
How to Work Out What to Charge Clients - charlysl
https://www.smashingmagazine.com/2017/08/what-to-charge-clients/
======
ollerac
I wrote a similar post [1] in which I suggest charging _at least_ 4x the rate
you'd charge working full-time at a company.

So, if you normally make $60/hr working full-time (converts to $120k/year),
then as a freelancer I'd suggest charging at least $240/hr if you plan on
having anywhere near a similar lifestyle.

This is because 50% of your working time goes towards marketing, self-
promotion, and other things clients don't pay you for. And 50% of your revenue
goes towards taxes, office space, and buying products and services to support
your business.

It's a rough calculation, but I think it explains why a lot of freelancers
massively undercharge when first starting out. 4x your normal rate just seems
so high until you think of the real costs.

[1] [https://blog.artisfy.com/2017/04/13/charge-at-least-this-
muc...](https://blog.artisfy.com/2017/04/13/charge-at-least-this-much-to-make-
your-freelance-business-sustainable/)

~~~
JamesBarney
240/hr is a lot of money, especially outside of the valley.

That's not a custom dev rate, that's a you have a track record of doing
something very niche and valuable and usually domain specific. I.e. you have a
portfolio or set of recommendations that you delivered successful financial
plug-ins for oil and gas ERP systems.

~~~
fancyfacebook
Not really, I'm trying to hire anyone, even mediocre developers and designers
and simply can't get anyone right now on a short term basis even at $300/hr.
We're going up to $500/hr soon.

It's really really hard to get people right now. As bad as I've ever seen it.

~~~
AFNobody
"Short term basis" being less than 6 months / 1000 hours?

Yes, you will pay a premium. If you can stretch it to 1k hours or 6 months,
you will be able to get cheaper prices. I doubt you'd be paying over $200/hr.

------
dewey
For a site that has a category called "Design and Development" and an author
that wrote "The User Experience Revolution" that's a very weird way to show an
article. I almost closed the page because I thought the article is already
over but it was some huge "Check the speakers" banners that took up the full
height of my screen...

~~~
overcast
You're not kidding, that was horrific. I thought I was reading a full page ad.
I wish we could go back to a time of formatted plain text websites.

~~~
pymai
[http://links.twibright.com/features.php](http://links.twibright.com/features.php)

~~~
prewett
I like how their screenshots are available in both PNG and JPG (and labelled),
presumably in case your software is so ancient that it only supports one of
those.

Reminds me of the days when loading a JPEG had a scrollbar associated with it.

------
benjohnson
I couldn't handle the emotional issues of pricing - I like my customers so I
made my rates low.

One of my employees saw the problem and started to handle the pricing - he
quotes stupid high rates that leave a lot of wiggle room to delight our
customers by going above what was expected.

Both we and the customer are happier.

TLDR: Perhaps let someone else price for you because they're not emotionally
attached to the number.

~~~
scaryclam
It seems to be a strange thing, that when charged enough, customers seem to be
less fussy, less demanding and happier with the results.

The worst customers I've seen, everywhere I've worked, are the ones being
under charged.

~~~
freehunter
Funny enough my worst experience with selling stuff on Craigslist is the items
I've tried to give away for free. I had a nightstand once, it had some damage
and I didn't think it was worth anything so I put it on Craigslist for free.

First response I got asked if I had the second nightstand, because it was a
pair and it doesn't make sense to have just one nightstand. I did not. They
weren't happy about it.

Second response asked if I could deliver it because it wouldn't fit in their
car. It's free. No, I'm not delivering it.

Third response complained about the damage and said they would take it if I
sanded it and refinished it. I offered to cut the price by 50% (from $0 to $0)
to account for the damage, which they were not amused by.

Finally I just put the nightstand on the sidewalk and someone came by and took
it away.

I think part of it is what others have said, cheapskates are just worse people
to deal with in general. But also I think you run into the issue of people get
really suspicious when they're getting a too-good-to-be-true deal and are on
the lookout for any sign they might be getting scammed. If they're paying
premium, they're willing to let down their guard and wait for the results to
prove themselves.

No one wants to drive to your apartment only to find out it's a bait-and-
switch or (even worse), that they're going to get mugged.

~~~
the-dude
Why didn't you price it at a 100 bucks?

People do not value things that are free or cheap.

I once provided some services to guys who were a kind of marketplace for low
grade e-books.

An e-book sells better at $27 than at $9. At $9 people think "can't be much".

~~~
LanceH
I put "free" things at $20 for this reason. It's one bill, if someone is
really cheap, they can negotiate it down to $5 if they want.

The free crowd is the worst, though. I put a tv up, got multiple responses in
the first hour, and took the first one. More than one other complained (very
rudely complained) that I should have removed the posting. It was only up for
2 hours total.

------
adamcharnock
The (related) advice that has always worked well for me:

"You know you're charging the right amount when a client complains about the
price but still pays you."

Or, to put it another way, if no one complains about your prices then you're
not charging enough.

YMMV.

~~~
francisofascii
I think this is good advice, but sometimes you never really know what work you
are missing out on. Non-essential projects may be put on hold or farmed out to
others because your price is too high.

~~~
hayksaakian
Tip: you don't want to work on non essential projects.

------
praxis23
It's fairly easy to price against perceived worth of labor, but it isn't
really helpful neither in competitive, nor in emerging markets to base pricing
decisions solely on it.

Concepts behind all pricing models are fairly simple and don't require overly
sophisticated math. Instead, they require sober look into 4 variables:

\- Replacement cost: what would it cost to replace your service/product with
something else?

\- Market price: what others are charing, charge around their price.

\- Cashflow/Net present value: if something you're producing has long-term
economic impact, you may price not only based on actual value of your
offering, but on long-term profit your offering will generate. And, in some
cases in enterprise industries, this is the only way to reasonably justify
your prices.

\- Value-based pricing: this is fine adjustment mechanism for everything
you've figured during previous three stages. Think who's target audience for
your product, and if there's something which makes your product more valuable
for them than the rest of the market - price it accordingly. Simple example -
luxury DSLRs (whose sensors, firmware and lenses are just as good as
professional ones, yet luxury casing and a good brand name makes them
significantly more expensive).

(I'm not a salesman, I'm an engineer, yet I had to sit through decisionmaking
sessions about pricing services in 2 different companies over last decade, and
found them very amusing - if you get to the core, the ideas are very simple,
they're just surrounded by plenty of bullshit bingo and lingo).

------
matte_black
For me, it was more helpful to determine what my minimum rate should be rather
than the maximum.

My calculation is basically whatever the average equivalent full time employee
in my area makes multiplied by two (and that should be any average dev’s
minimum). At this rate I only have to put out an easy average effort, there is
no need to over-deliver, though sometimes it just happens anyway and the
client is unexpectedly delighted. And some clients think my average effort
_is_ over delivered.

I find that charging more and forcing myself to overdeliver for every client
adds to stress, and makes me less likely to take work. I don’t like quoting a
super high rate because it comes with extra value-add promises. Also, quoting
high means I probably only have energy for that one client, instead of maybe 3
average clients. I like having more sources of revenue as opposed to just one
big one.

Knowing my minimum rate makes it easy and straight forward to give my client
an idea what I will cost on the spot, eliminating any drawn out negotiation or
having to feel them out to see what their budget is, and barely any need for
me to “prove” my worth. If they can’t accept my minimum, the conversation is
over.

------
oddlyaromatic
"It's your time, and if people are willing to pay, you can charge whatever you
like."

Yep! It also helps, for those of us who feel bad charging "high" prices for
work we like to do, to not think of ourselves as being paid for "the work". I
know a lot of artists who are lovely people and could sometimes be persuaded
to do an event for a low fee because they are doing something they love. Then
one of them got the advice to think of what they are being paid _for_ \- it's
not that you get paid to spend an hour on stage in Utah one Saturday. It's all
the BS around doing that - traveling their, committing in advance no matter
what comes up you will be there and do a good job, having to ignore your
family and other responsibilities to get good at your craft. The general
disruption and unevenness that it brings to your life to be a freelance
anything. If people value your work enough to pay you what you will accept for
ALL THAT BS just to have you there, great, you have a career now. But, as they
say, the performance is free. It's all the other stuff they have to pay you
for.

~~~
SyneRyder
That's very similar to something Derek Sivers wrote last week. His post was
very short, so I hope he'll forgive me posting it here (but his entire blog is
worth the read, and his book Anything You Want is one of my all-time
favorites):

 _One time a college far away in Ohio, about a 12-hour drive, asked what I
would charge to do a two-hour show._

 _I said, “$1500”._

 _She said, “Oh, that’s a bit too much. What would you charge to do just a
one-hour show?”_

 _I said, “$2000”._

 _She said, “No, wait, you’ll be performing less, not more!”_

 _I said, “Yeah! Exactly! What you’re paying me for is to get there! Once I’m
there, playing music is the fun part! If you tell me I have to get back in the
van after only an hour, and drive home, then I’m going to charge you more than
if you let me play for a couple hours first.”_

 _She liked that so much she came up with the $1500._

[https://sivers.org/pp](https://sivers.org/pp)

~~~
chatmasta
Similar to the story of “how do we build this?”

“I push this button.”

How much does it cost?

“$10,000”

What?!

“$1 for my time, $9,999 for knowing which button to press.”

~~~
dasil003
The problem with this story for software developers is how it feeds into very
common mental models of how software development works. Certain people who
think configuring a mail client is the same as coding a large-scale
distributed system just because their eyes glaze over the first sentence of an
explanation of how to do either, and their 12-year-old nephew can do the
former, therefore they must be equivalent and just a matter of
salesmanship/credentialism.

------
chrisbennet
I think a lot of first time freelancers/consultants think like employees
instead of a business person. Your customer is going to sell what you do for
them for whatever the market will bear. Here is the thought exercise that I've
used to explain the difference to a friend that didn't want to charge enough.

Suppose you make unbelievably delicious apple pies and sell them for $10 each
at your roadside stand. Along comes a businessman that offers to buy them from
you for $10 each and resell them for $40 each in the city if you only sell to
him exclusively. Do you:

(a) Sell them to him for $10 ("An honest days pay for an honest days work.")

(b) Tell him "I'll split the profit with you and we'll both win." Thus earning
say $20 a pie.

------
rossdavidh
To be honest, I just charge an hourly rate, and am completely honest about not
knowing how long it will take, and committing to nothing in that regard. Some
customers walk, the others I do work for. There is little more common than a
software project that had an unexpected complication which greatly increased
the time it took.

~~~
williamdclt
That's what our company do: we charge per week (we do 1-week sprints). Works
exceptionally well!

------
turc1656
The author writes this: _" I don't charge less if I need the work and neither
do I charge more if I am busy."_ and then concludes with this in the final
paragraph: _" Also at the end of the day, pricing is about supply and
demand."_

These statements cannot both be true - charging more because you are busy is
the very definition of your work being in heavier demand.

~~~
JoeAltmaier
Not about _your_ demand - about the market's? You can be busy with 2 jobs
overlapping, yet the market can be soft for lots of people and you underbid to
get those jobs.

~~~
turc1656
I get what you're saying but that's when we talk about averages and
generalizations. It doesn't necessarily apply to an individual. For example,
the average lawyer makes about 120k a year. A really good lawyer with a great
local (and perhaps state-wide or country-wide) reputation will charge a lot
more for their time since their time is a limited commodity. It doesn't matter
that the average lawyer can still only charge ~120k per year. They can
personally charge much more than that so the supply and demand aspect of the
market a whole is meaningless to them specifically. Similarly, if this
programmer/developer has a ton of skills and experience and can crank out
code, they can conceivably charge a lot more for their time.

------
scarface74
I agree with most of the article, but no one cares how much you can live on to
be comfortable. The market decides that. If you do all of the calculations and
you still can't meet your lifestyle requirements you have to either change
your lifestyle or change your market.

------
have_faith
Skip to the end for the only relevant piece of information.

> Also at the end of the day, pricing is about supply and demand

Charge what the market can afford and is willing to pay for your services.

~~~
taneq
That's genius! Why didn't I think of that?!

~~~
rhizome
Someone should write a book about it.

------
gk1
If you are charging by the hour then you've already lost.
Contracting/consulting, like any business, is about exchanging value. You want
to be fairly compensated for the value you're providing to a client.

> Start with the minimum wage you would like to take out of the business. How
> much do you want to earn a year? Remember, this is the minimum figure you
> could survive on. We will increase that number later.

Your lifestyle or annual expenses have little to do with the value you're
providing, so why in the world would you peg your rates (and cap your income)
based on it? If you ever move from SF to Idaho are you going to halve your
rates just because your living expenses did?

And why limit yourself to $240k/year (what the current top thread is
suggesting)? That's not even a crazy number and already you're forced to
defend the $240/hr rate. Is that an argument you want to have every time you
pitch a project?

I highly recommend reading the book Value Based Fees by Alan Weiss.[1]

[1]([https://www.amazon.com/Value-Based-Fees-Charge-Youre-
Worth-e...](https://www.amazon.com/Value-Based-Fees-Charge-Youre-Worth-
ebook/dp/B0062O8UBY/))

~~~
honest_george
This also means that if you're working for small company, you should charge
small amounts of money. Or just reject the project entirely. Because anyone
claiming he can bring 500k a year in value for a local small butchershop is
either a liar or fooling himself.

~~~
kfcm
You have to determine who your market is. Some potential clients may not be in
your market--whether too small or too big--and you pass on them. If there's a
demand from those market segments, someone will pick up on it.

------
devj
We are in touch with a prospective client who is planning to outsource their
product development.

As a company, we decided to give it a try so that we can fund our own product
which is under active development.

Having said that, we are unaware of the economics of project development as we
all have background in SaaS product companies.

I have come to the conclusion that we should charge them on manpower basis i.e
$x per developer per month + $y where x is subjective to skills and experience
and y = cloud infrastructure cost. The reason being that this is a long term
project and therefore, we didn't want to get slowed down.

This is in contrast to the hourly task/project based approach.

Please advise.

Ive already asked the question here:
[https://news.ycombinator.com/item?id=16262865](https://news.ycombinator.com/item?id=16262865)

------
wordpressdev
I like the notion of charging my clients more but obviously the clients are
from this world and they know the market rate. I need to be exceptional to
charge 4x and get away with it. That, or the client has some pretty free money
to burn.

~~~
troels
> That, or the client has some pretty free money to burn.

You say that as an aside, but it's actually quite relevant. Esp. larger
clients will have budgets where the one hiring you isn't directly responsible
for the cost -- or doesn't care as much as if it was their own money -- In
this scenario, other factors are more important to them than your price.

------
wingerlang
This page has a very odd layout.

~~~
justherefortart
Agreed, reminds me of those stupid Head First books. I like clear and concise
information laid out in a consistent and logical manner, not LOOK OVER HERE
every 3 paragraphs.

~~~
freehunter
Blech. You just described what I hate about most tech books. The constant
cutouts or inserts or sidebars or whatever you call them. You know, the ones
where they have a table at the beginning that says "If you see the (!), it
means it's a warning! If you see (#), it's gotcha!" and every other paragraph
you have to stop to read another box.

If it's just text and it's important enough to mention it _right now_ , put it
in the paragraph with the rest of the text.

------
z3t4
You figure out how much to charge by picking the right market. Pick something
worthwhile! Customers doesn't care how much you think your time is worth. It's
all about what your customers think it's worth.

------
jim_combinator
I have been doing freelance development for 17 years and I've found myself
generally bidding from the largest time increment downward for myself and any
subs. I.E. Monthly, weekly and daily. Never hourly.

~~~
imhoguy
Does your contract specify a daily hour limit and number of days in month?
Just curious how you handle overtime and time off etc.

------
j45
I've been self-employed since I was a student and have walked the spectrum
from $50 to 500/hr and then back down to find the sweet spot. I have
exclusively worked on my own the entire time and had staff, contractors as
well as product teams.

I've found 3x to be a closer number to aim for based on two key things:

1) Know what kind of help client is looking for and whether you are that in
the form of a freelancer, contractor, consultant and specialist. The gaps in
those expectations cause a lot of friction when you're trying to be a
consultant who's opinion matters, and they just want a freelancer to help with
something already under way.

2) We create value through 3 main activities. Every dollar earned pays for 3
things.

1/3 of each dollar to get work (sales, marketing, speaking, networking)

1/3 of each dollar to manage work (scope & project management, resource
management, status updates, support, qa, testing, warranty work, taxes, fees,
infrastructure)

1/3 of each dollar to do the work (development, creation, innovation, etc)

For every $125/hr, you can allocate about $43/hr to each 1/3rd.

Our mind thinks we are splitting 1/3 of our time between each, but the trick
is to see how efficient each can be for each team member (or yourself), and at
what.

If you are, or find someone who is more responsible at doing one more category
than the other, they are increasing efficiency, and profitability and
therefore can have a bigger hourly chunk. If you write horrible code but are
great with clients.. you can quite literally see where that balances out, or
not.

The 1/3 model has helped me hire and retain a lot of talent when they knew
what their value was, how they were adding value, and how they could improve
it.

It also helps weed out people who think they are worth a lot more than the
value they actually provide due to attitude/entitlement/insecurity getting in
the way of delivering ongoing skills/knowledge.

Hourly work, however, ultimately poisons most relationships because clients
focus on your time instead of your result. I have learned to estimate with
hours, but provide a fixed number. You do get better at this with the things
you are good at.

Creating long term relationships are much more preferable - many customers
will pre-purchase blocks of time/attention in the form of a working retainer
that is good for both parties. The good side for you is you can take on
additional resources if you need to do some of the work.

If you're interested in learning more about ditching hourly work, an
unaffiliated nod for podcasts like Ditching Hourly is worthwhile.

[https://www.ditchinghourly.com/](https://www.ditchinghourly.com/)

~~~
jackgolding
This thirds rule is what we used at our consultancy!

------
baby
Can someone make a form that calculates that for you?

------
omginternets
I once heard a particular turn of phrase that really stuck with me:

> Price is not really a function of supply and demand; it's a function of _how
> much the market will bear_.

(Note to pedants: yes, this is a function of supply and demand, but this is
about framing the concept a bit differently)

------
dawhizkid
Pricing as a Service? Does this exist?

