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How to Work Out What to Charge Clients (smashingmagazine.com)
388 points by charlysl 6 months ago | hide | past | web | favorite | 186 comments

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...

At the beginning of my contracting career I neglected to think about all the time I'd spend on non-coding tasks. It wasn't insignificant. I also found that the 4x full-time hourly wage is about right. A few other things I learned:

Almost never take a fixed bid contract. They're pretty much always a net negative.

Give clients discounts for paying early. Everyone loves a discount. Never discount your hourly rate though, because once you do that once for a client they'll never stop arguing with you about it. There's a line on Schedule C for recording discounts.

If you turn over raw source code to a client, stress (in written, contractual form) that if any other contractor/employee changes the code, then you will charge them a premium rate for any changes or fixes.

Almost never take a fixed bid contract. They're pretty much always a net negative.

This is not the best approach, honestly.

No one would pay me the effective hourly rates that I make off fixed rate projects, and everyone is happy. Clients almost always prefer to know what they’re going to pay upfront.

Additionally, hourly seems simpler and low risk, but it’s all downside for you. If you’re way more efficient, you get penalized. But if it takes longer than your estimate, clients get pissed. At extremes, they may just refuse to pay. Tell a client your estimate is $10k and then try to bill $30k, tell me what happens :)

Just like value-based pricing, flat rate takes a bit more skill to learn, but it’s dramatically more profitable in the long run.

I did some fixed software dev contracts many years ago (1994-1995 time frame). I cobbed the agreements together myself and put in late penalties; as in, I get paid less for being late, with an increasing scale by the day.

In some industries, you cannot avoid flat pricing. E.g. bidding on any sort of construction or renovation project. You may have workers under you who work by the hour, but that's your problem.

The flip side of never taking a fixed bid contract is when it turns out someone really just didn't RTFM, and it takes you 15 minutes of real work to fix their problem. Thousands of dollars of benefit to them... and one billable hour to you.

Exactly. The most recent work I shipped was on a fixed-rate retainer. I based it on the value and not time. Internally, I knew how many hours it would take and was pleased with the ROI.

I only do fixed bid projects (plus expenses). In my experience, clients want to know up front what they'll be paying (or a very tight range, with expenses). Hourly, they get nervous they'll end up with The Never-ending Project, it's impact on their budget, and start haggling over hourly rate vs project value.

The last sentence strikes me as sort of old school and somewhat client-hostile. Unless you're working on an embedded system that will ship physically and never be opened again, your code is going to have to change--if for no other reason than to accommodate changes in the underlying technologies. This is especially true considering the libraries and dependencies that are baked into software projects today.

If a critical security patch requires a change in the code, your client is going to have to either change it themselves or get you on the job pronto... and do you really want to set the expectation that you will be available pronto, forever?

I think the days of write the code, launch, then ride off into the sunset are over. Code should be considered temporary and perishable, and IMO consultants should acknowledge that upfront and help their clients plan for it.

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.

I'm hugely in favor of charging more as a freelancer or consultant, but this isn't accurate. In general, software devs have very low overhead, don't spend half their productive time on marketing and promotion (perhaps they should), and the additional taxes you pay when self-employed in the US are either small (other half of SE tax, max ~8% but usually lower for high-income) or negative (you can write off a lot more).

The reason to charge more is because you're delivering more value, not because you need more money. Clients don't give a shit what you need to make. Charge them based on the value you produce, whether that's 2x or 10x what they'd pay an employee.

Well, there's more than just self-employment tax that you are paying as a freelancer. There's also state and local taxes to consider. Depending on where you reside, your county may collect taxes on gross receipts or collect property taxes on office furniture/equipment. Furthermore, you will really want to have some form of business insurance (like errors and omissions) on hand as well as your own health insurance and retirement fund. All of this will come out of your pocket and needs to be considered when determining an hourly rate to charge.

Not sure why you are being downvoted because you are right. In addition to income tax, you have to pay the full payroll tax rather than half if you are a full-time employee. Then there is business insurance, workers comp, healthcare, and any other benefits you take for granted as a full-time employee.

I already pointed out that you pay the other half of SE tax, but that’s at most 7.65%, and since SS is capped, for many high-income self-employed workers it’ll be less.

And yes, you pay income tax, but no more than you pay as an employee, so it’s not relevant here.

In fact, you now almost certainly have a huge advantage if you’re self-employed: in addition to being able to write off more and save more for retirement pre-tax ($55k), you now get a 20% deduction of your net profit if your taxable income is below $157k single / $315k married, which most self-employed folks will be.

Healthcare is still by far the biggest cost difference most people will face but even if you add all these things up, they don’t represent anything even remotely close to 50%.

50% of your revenue goes towards taxes, office space, and buying products and services to support your business.

Healthcare is still by far the biggest cost difference most people will face but even if you add all these things up, they don’t represent anything even remotely close to 50%.

I beg to differ. For a family of four in Texas, we paid nearly $15,000 per year for insurance and that's deemed a "good policy" (not great) meaning that it has a good PPO, most docs are in network, and most medications are $10-$50. Insurance premiums don't scale with income and that's not accounted for if I read your arguments correctly. If we compare two families of four led by "a freelancer" (as we're talking about here) in Dallas and one freelancer makes $100k but another makes $200k, both have to pay the same $15,000 per year in health insurance premiums. For the $100k freelancer, his health insurance takes up 15% of his gross revenue - that's absolutely going to get him close to or above @ollerac's 50% figure. Maybe not so for the $200k freelancer who only has health insurance account for 7.5% of gross revenue.

Taxes like that are exceedingly rare and minimal where they exist. Property taxes on office furniture?

The city of New Haven charged property tax on everything worth more than (IIRC) $5k when we lived there. It’s a large part of why they have few businesses despite a major university since there’s a strong incentive to move to a neighboring city.

That’s crazy, but very few self-employed software devs have more than $5k of office furniture.

What about Mac Pros or servers? It’s not crushing but it came as a surprise to a few people I’d met.

Weirdly enough, I'm 95% sure that's a thing in New Orleans.

Two of my coworkers are based there and it's come up in the past...iirc when they were purchasing monitors for the office.

I've seen a few comments like "that's a lot of money" etc...

I made ~$400k last year. I'm a consultant and I don't have a college education, any meaningful certifications or pedigrees and I don't even have a website.

The fact is, the money is out there. In my experience there is always a client out there willing to pay whatever you think is exorbitant, and most clients are terrible at judging which vendors are worth their rates.

If you don't get sick with fear inside when you name your rate then it isn't high enough. Keep asking for more money and I promise you will make more. It isn't unfair dealing if your client is happy to pay it, instead it's foolish if your client would have happily paid more and you didn't find out.

From an economics perspective it's an impure market. Nobody knows what the price should be for your services, including you. What makes you think the client is any better a judge of value than you?

> If you don't get sick with fear inside when you name your rate then it isn't high enough

Absolutely spot on. I sat in a meeting with a client and another consultant who named a price for some work. The client’s immediate response was “when can you start?”. My immediate thought was “You could get twice that”. When it came around to my turn to name a price I went in high, and spent the next half hour arguing my value.

So I would put it another way; if the client doesn’t balk at your rate and try and negotiate it down, it’s too low.

Do you work in a niche? How do you get the word out that you're good/looking for work?

I do. People come looking for me, usually through recruiters or firms specializing in what I do.

You absolutely have to specialize if you want to charge higher rates, if you’re not in a niche then what are you? A commodity.

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.

Don't believe that shit. I worked through an agency once where I was the subcontractor for several projects. One time the account rep was lazy and sent me the customer's contract and failed to remove the rate he was charging for my work. I was charging $150/hr. He was charging the client $400/hr.

People will pay a premium for something they value. In that instance I actually won out eventually. It turns out the agency was really shitty at managing projects and that particular client got in touch with me directly. He agreed to pay me $400/hr if I gave him priority. I did, and he started referring me to other businesses who would also pay that rate.

So don't kid yourself about how much people will pay.

Edit: These clients weren't in the Bay Area.

What do you do?

If you're willing to get someone to pay you 400/hr, I bet you're not billing/marketing yourself as a developer.

And I'm not kidding myself. Most companies know they can get good devs for significantly less than 400/hr.

This was about 10 years ago.

The naive answer I would have given at time was: "I'm a software developer who builds ecommerce and CMS sites."

And it's funny that you ask "What do you do?" At the time I had starting taking on projects from a friend who had been doing development contracting for about 4 years. One time when a client told me my proposal was priced too low and passed on my bid I was baffled.

I told my friend about it and he asked me the same question, and I gave the above answer more or less. He corrected me and said "No! You're businessman enabling a national sales channel for a local or regional business who wants to increase their revenue."

So never define your price by what you do, rather define it by what the value of thing is you're delivering to the client. This requires some research on your clients and a realignment of your thinking. When you're contracting as a developer, you have to start considering yourself as becoming a successful businessperson and not (just) a successful software engineer.

You're right, but it is still not easy.

I started charing on a per week and per month basis, which was good because I stopped getting bothered with tiny projects.

Also I could choose how much hours per week I was willing to work, as long as the clients are happy they don't care if it took me 40 hours that week or 20. This also increased my effective per hour payment and my work life ballance.

It is also important to sell yourself with a higher value proposition. If you say "I'm a freelancing front-end dev who does JavaScript" they won't pay you as good as when you say "I'm a mobile consultant, who designs and implements apps", even if you do basically the same thing, people suddendly realize that you are a specialist and not some code monkey...

> And I'm not kidding myself. Most companies know they can get good devs for significantly less than 400/hr.

You can get a great dev for much, much less than $400/hr. You're right. However, should I charge less than that to do a few hours of work for you? Absolutely not.

If I'm doing a small project for a few hours for you I have to charge a lot to cover the business costs.

Yeah, the projects I'm pricing out are usually 200-1400/hrs. I can totally see that rate for smaller projects. I imagine utilization rates are a lot harder to keep high with work that granular.

Yes absolutely. If I have a client that's going to drop a thousand plus hours into the project they're getting charged a quarter of what someone who just needs me to log in once and a while gets charged.

1400/hr ??? What do you do?

He's saying that's the length of the project. Not the rate.

I know there's an international tax lawyer in SF charging $1250 hour. If you want the big bucks, law's one of the places to get it (provided, presumably, you work hard and are very smart).

There are people who specialize in arbitration who make 10k+/hr!

I think they mean that that's the estimated time allotted for the project. What they're implying is that they charge less because of it, but if they worked shorter projects, they would likely charge more.

In Germany, the cheapest rates for consulting usually go around 500 euros a day for the devs plus commission for the agencies.

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

Nope. It is close to what I just paid a plumber. The plumber wanted $5000 for 16hrs of work to redo my piping ~$300/hr. (The cost materials: plastic PEX was probably $40, small house a one guy job). Remember this is a residential plumber - not a commercial electrician. WHY SO EXPENSIVE? You might ask? Try outsourcing my plumber.

I think you just hired a premium plumber. My guy charges ~$100/hr

You have a plumber that charges by the hour?? That is awesome. I have only met plumbers that charge per project. Still, your plumber makes 200k a year!

I don't know why you seem surprised. It's not at all unusual for a skilled tradesman to be well compensated.

Plumbers do not charge that for forty hours per week.

Agreed. Yes probably more like 60.

Yeah I think the other guy is right. That's definitely a premium plumber.

I had my plumber fix a pipe that broke inside the foundation for a $1100. And that involved 8 hrs of 4 guys digging a long and deep ditch, as well as chiseling out foundation.

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.

"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.

What type of projects are you trying to hire for? And how are you trying to hire? I imagine you're not having trouble finding Ruby devs 350/hrs.

Very very hard for me to imagine. I know good designers who'd be willing to work for $40/hr. CAD. Developpers are a bit pricier, maybe 60-70... Can't find mediocre ones for 300? Maybe we don't have the same definition of mediocre. And btw, one year full time at $500/hr is in the vicinity of one million. Where do I sign?

Hey. Drop me a line to email if you need Mobile / Full Stack development. My professional profile on Github https://github.com/EclipticWld

Hit me up with what you need: me@danielfischer.com


I just quit my job as a Software Architect for one of the biggest hosting providers in the US. I am available for short term projects if you are still looking.

What do you need done?

Hi, developer and designer here - I'm happy to help if you're happy dealing with a UK based company!

Where? Let’s chat.

Well he did base the calculation on a SV yearly salary. For other areas it will be based on a normal salary for that area.

I'm in the Houston area, and its easy to make 75-90/hr as a dev. But very hard to charge 300-360/hr as a consultant.

I think a lot depends on who your clients are and what your business is. If you're talking about a real professional services engagement (Accenture, Oracle Consulting, whatever) then $300+/hour for an architect-level resource is pretty standard. Hell, junior business analysts get charged out at $175/hour.

As a one-person shop the value you can bring is probably lower because you don't have the synergies of a team and you will have to spend some of your time doing junior BA-type work. You can't charge yourself out at the full rate of an architect-level resource because you're not spending all your time doing architect-level work. However as a one-person shop your overhead should be lower (e.g. no HR people or other cost centers to support with your billings).

$75/hour seems awful low as a 1099/consultant, so it's no wonder businesses are happy to pay that.

IEEE consultant surveys indicated ~$150/hr for a well trained consultant in software is median last time I checked. But what you get depends on how you get your business and what your approach is to selling your services.

I think I'd find it impossible to charge more than $200/hr for embedded firmware (Boston), but could probably get $400/hr for systems engineering or industrial design to develop an integrated complex solution to a business problem that they don't have the in-house expertise to deal with.

I think a lot depends on the situation. There are a lot of companies who would pay a lot of money to have a technical person on their team who follows best practices, doesn't slack off, and is reliable. This is a low bar, but many engineers don't live up to this and end up causing as many problems as they solve, including being hard to manage.

If, as a contractor, you are professional, easy to get a hold of, and treat your work seriously you'd be invaluable to any company who could hold onto you and a lot of hiring managers secretly know this.

They also know they're paying a lot of devs 80-150/hr who are hard working, don't slack off, are reliable, and follow best practices. And they have an HR/Invoices department who would constantly harass them about paying that much for a dev, if they even approve it in the first place.

Ok, but in this case the contractor should make at least 2x as much the in-house staff, considering they're bringing all their own tools, paying for their own health insurance, paying their own taxes, and having a more flexible schedule.

And then there's the question of why hire a contractor in the first place if you already have a strong team of devs — why not just hire another full-timer? Most likely you're having trouble filling out your team or filling a crucial role. That would probably be worth a little extra to you.

Plus, there are tons of companies out there who don't need a full dev team of a dozen people, but know they could benefit a lot from hiring contractors for 3 months at a time for one-off projects. These companies are more than willing to pay a little extra to get a job done well on short notice.

They’re payin the devs that much. That’s not how much they’re paying for the devs.

We hire huge agencies that don't even cost $240/hour. I'm sure there's a couple niche people who can charge crazy dollars....but I'm skeptical.

FWIW, I charge $300 / hr as a mobile/full stack developer (and I'm based in TX). My clients are mostly startups. I have more work than I know what to do with, and have for quite a while.

Probably raising my rate to $350 soon.

We have a few smart capable devs (mobile/full stack/etc) who would be happy to help your clients :) email in profile

That's amazing, well done. Where do you meet clients in town?

Thanks! Good question.

Most of my inbound comes through referrals. I've been at this for about 8 years, so my referral network is pretty healthy. First few years were rough though!

In general, the real "trick" to a successful network (as least for me) is just to be friendly and do good work. Lots of coffee meetings, phone calls, and lunches. :)

Do you promote yourself? How?

Not at all. I've been at this for a while, so most of my work comes from previous clients or others in my network. It took a while to build that up, but now that it's in place, it's a pretty steady source of work.

Most people who are referred to me know what I charge, so there's not much haggling. People want results and I have a reputation for delivering them.

How many hours a week are you deciding to work?

Agreed. $400/hr outside of SF Bay, 10 years ago, for CMS and e-commerce websites?? I've hired lots of devs and other agencies in the bay and that does not match my experience at all. For very niche stuff maybe. For freaking WordPress and Shopify, anything more than $175/hr and you are being robbed. For generic custom dev work (iOS, react, backed) $250/hr is near the top for very reputable studios.

People are charging $175/hr for WordPress? This makes me wonder what the hell have I been doing with myself for the past 8 years. My agency charges $50/hr for WordPress devs who know what they're doing. (My email is in my profile!)

Wordpress and shopify are fast. One developer charging $500/hour might be able to do it cheaper overall than developers charging $50/hour.

As an Art Director we used three large agencies to cover needs, ranging $140-175/hr. Given this was a finance company, they didn't know creative as much. The issue I discovered was these agencies were inflating service hours. One example was the need to modify a four page powerpoint. Invoice came back as $6,800. So the issue wasn't rate, but durations..

Having worked with agencies through a client, I have seen their billing process. They might not have inflated hours.

Assuming you have a creative, a project manager, delivery manager, and a sales manager in the agency, each task/project has to go through each of their hands.

That's an hour each for the managers and how ever many hours for the actual work itself as the base delivery price. Then the internal back and forth between the delivery manager and the creative to insure that everything is "to spec". Then the project manager to report on status each day and the sales manager to take you to lunch and discuss the how amazing everything is with the project, and that the BEST people are working on it.

So 3-4 hours of work can turn into 20 hours of billing (plus expenses).

Thanks for this. It's true. Our main agency had a process of the Account Exec telling the Art Director who delegated to his team of designers. That is at least three people at varied costs.

Trying to nail this down can be a hair-pulling experience. I know estimations are a ridiculously hard thing to do, but that's kinda the reason I'm engaging them as an expert.

I also know they want all the work you can throw at them, but just getting a sense of whether this is a 1 hour or 5 hour gig so I can evaluate the ROI before briefing it in is impossible.

This is one of the things I want to address (my side-gig doing marketing consultancy) - one rate, whether that's strategy or design work, up to the client how to use it (and telling them to use someone else if not good value).

People focus far too much one rate and far too little on output cost.

Different companies are wildly more efficient per hour of work never mind that many just do much better work.

Rates are kind of ethereal. Maybe they are padding. Maybe they are just slow. Maybe they are throwing several resources on it. I don't know.

This is a big problem with procurement. People fixate on hourly costs and not total cost of project.

Can confirm. Im in Houston and do what you mention with said track record. I cant get 240/hr, but can get around 175-180 most of the time. I base my rate on 85% utilization of myself. meaning Im working 10 and a half months per year.

Do you work with SAP as your username suggests?

That seems pretty good to me for Houston.

I interface with SAP quite often, but the name is a different initialization. I also do movie/tv scoring under the moniker Stupid American Pig. Its a juvenile name that I came up with 20 years ago in college, but Ive not bothered to come up with anything else.

As for the hourly rate, I would always accept more but have no real complaints. Getting back to the original post that made me comment, 240/hr for a freelance web designer seems unrealistically high, especially in Houston. I dont know the market well enough in other parts of the country though.

It's not that extreme. I was a "big data" consultant a couple of years ago and our bill-rate for gigs I went out on went as high as $200/hr at times. Our clients were all over the US, not just in the SV area, FWIW.

Were the people being billed out at 200/hr making 50/hr?

I'm not sure, exactly. Partly because A. that was a few years ago and I don't remember everything and B. our compensation there was a mixed model that included a base salary along with hourly "bonus" money for billable hours, which varied depending on whether the gig was onsite or remote, etc.

But suffice it to say, if I went out on a gig that was being billed at $200.0 / hr, I wasn't making anywhere close to $200.00 / hr personally.

LOL 240/hr is not that much.

Please share with us your experience.

In my experience this is false and also depends on the market and your specialty. (Sorry, I don't have data - but it is my experience when looking at freelance roles in the US or when talking to my North American counterparts.)

For example in the United States, employees in many states have much less security than those in countries like Australia. My experience is that freelancers can charge 1.2x to 1.5x the hourly rate of their full-time employee counterparts.

In places like Australia, where employees have a lot of security and there's no such thing as "at will" employment, freelancers are able to charge 2x minimum the hourly rate compared to their full-time employee counterparts. This is because employees get a lot of benefits, like 4 weeks of leave, premium health insurance, sick leave, up to 6 weeks notice for dismissal and redundancy payouts etc.

I'm in a high-demand, high-value technical role and able to go above those multipliers here in Australia - but on average, say for a middle-tier generalist Java developer, 2x is very common.

The only way I find you're able to charge 4x or more your hourly rate, is if you do public speaking, write books, author a blog and participate as a (dear I say it), "thought-leader" within your local tech community. At that point your title becomes consultant and you generally only cater to clients who are hopelessly clueless in your area and want the best advice, or those with a large bank-roll to "get shit done, properly, fast".

You can't just expect to use this conversion and always be able to make it work.

Company you worked for might have proprietary tech, patents/IP, massive clients you'll never be able to get, etc and thus can pay you more.

If I work for Google as a search engineer making $200k it doesn't mean I can leave and then suddenly earn $800k selling search consultancy services to DuckDuckGo and AskJeeves.

If I'm an accountant at Deloitte making $120k auditing Fortune 10 companies it doesn't mean I can leave and make $480k revenue auditing sandwich shops and I probably won't be able to take any of my previous clients.

I'm not sure about 4x, but 3x is certainly reasonable. Or at least, I've worked for consulting firms that billed clients about 3x what they paid me. Some of the difference is social security, health insurance, management, and other overhead. But much of it is profit.

However, starting out as a consultant, it's unrealistic to expect that much. Unless you're already a star employee. But it is possible to get there, within a few years, if you're successful, and build a good reputation.

I started out billing my first clients at about 2x what I'd earned as salary. Once I started getting inquiries from new clients, I negotiated for more. I negotiated the hardest when I had lots of work from old clients.

What I billed new clients became my standard rate, going forward. Every year or so, I renegotiated rates with old ones, more aggressively when I had more work from new clients. But they always got a discount off my standard rate.

Plus you’re not being paid for time off or sick time and you’ll also just have downtime; you can fill that with other necessary activities to some degree but probably not completely.

I don't know. I dabbled with freelancing on the side a few years ago and never did land a gig. The potential clients I managed to get on the phone didn't want to pay more than $30/hour or so (I started off asking for $60). I decided freelancing wasn't a real thing for US-based software developers and dropped the idea.

As I understand it, one easy rate-factor is having a focused and desirable skillset. Become an expert at something specific and seeing widespread adoption/need - kubernetes, cloud security, whatever - and you can command a lot more. Web design / simple apps are a lowest-bidder sort of deal.

Depends on the stage of your career. I charge $200 to $400 hourly, depending on the duration of the project.

Sure, somehow I'm worth ~$140k/yr (plus benefits, etc) to my current employer as a FTE (who bills me out at a much higher rate to our customers, I'm sure), but I'm in govt contracting - it's a different world.

How to find private sector clients willing to pay good rates? I have no idea.

It's sometimes possible for a small business (like a single-member LLC) to bid on government contracts. You can try to cut out the middleman.

My personal style is to avoid getting into bidding contests. I've invested years into building my personal network. That means enthusiastically following up with strangers that I meet to turn them into acquaintances and semi-friends. It's exhausting, but has paid off. For example, sometimes I get a call out of the blue from someone I haven't spoken to in 3 years asking me to help with a project.

Don't expect people to sign contracts right away. Give them time. Years, perhaps. Just put the word out there that you're skilled and available for work.

Edit: Also, you need a specialty that allows you to accomplish something useful in a few months by yourself.

That must have been a very long time ago, because even in 1998, I remember a friend who was a barely competent programmer making $44/hour and the contracting agency she was working through was charging well above that.

Rates for programming jobs are widely variable. Some people work forn $10/hour.

Nope, about 5 years ago.

Another rule of thumb is : take the salary you'd get for whatever level of work is required (e.g. $150K) and divide by 1000. That produces the hourly rate you should charge (e.g. $150).

I agree that failure to understand costs is a common cause for undercharging. Same thing with other fields though : construction, remodeling etc.

A standard working year is 2000 hours (40 hour weeks, 50 weeks a year, 2 weeks for vacation - the pathetic US usual). So dividing by 1000 means double your salary's hourly rate. That is, this amounts to 2x rather than the parent's 4x.

True. It's only a rule of thumb. I guess I'd aim for 3X if I could. 4X seems quite high --- perhaps justified in the context of some business relationships (e.g. client gets to invoke you on short notice, preempting other clients' work).

This is the rule I've been using of late. Perhaps I'm charging too little (as the parent comment suggests), but I'm comfortable with it.

When I must travel for on-site consultation, I soften the blow of travel time by charging the client 50% of my lowest hourly rate for that time.

Travel time seems to get folks worked up so I have never charged for it. However, I generally spend the time on a flight reviewing client documents and so on: billable activity. For some reason I don't like the idea of charging different rates for different kinds of time but I suppose my approach works out roughly the same as yours in the end.

The only instance where I tried to charge for travel time was an engagement where I had to travel to Atlanta to do a very small amount of work for a very big law firm. Since it was going to take me a day to get there and a day to return, to do at best one day's work, I said I needed to charge for my travel time. They informed me that lawyers NEVER charge for travel time (assertion mostly disputed by my lawyer friends, but...whatever) and so they couldn't bill my travel time back to their clients. They said however that they could consider a higher rate for my billed time. This discussion went on for a while with the end result I billed them at something like 3X my regular rate but no travel time. They thought this was just fine.

Together we beat a patent troll so I probably would have done the work for free ;)

I either charge (A) my full rate or (B) nothing for travel time.

A: If I’m doing something for a client that keeps me from working for one of my other clients, I charge them.

B: The exception is when working for a client out of state. Sometimes the hassle of doing state taxes just for a few hours work in the clients state is more hassle than it’s worth (to me). I price into my rate one on-site visit to the client a month.

I learned this guideline from a slightly different approach.

I worked in a computer repair shop for a while. The boss charged the customer $75/hr. I got paid $10/hr. Later I was an auto mechanic. Shop rate was $80/hr. When I left, i was getting paid $16/hr.

So basically I learned that if I was working for myself, I could charge 5x the rate I was being paid, and customers won't think it's unusually high.

It doesn't work like that. The hourly rate they are charging for your time also goes to support overhead and employees who aren't directly billable.

Indeed a portion of revenue does cover all operating costs, fixed or otherwise. However in a large org those costs are also distributed across all of the profit generating employees. The comparative overhead on a single employee among thousands is small compared to a sole proprietor's burden. Economies of scale kick in above a certain point as bulk purchases from supplies and larger employee pools for things like insurance increase your bargaining power when negotiating those contracts. The same is not true of an individual. But the conceit of that argument is that it's not zero sum, those prices also include a healthy profit margin. And I'd wager the profit margin is higher on a large company than for a sole consultant.

I'm on the opposite side now. I don't work for a software development company. The people who make us money have to support software development. The development department is considered a cost center. That doesn't mean that I should pay them.

For the most part, what you make isn't derived from how much revenue you make your company. It's derived from what the market will bare. Even if you are independent, people who are hiring you are going to try to find the largest spread between what they have to pay for development and the profit they can make based on the development.

On the other hand, what are the real cost of being an independent developer? Health insurance, a computer (that we would probably have anyway) and any development tools. We can usually get away with Fred development software.

I work as a freelancer on six month contracts, embedded into regular development teams at customer sites. Before that I have held regular SW developer positions.

A bureau helps me out finding contracts so I spend very little time on self promotion. Also, I don't spend more money on equipment than I would otherwise have done (although, with tax deductions and all, I buy nicer equipment these days). Income tax is unavoidable either way.

I'm charging market rate, which is about 1.5x to 2x what I would get in a regular job with the same amount of vacation and sick days. On top of that, the bureau takes a cut, the details of which I don't know (I invoice them, and they invoice the customer).

On the negative side, being a freelancer is less secure and I may lose income between contracts. This hasn't happened to me yet, and in the current job market, it doesn't feel like an overhanging risk. I think the pay compensates.

Disclaimer: Danish job market, YMMV

I usually end up doing W2 contracting when I'm contracting and I have a network of good recruiters.

W2 contracting means they take care of employment taxes. I am officially working for them.

Recruiters mean that jobs usually just fall in my lap without any major marketing.

I get insurance through my wife.

This makes my calculation much simpler.

2080 total weekday hours -80 hours paid holidays -120 hours paid vacation -120 hours gap in employment.

Desired market based salary * 1.04 (usual 401K match) is the minimum I'll accept.

There is a premium for doing work based on technology I already know well and have experience with vs. using technology I want to learn.

There is also a premium for commute distance, and if it's something I know but really want to avoid (project management, anything dealing with stored procedures, out dated technology, C/C++).

> And 50% of your revenue goes towards taxes, office space, and buying products and services to support your business.

Where in the world is your office???

As a freelancer, I always worked from home. Sure, you have taxes to pay, and some supplies. But as a coding freelancer, I cannot imagine spending much on an office at all.

What about the bills for electricity, heating, internet, phone, drinks & meals, and the fact that you're using your own furniture, your own computer, printer, etc. ?! You need to amortize all those costs if you want to know the real cost of working from home.

> What about the bills for electricity, heating, internet, phone, drinks & meals, and the fact that you're using your own furniture, your own computer, printer, etc. ?! You need to amortize all those costs if you want to know the real cost of working from home.

Do you get to skip on meals and furniture if you don't freelance though?

On many dev jobs you get one meal and free coffee/drinks provided, and furniture gets less worn out if you spend half a day out of the house - also you probably don't need to invest in good (and expensive) office chair, perhaps you don't need any office furniture at all (desk, lamp, bookcases, whatnot). It's a lot of small things that can amount to a lot when summed up...

If you’re freelancing full-time as a software dev, a meal and coffee and a nice desk and chair and computer every few years is a rounding error.

You’re talking about $1-2k per year for someone earning 100x - 300x that.

we're talking about calculating the minimal fee vs expected expenses, as advice for people just starting out... if you're already making 100K - 600K a year you don't need to calculate anything, you're doing great...

So if I have been making $300+k as a FE engineer at a big co, I should be charging $1200 / hr as a contractor?

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...

Firefox's "Reader View" comes in handy again

Man you're not kidding! I thought the article ended at least 3 different times. Yikes!

Yeah, I agree, that page was terrible.

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.

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.

I should amend my statement, beautifully formatted text. Typography is everything.

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.

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.

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.

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".

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.

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

Totally agree, saw it over and over again. Worst customers are those that get something for free. They are also the most illoyal (not really surprising).

I made the following observations across multiple B2B startups:

- Paying a high price triggered a behavior à la "we're paying dearly for it, so we better use it properly and frequently", which meant that stickiness (# of seats, hours of daily use) increased.

- Down the line, the customers who paid the highest price were the most loyal (in terms of churn & avg. contract period signed during renewal -- often signing for 5 years with a small discount when minimum was 1 year).

- Customers paying high prices had less support inquiries.

- Customers paying high prices were overall friendlier on the phone (don't have hard evidence for that).

Question -- in which direction is the causality working? E.g., when we assume that less support inquiries means that the users are more knowledgeable:

- Do high prices overall attract more knowledgeable people?

- OR are knowledgeable people better in estimating the true value of a product for their business, and thus are willing to pay a higher price?

- OR do knowledgeable people rather work in businesses that have higher margins, and thus are able to afford a higher priced product?

It seems for me that charging premium pricing had overall pretty positive effects on all businesses I've been working in.

We charge for the project fixed cost and hours. Anything over that by the hour. So if the customer wants to keep making changes, they are free to do so - for a price.

I am not sure it's because they are charged more, but because they are willing to pay more to have it done properly. In my experience, those coming to you looking for a minimum price to get something done, will always be the ones who end up screaming at you and making demands.

I'd completely agree with you, except that some of the customers were actually the same people. As soon as we upped the ongoing costs on a couple of the accounts, both clients changed their behavour and the relationship became a whole lot better for both sides. It's a truly bizarre thing to watch.


I am still (scientifically) curious what the explanation for this is. Perhaps paying more indeed does something in their minds, or perhaps it does something in yours and you deliver slightly more or go the extra mile. Or some of both.

This is a great idea. I haven't done it myself, but a friend who is an artist got an agent for exactly this reason. You always undervalue the work you do because to you it's easier than to everyone else.

Exactly. You hire a sales rep to sell for you, and a lawyer to negotiate deals for you. You need to separate the emotional investment.

Worked in the Park Service for four years. Worst days for most visitor conflicts was always, always, the free entrance days. Everyone dreaded having to work on one because everyone was super expecting.

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.


The part that often gets missed with "raise your prices" is that for a lot of that price increase range you may lose customers but you'll make more money for less time commitment.

Cheap clients have a cost.

I find cheap clients have the most unrealistic expectations as well.

That holds true when you take it to the extreme.

The most unrealistic expectations come from those that aren't paying you at all.

Thank goodness the cloud came along. When friends/family ask me about computer problems I now explain that I work on computers that nobody sees.

Reminds me of the ol' poker advice: "If you're almost never caught bluffing, then you're just not bluffing often enough".

Interestingly this was my approach to haggling. If the vendor is smiling when you leave the store, you badly bargained.

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

Another related thing I've had the misfortune of experiencing is that people who don't intend to pay you from the outset generally don't complain about the price.

Working on retainer weeds those clients out pretty quick.

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.

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

If your plate and your bank account are full enough, does it matter?

Just out of interest, do you think this applies when (re-)negotiating your salary as well?

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).

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.

"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.

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.


The guitarist Tommy Emmanuel has a line like this: "I'll play anywhere for free, but you've gotta pay me to travel!"

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

“I push this button.”

How much does it cost?



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

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.

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.

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.

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

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.

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.

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.

The way I read that is....as a general rule, set prices that are consistent and not based on your availability ...but if a client is desperate, and willing to pay you more to work over a weekend, then sure, make an exception to the rule.

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.

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.

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

The concept isn't complicated, it's obtaining the information on what the market can afford and what someone specific is willing to pay for your services.

Markets aren't magically adjusted to the one true price. It reflects a collective information distribution, and can consequently be manipulated through information asymmetry.

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

Someone should write a book about it.

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]


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.

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.

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

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.

> 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.

This page has a very odd layout.

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.

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.

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.

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.

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

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.


This thirds rule is what we used at our consultancy!

Can someone make a form that calculates that for you?

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)

Pricing as a Service? Does this exist?

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