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Charge a lot more that you think you’re worth.

Nobody does this at first, and they end up with a bunch of cheap clients because they simply wanted to fill their pipeline, myself included.

The number I use and have seen others argue as well is take whatever your hourly rate was at a full time job and triple it for consulting (e.g, ~$70 hr salary = ~$200 hr consulting rate).

The number I use is that before tax money per month as a consultant must be at least double what my before tax money is as an employee.

Better yet, don’t charge hourly. The number of hours has nothing to do with how much value you’re providing to a company.

I disagree with this, the client will always try to maximize value, your costs are hourly, I like the other poster who said never do a fixed bid. Clients benevolently keep asking for more and you benevolently keep saying yes and then that niceness on your part becomes a liability after a few days or weeks because now it all blurs into being "in scope". I would also always put the concept of scope discussion process into every contract.

I think of my costs as more "daily" than "hourly", to be honest.

Whether I have to work 5 hours or 8 hours on your project, either way my day is largely shot.

So don’t say “yes” to things that are out of scope.

The recurring thing here seems to be that consultants keep putting limits on themselves and then justify it.

“I have to charge hourly because...”

“I have to agree to go out of scope because...”

> So don’t say “yes” to things that are out of scope.

To expand on this, at the end of every contract is an SOW (statement of work). This explicitly and very clearly outlines what work is to be performed, how it will be performed, when it will be performed, and how long it will take.

At the end, I like to put a small sentence. The client can always request to change the scope or add things to the scope, the consultant will provide a cost and timeline for the change and once paid for, the consultant will perform the work.

I always say "yes" when a client asks for additional work. Then I tell them how much it's going to cost in addition to what we already agreed.

The number 1, cardinal rule, always is ... never work for free. If you don't value your work, nobody else will either.

Very good advice. I recently had a friend with a strong background in sales and business development join me. He recommended higher amounts by estimating the value we were delivering rather than just the hours we were spending and things got so much better.

Alternate view that's worked well for me: not only do I not charge by the day, I don't even charge by the hour. I charge by the minute and tell them exactly what I did in the time I worked. Even when something takes me a paltry couple of minutes because I may have recently spent an hour on it for another client and I could easily charge more money for it. This level of transparency earns me an incredible amount of trust with my clients, who, so far, have each become "client for life." And the overhead isn't bad--a simple spreadsheet--complete a task, describe it in several words, enter the number of minutes spent, and everything gets summed up to the total amount due at the bottom.

EDIT: for clarity, I build RESTful API back-ends on AWS and support them with DevOps; I can see how my method may not work for other industries.

I once worked at a company in London who called an emergency plumber out who charged £5 per minute. It cost ten quid just to get him in through the front door and up the lift.

How do you know you're not leaving money on the table? It sounds as though people get a lot of value from your work, and they trust you, and want to continue working with you... So probably they'd be willing to pay more?

You're right, I don't know. I figure, if they are happy, I will get repeat business and referrals. If I'm charging too little, then they should be extremely happy and are even better champions of my work/name. That seems worth more than higher pay, long-term.

I believe you. Do you know if they actually read the detailed descriptions of work which you provide?

I've never actually asked or gotten questions about my invoices. So, either everything is crystal clear, or you're right, they don't look at them. I suspect every client probably looks at the first couple to get to know me and establish trust, and then just skims them thereafter. But it's nice for both of us--we can each review and see exactly what I did and how long it took.

Thank you. Yeah, I try to do the same with my invoices. My experience is about the same as yours. My current clients don't complain and they pay on time. It works well enough, but it takes longer for me to create each invoice.

OTOH, a while back I had a client that told me to stop detailing everything on my invoices. They just wanted a total number of hours. I think maybe it had to do with the review process upstream. Fewer details gave the higher ups less to scrutinize and complain about, I guess. And none of the other contractors were providing such detail.

In 10 years of consulting, I've yet to see a client buy this line of thinking. Clients want an accurate forecast for cost and key assumptions being made to formulate that cost. At the end of the day, it's in their best interest to get a good price.

This doesn't mean you can't over-forecast the hours needed in a week to deliver x, it can be an iterative/incremental process. But don't think for a second a client won't want to see how you came up with your pricing model before signing an SOW.

Have you tried?

In my six years I’ve never had to switch to hourly billing. The most pushback I encounter to this idea is from other consultants, often before they even try it.

You always charge hourly, it’s just that you don’t always expose it as such. All of your costs are either driven by time (rent, salry and benefits, SaaS costs, calories per day) or amortizable over expected number of billing hours. You need to know your total loaded cost per billable employee, because you’ll need to charge more than that for an hour of their time. In the end, fixed-price contracts are just really crappy T&M contracts from an estimations perspective.

Better yet - after the 'project' is done, charge T&M

Wow. Now it makes sense. When I told my first client I wanted to increase rate after finishing a basic prototype (which was the full scope of the project), he ghosted and left me a bad review on Upwork. Well, all in the game..

Don't bother with Upwork, it's a place where bad clients are looking for cheap labor.

Where do you find the good ones? Mostly LinkedIn? Reaching out on Hacker News?

Does $70 here mean take-home salary, pre-tax salary but without health-care, salary including health-hare benefits or something else entirely? What about retirement contributions?

I'm sure many people will know what "salary" in this context usually means, but clarification would be appreciated for the rest of us :)

Good point - yes, in general I’m tripling the number when I take my last pre-tax salary and divide it by ~2000 hours (40 hour work week across an entire year)

Hahaha.. Triple? Really?

Double your rate for each new client until you can't go higher and get work. Then back off in reasonable increments until you have just enough work to be happy.

I work in biotech. Companies don't blink at anything. $3,000 / day? Yup. No problem.

Money doesn't mean anything to a company where the entry price is 15 years of infrastructure build and raw materials that run in the millions if not billions. If it does, you have a braindead manager, so move on.

A helpful thing to remember is that large companies spend thousands of dollars a day just on printer paper.

How do you find such clients? I don't mean your particular channels, just the general idea.

I am a recent grad, talented I like to imagine, with an opportunity to do some consulting. If I know I can make X/hr elsewhere fulltime, is the 2.5-3x consulting/contracting rate still applicable, or does that apply to senior developers?

Regardless of level, you have to charge 2.5-3x to make up for the additional taxes you're paying, the benefits (health insurance, etc) you now have to pay full price for, and the inevitable gaps between contracts where you won't be making any money. Whether that bill rate is attainable varies depending on your skills, market, etc., but if you can't get that rate, then you're probably financially better off at the hypothetical fulltime job.

Isn't there a story about how a certain wine nobody bought but once they jacked up the price, its perceived value was higher and people thought it tasted better and it sold more?

It's the whole fashion industry. Pricing isn't correlated to raw cost, there's a whole science behind that.

I think this was Grey Goose Vodka?

This is the kind of mentality you must shake off if you want to succeed in consulting. $200 is not even a rounding error to most companies, and you expect to get paid less than that for solving their biggest problems?

Yeah this is what I've read/heard too. I went 2.5x but I probably could have gone higher when I personally did this. If you sell yourself based on the problem you're solving and not hours worked you can charge a lot more than you'd assume.

keep in mind, healthcare, taxes, and retirement costs are going to skyrocket. Uncle Sam hates it when you're not under the thumb of an employer. Only about a third of your hourly rate may actually make it to your checking account.

Health insurance is a problem. Solve it before you move to contracting.

Taxes, on the other hand, are completely skewed in favor of consulting. Look at 401k contributions, for example. The limit for your contribution is the same, but your company can contribute a lot more on top of that. And talk to your accountant about how you decide on your salary; that's an important number and it's not straightforward to decide what it is. (It's certainly not your entire income)

Or you can just do without healthcare. While there is some danger in that, it's considerably less dangerous than driving without seatbelts, which everyone used to do. I don't recommend no healthcare coverage, especially if you have a family in the childbearing years, but it's unlikely to be the end of the world, either, unless something really bad happens...

This has to be the worst advice I've ever read in this site

In other words, only part of your income is considered "salary" and thus subject to payroll tax. This often results in a significant tax reduction.

You can claim a lot of business expenses as deductions that you wouldnt be able to as an employee

The IRS now has a 20% deduction for passthrough entities up to 450K or so

You can put approximately 40K or 25% of income (whichever is less) into a solo 401K. Much more than a typical company 401K

There are ways to pay no FICA, by distributing through a limited partnership. You can save 15K up to the cap on those taxes, but then you will hurt your social security which requires 40 quarters of W2 wages to max out.

Healthcare will potentially cost more, but once you have around 6 employees you can join a PEO and get grouped in with other small business and get a typical cost for a business.

There are products (such as insurance ) that can shield a much larger portion of your income. For example, you buy income insurance that pays out any year you take a loss. You "pay" for it with your profit for that year. That counts as a business expense so you pay no tax on it. They keep track of your account balance+growth and you can borrow from your own account with no tax consequences. You can essentially withdraw the money at favorable tax rates if you ever take a loss.

I make 300k as a consultant in NYC - I paid about 97k in taxes and healthcare last year. It's not nearly that bad.

FWIW, my experience is closer to 55%, in a fairly high-tax state to boot.

It can be difficult, but it's not that bad.

Depends on what else you need to service your clients. Some types of consulting require flights, hotels, dinners, equipment, et c.

I never had travel or meals I didn't bill to a client, no. Negotiate better. ;)

I work with small companies.

Some clients prefer a simple bill and clear mental model of the costs. I make (slightly) more money on the bills in which I don’t break out my expenses than the ones that I do.

It’s actually a reasonable estimate of salary + benefits + operating costs, adjusted to cover non-billable hours, with a small profit on top. I’d want a more formal cost accounting model, but as a rule of thumb it’s pretty solid. People cost a lot more than their salary.

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