
Freelancing: How to talk yourself into charging more - andy_adams
http://andyadams.org/you-can-charge-more/
======
bdunn
Justifying your costs by basing what you charge against the costs of a similar
employee is a good start, and in my experience it's how most of us start (the
old "divide by 2000" trick). I like that Andy makes note that you need to
include overhead (prospecting, writing proposals, ...), which a lot of new
freelancers tend to miss.

However, I think the big takeaway is realizing that the formula presented
establishes a minimum threshold. It _shouldn 't_ be used to figure out what
you charge. My rates are way north of what the a developer/marketer would
command on the open market, but I don't contextualize my costs against the
equivalent costs of an employee; instead, I anchor my costs against the upside
that a successful delivery of a project would yield for my client.

The single best way to substantially make more money consulting is to stop
selling commodity services (web design, Ruby programming, whatever), and to
truly _consult_. Provide your clients with a way to bridge the problem they
face with the solution they desire, and charge accordingly.

~~~
hyperliner
Also, I think there is a lot of focus on pricing (fair, it was the point of
the article). But you simply need to back it up with what is your
differentiator. It's just like any product: you need to be articulate as to
why you cost your rate, and also have an idea of the value of your work to
customers (different customers value the same work differently).

So, know what makes you different, find the customers that value that work
more, and set your price according to that.

~~~
dkrich
In my experience, differentiating from competition wasn't really a factor in
how much I charged or how much I made. For a lot of businesses that would hire
a solo consultant, there is no consideration of the competition.

Most of the businesses that I've dealt with are intimately familiar with the
problem/objective, but really don't have much knowledge of what is required to
get there. This is where the consulting part comes into play. Many times it's
been as simple as "let's talk about what you're trying to accomplish here" and
from that I am able to formulate a solution in my mind of how that can be
solved with custom software (or in some cases, an out of the box tool). I make
the recommendation, and boom, a sale is made.

This is where making the business case for what the client stands to make
comes into play and why what another developer might charge is highly
irrelevant. If you can convince a business owner that he'll make $100,000 with
your solution, convincing him to pay you $30,000 is not too difficult,
regardless of whether he could technically find a high-school student who
would do it for $15/hour.

To me, the key word is _trust_. Once you prove that you have good ideas and
know how to execute on them, making sales is really more about just repeating
the process than undercutting the competition. It goes without saying that you
must deliver, though.

------
tptacek
Be very careful basing your rate on your expected salary. It's a trap that
will hurt your returns.

The most important lesson I think you can learn in consulting is that
businesses are paying for more than just lines of code; that a lot of things
that you don't intuitively think have any value actually have enormous value.
The best way I've managed to describe it is in this comment:

[https://news.ycombinator.com/item?id=2190379](https://news.ycombinator.com/item?id=2190379)

Each of those bullets is something that potentially adds dollar value to a
project.

Some freelance projects can be valued against the cost of a full-time
employee. But ask yourself: "Does the client I'm working for have the
capability to hire someone full-time for the service I'm providing? Would they
know how? Would they be able to attract the right talent? And: would it make
any business sense for them to do that?" If the answer is "no", then please,
think of it this way: _no more than 50% of the value you 're providing comes
from actual code_; the remainder is business value you create by being
available to solve a problem for your client in the precise scheduling and
format they need.

When you grok this, you see why your rate has nothing at all to do with full-
time salary for a comparable tech position. No full-timer can do what you're
doing. By definition. Because they're only available full-time.

Also: please, for the love of all that's holy, don't bill hourly. You don't
have an hourly rate. You have a day rate, for projects so small that you don't
charge by the week.

~~~
awolf
I'd _really_ like to hear more discussion around this "don't bill hourly"
concept. I'm 4 years in to a successful, solo freelancing career and this
advice still doesn't click for me. I've billed precise hours for every one of
the 20+ projects I've taken on.

What am I missing?

~~~
alinajaf
I bill weekly. Clients can book time in increments of one week. Each week
costs a fixed amount, though I give clients a 10% discount for pre-payment in
full, cleared in my bank account before work starts.

Snarky but true: implementing this was roughly as hard as reading a comment by
tptacek about billing weekly, deciding that I bill weekly, and then telling
all existing clients and future clients that I now bill weekly.

~~~
pjungwir
Question from a per-hour freelancer:

Does this mean you only work on one project at a time? I seem to maximize my
billable time by doing one project at 20 hours/week plus a few long-term
relationships with smaller ad hoc projects. Sometimes the "big" projects
overlap briefly but I try to avoid that.

If I moved to weekly billing, I'm afraid I'd need a longer sales process and
I'd have to turn down a lot of work that I can slip in with my current
approach. So I'm curious: do you work one engagement at a time, and what is
your time between engagements?

~~~
tptacek
You can bill daily and still rotate through work for 3 different clients at a
time. You don't even need to make special arrangements to do it. Just do it in
the background, get your work done competently for all your clients, and be
honest. You'll be fine.

The only thing we're telling you _not_ to do is to break your bills out by the
hour. A whole lot of bad stuff happens when you start billing in sub-day
increments.

~~~
danenania
How do you deal with the expectation that 1 day means 8 hours exactly and
clients who think in those terms?

How precisely do you specify upfront what a 'day' means? Are you just keeping
it vague and not working with anyone who takes issue with that? Or are you
specifying it as 6 hours so you have time to handle other things?

I recently attempted a move to daily billing but had a client who was anal
about 1 day = 8 hours and this caused significant friction/lack of
flexibility. The client was a somewhat difficult/overly-controlling person but
willing to pay well for quality. Would you simply turn down someone like this?

~~~
Silhouette
_How precisely do you specify upfront what a 'day' means?_

I don't. All my recent contracts of this nature have simply stated that a day
on which any services are provided is chargeable, or words roughly equivalent
to that.

This does require a client to trust that I won't abuse the deal by, say,
charging for a day off just because I spent a few minutes replying to an
e-mail. I suppose legally speaking I could do that, but then legally speaking
a client can typically also fire me in the time it takes to get a letter
delivered if they're not happy with progress on their project. As with so much
of this business, trust goes both ways.

In reality, I have never found this to be a problem. As others have said,
clients are typically more interested in the value of the work you produce
than in how, when, or where you produce it. You might see the occasional
raised eyebrow if someone asks directly and is surprised at your answer, but
personally I'm not aware that I've ever lost business or left unhappy clients
over it.

 _The client was a somewhat difficult /overly-controlling person but willing
to pay well for quality. Would you simply turn down someone like this?_

Given a reasonable alternative, which is usually the case: yes.

Incidentally, in the UK, where I am, you should be very wary of taking on
"overly controlling clients". If you aren't sufficiently independent -- as
demonstrated by signals like your clients controlling your working hours --
then you could be deemed a disguised employee rather than a separate business.
That leaves you with all the overheads of running a business, yet also leaves
both you and your client with all the tax obligations of an employer-employee
relationship, which is a Very Bad Idea.

~~~
percept
I'm not sure of the current state of things, but that last bit has
traditionally been true in the US as well: if you spend all your time with one
client, and they control your hours and/or work location and equipment, then
you may be considered an employee for tax purposes (IRS Form SS-8 covers
this).

~~~
tptacek
In the US, that works to the benefit of the contractor; the problem is that
clients know that, so if you look like someone the IRS might classify as a
full-timer (an unincorporated sole practitioner), they may preemptively
withhold taxes for you.

This is a problem a couple friends of mine have had. It seems like
incorporation, which is cheap and something you should do anyways, mostly
fixes it.

~~~
Silhouette
_It seems like incorporation, which is cheap and something you should do
anyways, mostly fixes it._

In the UK, we have almost the opposite problem.

If you set up a limited company to operate a freelance business, then by
default you get to run it like any other business. That means you're
responsible for paying your own overheads and doing the same administrative
paperwork and taxes as any other company. (Who else is going to pay for or do
those things, after all?) However, it also means that if you're the only owner
and director, you can treat most of the profits as dividends rather than
salary, which can be a significant tax advantage in some quite common
circumstances.

Unfortunately, this arrangement was being abused by some people who were in
effect working as employees of someone else, who operated with little
meaningful independence but were being paid through a company so they could
take the tax breaks anyway.

Consequently, with probably good intentions but unfortunately not a very good
implementation, a set of rules known as IR35 were introduced that basically
said if your arrangement works like employment, you'll have to treat your
contract like employment, with the full tax liability that goes with it.

The trouble is that there has never been any useful, objective definition of
what counts as working like employment, so all we really have to go on are a
few precedents from early cases. In practice, this means every independent
professional here who works this way, however legitimately, has this permanent
axe hanging over their head. You can pay some accountants for an expert
contract review that comes with insurance if they tell you you're OK and you
are subsequently determined to be within the scope of IR35 anyway, but that's
a lot of hassle and a significant cost if you do change contracts often, so
not everyone does.

The tax authorities did make an attempt to codify some more concrete
guidelines with their Business Entity Tests a few years ago; those were
supposed to give you a clearer idea of how likely you were to fall within the
scope of IR35, but the questions were bizarre and completely ignored most of
the really important distinctions between an employee and a genuinely
independent professional operating as a real one-person company, and the BETs
were effectively killed off not so long after they were introduced.

This leaves us back at square one. Despite protests from the independent
sector about the ongoing burden of IR35 and the lack of evidence that it has
ever generated anywhere near the kind of additional tax revenues it was
supposed to, successive governments have maintained the rules arguing that if
they removed them now then the floodgates would open and suddenly everyone
would be going down the disguised employment path costing the government a
fortune.

In practice, the good news for genuinely independent professionals is that the
tax authorities have very limited resources to go after small time tax
dodgers, so as long as you're behaving reasonably it seems you're unlikely to
get in much trouble. This brings me back to where I came in, which is a
warning that if you really are trying to operate properly as an independent, a
very controlling client who is able to impose obvious restrictions like
setting working hours is not something you want pushing you to the top of the
pile for an IR35 investigation.

~~~
cja
HMRC have an email address you can send information about your business and
working arrangements to and they will tell you if you are caught by IR35.

I wrote a fuller explanation here: [http://digitalassassin.net/2014/07/am-i-
caught-by-ir35/](http://digitalassassin.net/2014/07/am-i-caught-by-ir35/)

~~~
Silhouette
HMRC will tell you whether _in their opinion_ you are caught by IR35. However,
it is important to understand that they are not a neutral advisor, and just
because someone at HMRC thinks you are caught, that does not mean the actual
decision-making process if they challenge your status will lead to the same
conclusion. In reality, they have a record of chasing not very many people
under IR35 in the first place and then winning only a fraction of those cases
when someone has put up a fight.

To be clear, I'm not arguing that this is necessarily due to any ill intent on
their part. It's just that even if HMRC people are trying to help when you
call them, they can still fail to understand what the tax rules actually say
and they can give incorrect advice as a result. When that happens, they seem
to err on the side of saying you're caught by whatever it is you're asking
about and should pay the extra tax.

If I'd taken them at their word the last couple of times I called, my
companies would have paid far more tax than we really owed. (To be clear
again, I'm not talking about any funny tax avoidance measures here, just
applying the normal but somewhat complicated rules for things like
international sales.) Fortunately, we also spoke with some accountants who
could explain why the first advice was wrong, which in fact they did by citing
parts of HMRC's own written guidance that HMRC's own people had overlooked.

------
gk1
I was nodding my head in agreement… All the way until the “How much would I
charge?” part. Here’s something to consider for other freelancers reading
this:

1\. We all know what a pain it is to bill hourly. The way-off estimates, the
tracking, the reporting… Why not bill on a daily/weekly/monthly rate? I know
what you’re thinking: “But how will my client know how much work I’m doing?!”
In the past year that I’ve been doing this, the ONLY people to ever ask me
that were other freelancers, NOT clients/prospects. 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.

2\. Why tie your rates to your cost of living? (And number of vacation days,
and tax rate, and other arbitrary multipliers/divisors…) Your rate should
reflect the value you bring to a company. (Yes, figuring the value of your
work for a company could be tricky, but that’s another matter…) Using living
expenses to calculate your rates makes as much sense as pricing milk by the
size of the cow that produced it. Charging based on value will almost always
get you more than charging based on your thrifty living expenses. (And if it
doesn’t, then either you’re underestimating your work’s value or your clients
are way too small.)

~~~
twelfthnight
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.

~~~
tptacek
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.

~~~
rnovak
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.

~~~
tptacek
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.

~~~
rnovak
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.

~~~
tptacek
I think we're talking past each other.

------
edw519
Nice write-up, but a little too complex for me. I've taken a slightly
different approach that I've never had to "talk myself into"...

I got the gig by charging something we both felt comfortable with. Then I
raised my rates 10% every 90 days. No discussion, no debate, no permission,
just, "Starting October 1, my new rate is x." If they said no, I'd walk away.
That _never_ happened.

I remember the first time I crossed $100 using this method. My client said,
"Now we'll have to start treating you like a real consultant." I said, "OK."

~~~
gk1
> "Now we'll have to start treating you like a real consultant." I said, "OK."

That's funny... I bet it felt great hearing that. I remember when I had more
than 1 concurrent client for the first time ever, I thought to myself: "Wow,
now I'm a real consultant, not a wanna-be-consultant!"

------
jtbigwoo
I really wish everybody who was a freelancer had a chance to work for six
months in a big-time consulting firm (e.g. Computer Science Corp, Accenture,
Sapient, or IBM Global Services). Get an up-close look at how much companies
will pay for developers, project managers, and designers. Medium-sized or
larger companies have no problem paying $175+ per hour for average developers
who have the right experience. If you're any good, you'll soon see that a big
company will pay $200+/hour for you.

Sure, there's extra overhead involved in those big firms, but there's no way
you'll come out of that experience thinking you're only worth $50/hour.

~~~
spdustin
Small companies will, too. Just not the sort of small companies who look for
talent on Freelancer boards. They're looking for bargains or non-critical
work, in my experience, and the majority of them - if they get past the
sticker shock - are not pleasant to work with.

~~~
emilburzo
How else do you find the right sort of companies? (genuinely curious)

~~~
mtbcoder
In short, you painstakingly build a network over time. Eventually you get to
the point where good companies find you. There's no definitive way to do this
and that's what makes running a successful consulting company difficult. In my
experiences, all of the consultants that I know (including myself) who are
going strong, sort of fell into consulting after working a long time in their
industries. If you are young, I would suggest working for a company in your
industry first and gain experience/contacts before setting out to be an
independent consultant.

------
reubenswartz
The most you can charge is the perceived differential value you provide. So,
if the client perceives that you will make them an extra $1M compared to the
alternatives, you can charge, say $300K. If you have to do 100 hours of work
to do that, don't say that your rate is $3,000/hr. Just say that the $1M costs
$300K.

You don't always get a clearcut case like that, but the key, as @bdunn
mentioned, is that you need to help the customer in a way that other commodity
providers can't. Writing Ruby code or working with Photoshop is a commodity.
The market sets the rate for those services. But if you can use those skills
to reduce costs, increase web conversions, etc, you can provide increased
differential value.

I've helped a lot of small business owners work through these scenarios, and
then come up with numbers that "don't feel right." They don't want to charge
what they're worth. Then we have a conversation like this:

"I agree with you that it's worth it, but I just don't feel like I can charge
that much."

"Why not?"

"It just doesn't feel right?"

"You believe in helping your clients, right?"

"Of course."

"Would charging the higher rate help you provide more resources and increase
the customer's return?"

"Probably."

"So why are you so hung up on your own feelings that you're hurting your
clients by not charging them properly?"

OK, it's a bit silly, but it's a real conversation I've had many times. When
they are convinced in their head but not in their gut, I ask them to literally
practice talking about price in front of a mirror. Do it so that it sound
confident, comfortable, and unapologetic. Your customer is getting a great
deal! Of course they should want to do this. Steve Jobs never apologized for
the fact that a Mac had a higher price than many PCs-- it was just a great
deal if you wanted to do certain things.

Feedback is that practicing in front of a mirror really helps. ;-)

~~~
dropit_sphere
>"You believe in helping your clients, right?" "Of course."

I think this might be the snag. The people who will pay what the SBO is worth
will likely not be the same people as the current clients.

~~~
reubenswartz
This is true in some cases, especially if they don't perceive the value, or
they are so cash-strapped that they can't execute on the plans that would
really help them.

However, this is often an excuse to avoid having the pricing conversation.
I've worked with people who have raised rates on existing clients by 30%
without losing any of them.

Usually, though, you'll lose some clients who don't perceive the value and are
a giant pain, anyway. You'll get to do better, more interesting work for most
of your clients, who will magically start treating you better, and you'll get
to do work for a new set of clients who treat you better than the ones you
lost.

(Of course, value is not something you assign to a project. It's what the
buyer perceives. You can help frame the perception, but it's got to be
credible.)

------
morganvachon
For someone like me who is a "jack of all trades master of none" type of
freelancer, this formula works fairly well. I have the advantage of having a
full time job and freelancing on the side for extra spending/saving money. But
if I ever do make the great leap to a full time freelancer, this formula tells
me that I can make it for only a little more than I charge now.

Granted, I'm in a suburban/semi-rural area, so I may actually have to raise my
rates to make a livable wage on my own, since the client pool is smaller, and
this is part of why I haven't already made the leap. Admittedly, the "imposter
syndrome" the author spoke of is probably a factor as well; deep down I know
I'm good at what I do, but every time I have to research something I end up
feeling like a know-nothing. That's something I'll have to overcome not only
if I want to set forth on my own as a full time freelancer, but even if I want
to advance as an employee.

~~~
gk1
If it's of any help, the impostor syndrome isn't unique to _new_ freelancers.
I've been consulting steadily for over a year, and I _still_ feel it
frequently. Acknowledge the feeling but don't let it be a barrier. (Maybe
someone more experienced can chime in if I'm wrong about this.)

~~~
pc86
I contracted full-time for about 2.5 years before going back to being an FTE
for the stability. Even as I steadily raised my rates upwards of $150/hr+ I
still thought back to when I was charging $70 and that I was doing the exact
same work and providing the exact same value.

Even when you're in the thick of it, it's sometimes hard to contextualize that
no, I'm not charging too much now, I was just charging too little then.

You will lose clients as your rates go up, it's only natural (I had one
complain very loudly when I went from $70 to $80 an hour, even though he only
needed 2-3 hours of work a month at most; he left when I went to $95 about 6
months later). With few exceptions, most of them will be the painful ones.

------
amadeusw
I've never freelanced and I'm just about to start (in an SDE-equivalent role),
but getting the first job is definitely the hardest. I really need your
advice!

The back story: My startup is experiencing a quiet period and won't be making
money for a few months. I need to make my rent and pay for food, yet have the
flexibility to continue working on my startup.

I considered asking for a low rate just because of my dire need to make money.
This brilliant article makes me reconsider my worth (I've turned down 100k
offers to pursue my startup), though. What's the best thing to do in my
sitauation?

I've built a portfolio and I've considered four approaches that I will take.
Which ones should I focus on? Is #2 too much of a long shot?

1\. Reach to my network (mostly recent grads, though)

2\. Apply to freelancing agencies

3\. Reach out to companies that are hiring, have a great cover letter which
explains my situation and propose working on a contract basis (is that too
much of a long shot?)

4\. Reach out to companies that seek freelancers (but how do I find these?)

Thanks for advice!

~~~
andy_adams
I started with #1 and #4. In particular,
[http://www.authenticjobs.com/](http://www.authenticjobs.com/) is a great
place to find quality first-time leads.

To get jobs there, I use this formula:

1\. Make sure you're only applying to jobs you're really interested in.

2\. Write an introduction email that explains your interest in a personal
tone. Nothing stodgy, nothing cookie-cutter.

3\. Try to be one of the first ones to apply - postings get _flooded_ with
applications (most of them crappy), so it doesn't hurt to be in first. This
means you may need to check the job board multiple times per day.

Beyond job boards: _Nothing_ beats word-of-mouth referrals. Become to "go to"
person for your clients and watch the leads roll in.

(edit: formatting)

------
sarciszewski
After reading this (and other threads where 'tptacek has written in great
detail about the merits of billing by the day, raising your rates, etc.) the
only question I have left is: how do freelance consultants typically find
clients? Assuming a clean slate and no testimonials or referrals to
springboard off of.

Is it as simple as calling random businesses? Or is there a nice set of useful
tips for starting out?

(Has this already been answered in another thread?)

~~~
patio11
Very few people start consulting when immediately out of the womb. One's first
client or few clients is often sourced by one's personal network: an old day
job, a college buddy who went on to work somewhere, someone you met at the
local meetup for Pythonistas, etc.

After one is actually working as a consultant, one can fix the "I have no
testimonials or referrals" problem fairly quickly. Do great work. Explicitly
ask clients, as part of your aftercare (or before), to give you testimonials
and/or referrals. e.g. "I'm really happy that this engagement seems to have
worked well for everyone. Over the next couple weeks, I'll make myself
available to the team if they have any questions about $PROJECT. Naturally,
I'm also going to be doing the consulting rainmaking dance. I've really
enjoyed working with you -- do you know anyone else who would enjoy working
with me?"

There are a few other methods which work in a repeatable fashion:

a) Go to events populated by people who can say yes to consulting engagements.
If you cannot be invited to these for whatever reason or if they don't exist
in your area, throw the event yourself. Do presentations which relate in _any_
way to the sort of work that you do and then ask people at the end of the
presentation to continue the conversation offline if they found it
interesting. You will get 5+ coffee dates per 50 people you present to. Work
on converting 1~2 to clients.

b) Figure out who should be buying your services. Cold call or cold email
them. This strikes engineers as Black Magick Most Foul, but it is actually
pretty routine in business, and clearly works in a reproducible fashion.
Business owners mostly _will not be offended_ if you send them a considered,
personalized, one paragraph pitch to explore business together. Selling and
being sold to is _what we do all day_.

c) I hesitate to mention it, since it is a long-ball sort of strategy and
typically will not help you pack Q1 with engagements when starting from a
standing start in December 2014, but putting a few writeups of what you do for
a living on the Internet (you can use WordPress for this but, crucially,
you're not shipping blog posts) plus an email capture opportunity can get you
a _lot_ of leads over the long run. Virtually anyone on HN who has ever
shipped software with a business impact could spend four hours writing about
that experience and get a handful of leads every month from now to forever for
that investment. Assuming one's consultancy is known to work given people to
sell services to, this strikes me as a good use of one's time between
engagements.

~~~
sarciszewski
Thanks! I believe I can work with all of this information :D

------
GhotiFish
A technique a friend taught me to make good prices.

"What number would you not say no to? Assuming you wouldn't enjoy the work."

It's helped me make reasonable, and sometimes unreasonable offers, which are
good starting points for negotiation.

------
lucaspiller
> If I told you about freelancers charging $20,000/week or $350/hour, what
> would you say? I know what I said: “Sure, they can get away with that, but I
> couldn’t because…”.

How do you raise your rates from $88/hour to $350/hour? That's 4x the rate, it
seems like a whole different ball game to me. I have a few regular clients,
and there is no way they would be able to afford that, so is it time to ditch
them?

~~~
chime
My method goes counter to the article but still ends up with the same result -
higher rates with the added advantage that I KNOW it is the highest possible
rate I can charge and not worry if I should charge more or less.

Here's my simple method: Decide how many hours you want to work each week.
Then find double or even triple work than that. Then raise your rates till
clients start to drop off until you have your desired weekly hours of work.

If you feel your rate for a client is too high, you can always give free or
discount hours every once in a while, especially when they are in crisis mode.
If you want to drop a client, let them you know you are raising your rates in
near future. If they agree to it, great, now you get a bonus for working with
bad-client. If they can't afford your new rate, great, you just fired a client
without burning down a bridge or having awkward conversation.

Your hourly rate is literally the only thing you are getting from the entire
contract. They have projects, deadlines, specs, SDLC, deliverables,
development methodologies, use cases, and a hundred other things they want.
You have an hourly rate. No year-end bonus, no promotion, no office space, no
profit sharing, no health plan, no 401k contributions, no office cooler
gossip, and certainly no annual raises.

Of course, having been on the client side of this equation too, I know how
wonderful it is to pay someone a single fixed hourly rate and not have to
worry about a hundred minor things because I can trust them to be on top of it
without my involvement.

~~~
nhayden
Your second to last paragraph is a great way to word a conversation I'm about
to have. Thanks!

------
trjordan
Here's another way to look at it. When you're selling yourself as a
freelancer, the last step in the sale is to make the business case. At that
point, you've probably already proved that you could do something for the
company, and the business case answers the question, "Why pay this much for
this service, right now?"

There is more than one way to build a business case. They include:

\- ROI. How much money will the business make? What fraction of that will you
charge?

\- Opportunity cost. What timeline would it take to get somebody else to do
this? How much is that worth?

\- Productivity / knowledge. Will your work transfer knowledge to people
internally? What is the alternative to not hiring you?

\- Flexibility. If they didn't hire a contractor, what is their equivalent of
"freedom cost"? Reminding employers that they can fire you at any time is a
positive for you.

You may even be able to find others. It's not a trivial task, and it'll take
some digging, but keep your ears open. You can always find ways that different
companies rationalize spending money, and using one company's framework to
help another justify the spend can make things go much more smoothly.

------
luckyisgood
Charging more is only half the work on escaping feast and famine cycles when
you're a freelancer or an agency. A while ago, I wrote a post to my inner
circle of email suscribers about one sure way I've found that works when it
comes to charging more (here's the email article:
[http://logit.createsend.com/t/ViewEmailArchive/r/3991C04F56F...](http://logit.createsend.com/t/ViewEmailArchive/r/3991C04F56F89D262540EF23F30FEDED/C67FD2F38AC4859C/)
\- hint: saying "just double your prices" does not work for everybody, like
andy_adams discovered himself; I've got a better way - increase prices
gradually and with every project.)

The second half of being satisfied with your (freelancing or agency) career is
having abundant recurring revenue. I recently analyzed revenues, market size
and the number of employees per company for ten or so related industries:
graphic design, web design, domain industry, hosting industry, digital
advertising agencies, advertising agencies, website creation software
industry... The numbers told me that graphic design and web design companies
cannot even afford to hire a second employee - on average. All the other
industries, who are known for relying heavily on recurring revenue, had much
healthier business indicators. For example, the market in the U.S. for web
design / web development is seven times bigger than i.e. the domain name
business, but domain name companies are in much better shape, financially.

I've described my experience with implementing recurring revenue services in
my webdev agency in the book I wrote:
[https://www.simpfinity.com/books/recurring-revenue-web-
agenc...](https://www.simpfinity.com/books/recurring-revenue-web-agencies/) \-
I now firmly believe that charging more + having recurring revenue is the
answer to most freelancers' troubles. As soon you upgrade your attitude to
charge more for your work, you're ready to start thinking about earning money
from existing clients, every month. We've managed to pay for up to 90% of our
monthly expenses solely with recurring revenue.

------
raphinou
This seems to be for the us and unapplicable to europe (factor 1.25 seems too
low), right?

~~~
andy_adams
1.25 is too low for the US, too. However, we're just establishing the minimum,
so I erred on the low end. 1.5 or 2.0 would probably come closer to reality.

~~~
zrail
It's highly individual. Mine is about 2.25 because of an infuriating rule
about deducting health care premiums. bdunn's course Double Your Freelancing
Rate[1] has a really good in-depth discussion on how you can figure this out
for yourself.

[1]:
[http://doubleyourfreelancing.com/rate/](http://doubleyourfreelancing.com/rate/)

------
twelfthnight
This is great. The simple model to estimate minimum hourly rate is useful and
I believe would create a convincing argument in negotiations of rates. (Of
course, one wouldn't have to be so conservative in the estimates in that
case).

------
treve
I have on occasion simply raised the number of hours in the equation, instead
of my rate. Strictly for fixed-price projects though.

They get the same bang for their buck, but lower hourly rates is for some
customers easier to swallow.

~~~
dpark
They get the "same bang for their buck" while you "simply raised the number of
hours"? That sounds a lot like intentional misrepresentation of hours worked.
Or more bluntly, this seems like fraud.

~~~
ashark
It's what basically every company that delivers project bids that include an
estimate of work hours does, AFAIK. Higher hour counts make the managers
choosing which bid to accept feel more comfortable, I think.

Doesn't necessarily make it right, but it's very common, maybe even expected
and off-putting when not committed, in the way that a lot of business-related
lies are.

------
blendergasket
This is great. Thank you so much! I was curious if you had any advise on
figuring out per project rates? I'm pretty new at making Wordpress sites but I
make nice, handsome, responsive and very usable sites. People I have made
sites for so far have wanted a single fee for the whole project.

I'm not so good at estimating the number of hours that go into a project yet.
Do you have a rule of thumb aside from estimated hours * rate?

~~~
jamon51
I wouldn't do a project rate as a freelancer.

I own a design/development studio and encourage my employees to do side work
if they want to, in order to get some experience in areas they don't normally
dabble in. Examples are estimating, invoicing, figuring out tough problems all
on their own (and being on the hook for the solutions), etc. I think it's
awesome.

But I always tell them to bill hourly. I do NOT want them to make the same
mistakes that I did when I got started. Working late into the night for free
is never a fun feeling.

~~~
blendergasket
Well put. That makes perfect sense. Thank you for your input.

------
scrozier
I don't see anyone pointing out that the impetus for this blog post was a
_fixed-price_ contract that went bad. OP's solution was to raise his rates.
This is an apples and oranges discussion. Charging higher rates is not the
solution to the pain of fixed-price contracts. And for all but the simplest of
projects, fixed price is ill-advised.

------
kaolinite
Fantastic article. The company I work for is trying to solve this exact
problem with the tool that we're building
([http://getbilly.co/](http://getbilly.co/) \- not ready yet but launching
soon) - trying to get freelancers and businesses to value their time more and
charge what they're worth.

------
eof
I did not read this article and am only commenting on freelancing in general.

It requires a good understanding, and importantly, articulation of the
problem; but flatrate for projects is the way to go. You can charge more and
make the client happier. So many software projects fail; that many clients are
happy to pay 50-200%+ premiums for the insurance that if you fail to deliver
they won't need to pay.

It is hard/impossible to do this when you first start out; but generally
speaking if you realize you are selling "peace of mind" rather than whatever
it is you are doing; you will make a lot more money and have happier clients.

~~~
chrisbennet
When you charge a flat rate you are assuming the risk of a project. For this,
you need to charge a risk premium.

My last fixed price contract (what was I thinking?) was estimated to take 120
hours and instead it took 400. I didn't do too bad because I priced that risk
into my "rate".

If you would normally charge $100 hr, you should charge an effective rate of
$175 or $200 hour for a fixed price project. Risk/insurance/peace of mind is
something you need to charge for. Don't give it away.

~~~
eof
Absolutely! You charge a super fat risk premium. My whole point is that
clients will pay significant insurance (easily 100% premium) on a flat rate
project.

I don't talk about hours with my clients when doing flatrate work. I am able
to be like "okay.. this should take me 10 hours.. so really it will take me 40
hours, this is eaily worth 3k to them.. if i make anywhere from 75-300/hr I am
pretty happy" Then I simply quote 3k and tell them they owe nothing if I don't
complete the project to specification. I am very tight on specification and
only would do this on projects I fully understand.

Even when I have been explicit about risk premiums being 150% of the estimate;
clients nearly always choose the flat rate over the hourly with estimate. If I
truly believe my estimates; this is an obvious win for me.

This is also why I said you can't do it right away; estimates are notoriously
hard to get right, you really have to be a veteran to _make more money_ doing
flat rate than hourly; but I stand by my conviction that if you are decent at
estimating (within .2 - 3x of the estimated hours); clients are generally
happy to pay you the risk premium at a rate that is much higher than the
actual risk.

------
smileysteve
I confused "Freedom Tax" with self employment tax at first. 25% is definitely
a low estimate if it includes 7.5%.

------
throwaway90446
Little bit of reality for you, HN.

All due respect to patio11, who has made an excellent career for himself, but
outside of the usual suspects (NYC, SF, Chicago), the kind of rates he talks
about will get you laughed out of almost all client negotiations.

~~~
tptacek
It's true. Patrick is able to charge those rates because he was bit by a
radioactive spider, and because he famously invented the idea of hooking
"Hello World" up to a random number generator and people want a little slice
of that sweet sweet bingo card expertise.

~~~
chc
I think you're being a little bit flip. As a matter of fact, he _is_ famous
for hooking up "Hello World" to a random-number generator. You're right that
it's not really an extraordinary feat on its face, but he garnered a lot of
recognition for it nonetheless. Most of us here don't have well-funded
companies approaching us to consult for them, so I'm not sure why you're
downplaying how special the results of that were for Patrick.

~~~
jameshush
He's not famous. At all. We think he's great on hacker news (I've read the
vast majority of his blog and listened to every episode of his podcast), but
in the _real world_ nobody actually knows who he is. According to him, most of
his consulting gigs have been word of mouth. If he can do it, so can we :)

~~~
chc
You're saying the same thing I said using different phrasing — "word of mouth"
_is_ fame. Those gigs came because people _did_ know who he was. It's true
that there are people who are more talked-about (i.e. famous) than Patrick,
but it's also true that most of us are much less so.

I don't like to be negative, but I just don't think Patrick's experience is
reproducible without substantial amounts of luck. I have a friend who's
constantly talking about lottery winners and telling me, "Look, they did it,
so why can't you?" I feel the same kind of frustration on this topic.

~~~
tptacek
There are four people in this thread that I can think of off the top of my
head --- me, Patrick, Ali, and Brennan --- that have used these strategies
successfully. Are we just all famous?

~~~
chc
OK, I guess I didn't explain what I meant clearly. I've never heard Patrick
talk about any particular strategy that gave him his start. You would know
better since you know Patrick personally, but from the accounts he's written,
it sounds like he basically had clients come to him thanks to his reputation.

Like, let me put it this way: If I were to create an exact clone of Bingo Card
Creator the way it looked and behaved a few years back, do you think Joel
Spolsky would come knocking at my digital door? I really, really don't think
so. You were laughing at the idea that his "Hello World attached to an RNG" is
hard to reproduce, but nobody ever thought that was the difficult part — it's
the fame that followed from it that gave Patrick a base of good clients, and
that seems to be harder to replicate or replace. At least that is my
impression.

(Just to be clear, I don't mean any of this to disparage anyone. It's just
like I said earlier — this kind of "it's so easy" talk bothers me in the same
way as lottery ads.)

------
olddrexperience
over age 53 - thought experiment. How much would you charge yourself to WORK
on your own brain as a Brain Surgeon?

Or comedian star Chris Rock is just another black high school dropout or
CHARGES what talent is worth?

YOUR CUSTOMER is monitoring your Facebook for signs of depression indicated by
drinking too much. Of course your customer is 'paranoid' as your hobby and
what you would really do if you were RICH is to RUN A VINEYARD and bottle
champaign.

Most including perhaps ME are clueless as to what the CUSTOMER IS WILLING TO
PAY. Think of it this way. THE CEO signs on with 'golden parachutes' and stock
options. GE is still paying plenty for 'club frees' for former CE 'Neutron
Jack Welch.'

the average tenure of a CEO is less than 3 years, yet some consultants
LONGEVITY is 14 years and OLDER THAN the Unix systems of 'the BIG CORP.'

It's a simple question of CASH FLOW - most WAGES SLAVES are bound to the
paycheck going to the rent.

THE VALUATION IS YOUR GENIUS and the MAJOR PROBLEM CHALLENGE is that 'the
boss', even BIG CORP, even HQ and even 'the system' does not value your
genius.

the CONTROVERSIAL SOLUTION used to great effects are the buliding contractors.
They have even 'destroyed' the professional engineering consultant industry.

This is called design-build-all stops in one shopping.

So, BIG CORP. you do NOT pay me for my 'time.' because your employees are too
afraid to tell you the truth, you need to hire FREE AGENTS. always offer more
for BIGGER PAY.

Controversial point number two. Even Contractors and the big water tunnel by
Chicago - can go 'bankrupt' and WALK AWAY FROM THE PROJECT.

Everyone except the FREE AGENT knows that SO SUE THE SMALL GUY, but too bad
your company burns. This is NOT to say that you are an Oracle like Big corp
that cannot easily be replaced. oh... have a good lawyer.

It has nothing to do with lousy reputation customers; bad environment;
DEPRESSED and unhappy customer base and employees, etc. Heeeck. i was happy
working for big corp

UNTIL I WAS FORCED TO LOOK for FREE AGENT FREEDOM as I was learning little.
No, stuuupad! the company paid for your MBA degree but that will not get you a
contract.

companies that are PROFITABLE are stingy. companies that are LOSING MONEY are
desperate not to go bankrupt.

At least for me it is NOT the amount or the monies but THE TERMS. how EASY is
it to extend the contract flexibly. YES, I expect to do work for your
competitors.

SURE I LOVE TEACHING, demonsrating, but I am not going to raise the GENIUS
LEVEL at your company. Too bad you are stuck with the dumbbbb geniuses there.

THE TRENDS - see economics are VERY CLEAR. Labor rates are DECREASING.

U get early cataracts from being on the beach sun at AGE 47 and too bad your
CONSULTING CONTRACTS with plenty of plane time are GONE.

The rent is cheap at the run down apartments - walk up in New York City, but
AS SOON AS MARKET DEMAND - area gentrifies, PRICES SKYROCKET. leases are less
than a year and can be brocken by the LANDLORD or the 'BIG POWER.'

The reason you charge more is for the 'rainy days'

