
How I learned to charge my customers - benrmatthews
https://idiallo.com/blog/how-much-do-you-charge-for-your-work
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chadash
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 estimate it will
take me 20/hours, then I just look like an expensive consultant. Notice that
in the first scenario, I made more money and still _seem_ cheaper.

~~~
superhuzza
Genuinely curious, how do you mitigate scope creep when you charge by product?
What stops the client from pushing back when there's a bug in the future or
feature request they think should have been included?

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shrutipathak
In the past, I have always only charged for the entire project all at once
instead of by the hour.

Main trick to mitigating feature crap I have used is by first I add extra
padding to cost.

Second i tell my clients that I provide free maintenance for 2 weeks after the
project si delivered. Mostly this helps because clients want speed over
reliability. So we push and the next two weeks is bug fixing - sometimes it's
three.

However no matter what happens I would never build a new feature in the
maintenance period

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neolog
How many weeks are these projects, including the 2 free weeks?

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pauletienney
I spent 10 years freelancing. If i can give an humble advice: you don't cost
your customer some money, you produce some extra value for him. Charge between
10% and 30% of the extra value you provide to your customer. Charging per hour
is a trap. It is nice to start, it is easy to read, easy to calculate but it
makes you a commodity. Don't be a commodity, be an expert.

~~~
zerr
Finding out about that extra value is trickier than it sounds, unless the
accountant is willing to share the classified info with you.

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edouard-harris
There's certainly a knack to it, but it has nothing to do with accountants or
classified information. If one has experience in this sort of thing, it's
generally possible to ballpark likely value-adds based on a single 30-minute
conversation. Experienced consultants in this tier often offer a free initial
call with prospective clients partly for this reason.

~~~
hackerman123469
You also don't need to match the profit entirely.

You just need to match it so it's worth more than what anything else would be.

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ibudiallo
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 learned this the hard way, charging a flat fee and
continue to work long after I had spent all my earnings.

~~~
schroffl
Not really on-topic, but I have to say that I really enjoy the audio narration
:)

It's well recorded and the music is not too loud either.

~~~
neymgm
I couldn’t manage to make the player work on iOS. Sad day after seeing your
comment.

~~~
ibudiallo
Thank you for letting me know, and here I thought testing on chrome and
firefox on Windows was enough. I'll update it as soon as possible.

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curiousllama
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.

~~~
sova
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)

~~~
curiousllama
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?

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projektfu
Those rates seem low. 20 years ago consultancies were charging $150/hr +
materials. Their employees might see $30-50 depending on how much unallocated
time they had. For a solo, the average including down time (sales) could reach
$80-100, charging that same $150 to the clients.

Have rates fallen so far?

~~~
johnward
Some anecdotal stats from my experience being a consultant with both megacorps
and smaller gov contractor. The hourly rate is about $200 an hour on average.
This is for a senior, highly specialized, engineer type role. Megacorp paid me
about $60 per hour where the smaller firms paid me closer to $80. Both as an
employee with benefits. When I first joined a startup we would go as low as
$120 per hour and pay $30 an hour too a junior/mid level consultant.

I'm sure someone super specialized and in a hot market could get up to $300 an
hour if they are delivering value.

~~~
__sisyphus__
having been employed by agencies directly, and having worked as a freelancer
working with agencies as well as other businesses directly, these rates are
right in line with my experience.

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bob1029
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:

"<Some Business Feature> 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.

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logicOnly
Ahh yes I've charged $100/hr and I have gotten almost no work despite being
both an engineer and programmer.

I can make half that with employment.

If I have a sales team, maybe we can split the $100/hr labor once I find a
company willing.

~~~
edmundsauto
Your $50/hr with employment is more like $75/hr with overhead accounted for.

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grawprog
When I was doing consulting for small websites, data work and programming
through craigslist, much like the original article. I charged $35/h with a
minimum one hour charge. This was 6 or 7 years ago and at the time, I wasn't
really thinking about making it full time work.

I did a lot of research before hand on average rates for the type of work I
was doing and my experience level, checked out other ads things like that.

I chose my rate because it was higher than the spammy looking cheap ads but
was on the lower end for consulting rates.

I got a decent amount of work. I had one customer specifically tell me he
chose me after finding out my rate because I charged more than the people with
the cheap ads that had done poor quality work.

I never had anyone quibble about the rates. Luckily, my customers were mostly
business owners and stuff.

I got some tine tracking software that also helped keep work stuff seperate
from hone stuff. If I clocked in, I was working, I kept a list of tasks. In
the end though, nobody really asked to see or check, they just wanted the
bill.

Don't be afraid to charge a rate you feel is reasonable for your work ans
don't feel bad when you hand over that invoice.

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s1mon
While this may be somewhat tongue in cheek, I often think of this post from
Anil Dash:

"I talk to a lot of consultants, freelancers, and small businesses who do web
work, and I used to be a freelancer myself, so sometimes I get asked for
advice on how to price one’s goods and services.

I think I came up with my best suggestion today, and it involves only two
simple steps:

    
    
      Slap the client in face.
    
      Tell the client your hourly rate.
    

If the person looked more shocked, horrified, offended, hurt, saddened, or
wounded by the slap in the face, then you are still pricing yourself too low.

Your mileage may vary, this is not to be construed as legal advice, eye-poking
may be substituted for slapping in some states."

[https://anildash.com/2005/05/12/pay_by_the_hour/](https://anildash.com/2005/05/12/pay_by_the_hour/)

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aronpye
Companies tend to internally budget using hourly rates and time cards, so I
can’t see how charging an hourly rate like most consultancies and professions,
such as law, would not sit well with client companies. Also, charging a fixed
price makes you very vulnerable to having to absorb additional costs if the
project takes longer than anticipated. An hourly rate removes this risk as you
amortise your costs into your hourly rate.

As an individual going up against an entire company you want to protect
yourself as best you can, charging by the hour helps ensure that. Also make
sure you get yourself liability insurance.

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amingilani
If I were to write an article on this topic, it would be a similar story. I
don't think this would have helped us answer the question when we were
starting out though.

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kova12
That explains why all the recruiters on LinkedIn are trying to low-ball me so
much. The actual rate they charge is double!

~~~
justaguyhere
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.

~~~
jen20
Every time I encounter a shady recruitment agency (or their practices) I'm
reminded of this blog post [1], although this is an archived version rather
than the original.

In the UK, everyone even close to tech-adjacent has similar stories.

[1]:
[https://gist.github.com/CumpsD/696599d1bd4cd472a056586967293...](https://gist.github.com/CumpsD/696599d1bd4cd472a0565869672933da)

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keithnz
I've done by the hour, fixed price, and with a friend of mine recently I just
said pay me what you think its worth when you want. All of them have worked
out pretty reasonable. Only time I haven't thought it was worth it if the job
was too small.

