of the incredibly attractive things about my job now is that I get 40 days of discretionary PTO. Sick time is separate.
I took a reasonable paycut to get the gig, but its totally worth it.
10 days off a year is a joke.
Re: How to calculate your hourly rate
#58One thing I always wonder is how to break into the consulting business. The earning potential looks considerably above the salary employee potential. My current skills & expertise are very much "backend", and I don't have networking connections with people who could offer significant amounts of cash for the solutions I could offer. (Put another way, I only know very small business owners, as they are the dominant emp…
It's all about the networking that you do. Also, the small business market is pretty brutal, and ends up being a numbers game... Your rate is too low to make a living without scaling out.
Big consulting companies are all about applying a predefined framework to business problems.
VARs or similar companies partner with bigger fish to provide pro services to markets that aren't valuable enough for the parent company. An IBM partner will peddle servers and implement IBM products, etc.
A freelancer is all about subject matter expertise. Your either an expert in technology x, or an expert in implementing technology x to vertical market y or integrating technology x with technology z. Your customer might be the end-user, or you may be a subcontractor.
Re: How to calculate your hourly rate
#59The advice that everyone trots out on HN whenever someone mentions hourly rates of BILL BY VALUE CREATED!!1 goes beyond being trite: it's confusing and damaging.
One of the most important things I ever did was work out my hourly rate, using exactly the method outlined in this post.
If you're early in your career, you can't just waltz in and say you're going to charge someone $4,000 to write them an email responder sequence.
By working out the inelastic base hourly rate at which you need to work in order to earn a level of salary you ensure that:
1) You know exactly what your opportunity cost is versus getting a job (ie. you are making a conscious decision to work for $40k/year instead of the $90k/year you could earn if you went and got a job somewhere)
2) You know that when it's time to scale, what you'll have to be able to charge in order to hire someone at "market rates"
3) It makes your negotiating position much much stronger - when people try to screw you down on price you know precisely where your "bottom line" is - at what point am I losing money here?
If you want to bill based on value created, that's great and it's something you can achieve once you've developed a strong position in the market and a bit of a track record.
Up until that point (and even afterwards) it's vitally important to know the base cost of an hour of your (or your employees time).
Saying that someone shouldn't work out their base hourly rate because we should all be billing based on value created is like saying that you should run a retail shop and sell everything according to the maximum you think people should pay, but never look at the cost of purchasing the stock in the first place.
Re: How to calculate your hourly rate
#60[deleted]