I would need explanation on this. It's not that I disagree, just that I don't understand the reason of this recommendation.
I've read the other comments going in the same direction as you, and already saw it in the past written in tptacek's profile [1].
Do you mean that you always dedicate full days to a customer, and will always invoice them full days, even if you don't work all the time? If not, how do you do when you work, say 4 hours for one client?
How is billing daily/weekly/monthly more simple? Thanks for enlighting me.
> Do you mean that you always dedicate full days to a customer, and will always invoice them full days, even if you don't work all the time?
When I'm on a monthly contract, it means "I will spend time this month doing X and Y to help your company achieve goal Z." There is no mention at all about hours. Nor does the actual time spent doing X and Y affect the rate. In any given month I am helping multiple companies reach various goals.
Some may wonder: "So how in the world does the client know you're actually doing anything?" Well, if after a month or two we're not any closer to goal Z, then I'd be out of work.
Not only does this turn the conversation toward ROI and real business value instead of counting hours, but it also gives both the consultant and company predictability: The company knows how much it needs to budget each month towards goal Z, and I can plan expenses ahead of time instead of living paycheck-to-paycheck.
Minimum Rate = (Potential Salary * 1.25 – Freedom Tax) / 1000
When negotiating with customers, the formula will be:
Offer Rate = (Potential Salary * 1.25) / 1000
Potential Salary is the area where your value is estimated. Since the customer will likely negotiate down, the minimum rate is simply the point that one should never go below.
You have to see the whole picture. There is always more being transacted than simply dollars for lines of code. When you grok that, you see that "salary" does not make sense as the "free variable" in your valuation equation.
Legal commitment isn't the only kind of commitment.
In consulting/contracting/freelancing terms, if a client accepts a multi-year retainer with a large number of hours, you'll likely give them a bit of a discount relative to your normal everyday rate. They're committing to continuing your business relationship for the duration of the contract, even though the contract will almost always state that either side can end it at any time with a certain amount of notice (just like full time salaried employment).
eg for bog standard perl work in UK Central London) id be charging a minimum of $700-800 perday.
There are cases when timing matters, such as if you're expected to collaborate with internal teams who have set schedules, but that has less to do with how many hours you spent doing X.
I've had this thrown at me on multiple occasions, at gigs where I've solved and addressed long-standing problems, hugely improved efficiencies, and taken systems from states of perpetual chaos to vastly smoother functioning conditions.
And the simple truth is, I will lose my effectiveness and sanity if I'm required to put in "face time" simply to maintain order elsewhere.
Ultimately I view complaints on that basis as an exceptionally strong indicator of management incompetence. Time to look elsewhere.
I'm being paid for my outputs, not inputs.
They may argue you could have accomplished the task 1 day early, saving them $X, etc.
I agree with your value proposition -- but I feel it's difficult to pull off in reality. I feel a lot more comfortable with billing Time and Materials rates, so basically if I skip out early one day, they aren't being billed for it, and the project goes on at it's pace.
Maybe close a couple of issues/send a bunch of emails at night so that people see you are not done at 5PM sharp? Visibility does not have to be physical, like "body in the office", but digital also.
That's a very dicey proposition. How many projects do you really know the scope that well? You'll also need to define the deliverable in writing or the client may keep you around saying "it's not done", scope creep and all that...
Some people are able to charge a ton right off the bat. For me, it was a gradual understanding of pricing that brought me up. Thanks for the comment!
(Wish I could give credit to whomever I heard that from, but I can't remember...)
Anecdote: I was once on a call with a prospect, and it seemed we were both in complete agreement about value mattering more than hours spent doing X and Y.... Then when I mentioned my rate, the prospect immediately started doing calculations out loud such as "well I could get 40-50 hours per week out of a full-time employee for $X, yadda yadda yadda..." So they cared more about how many hours they can get out of someone than how much value... That's a company you don't want to work with.
Charging by the hour is fine if they are already hosting their own site, just make sure you charge enough. When clients know they are being charged hourly you can immediately see their thought process change from "I need this useless feature X this week" to "that feature isn't worth an investment yet".
If you're taking on more work than you can handle just keep increasing your rate.
When you run into the "incessant stream of bogus requests" pathology, ask yourself:
"Does this person represent a business that can afford to pay serious market rates, and does this person have the juice inside the company to make real decisions?"
If so: raise your rates and change your packaging so that you're capturing some of the value they're asking for. The "incessant stream of requests" phenomenon is why there are retainer arrangements.
If not: jettison the client. Say no more. Say yes less.
It all seems to come down to this. Your pipeline must be strong, all the time. When it is, you can say no more and say yes less, and still have a steady stream of good work for good clients.
So the real key is, how do you keep your pipeline that robust? Can you offer some pointers about that?
Obviously, for the team lead, it's possible to wrap it all up into value based pricing (risky, hard, but possible) but for team members? The first question my team lead asked was 'what is your hourly rate'?
Any suggestions?
amen...i've been discussing this concept with a frontend developer just this week, and could not agree more.
things have set market value, irregardless of how fast you can get it done, and undercutting this market value is a sure way to keep your bank account low.
this resonates with me; In software we so often think in "hours" as value when we should be thinking in "what value does the product I am creating bring to my client"
We shouldn't be charging by hours, we should be charging by value; Product X is very useful and brings value to your company.
However, there is also the question of quality. If you charge the market rate of a product and the quality of the delivered product is poor, I suppose the customer can return it.
It's usually really hard for most people to be able to assign value to discrete pieces of work from a vendor.
For those who can do it, they're usually... sharp enough to drive a harder bargain.
I had a client project a few years back, and after working there for a bit, I discovered an area of their operations that was very ... bad. They knew it. Fixing and streamlining it would be worth at least $50k per year in reduced losses. When we got to the point about discussing that area of the business, I'd brought up attacking this. When we finally got to the point about pricing, I'd offered a couple options, but they quickly realized they'd be able to get someone to do the work for half of what I was proposing. For example (made up numbers), my 'cost' would have been, say, $25k over a few months, to net them an ongoing minimum $50k positive benefit. Once they realized the extent of the problem, they knew it needed to be addressed, but also knew they could get it done for half of my proposal terms. They knew the 'value' all too well.
Edit: Grammar
Does anyone have experience with all three options? Which worked out best for you?
1. We all know what a pain it is to bill hourly. The way-off estimates, the tracking, the reporting… Why not bill on a daily/weekly/monthly rate? I know what you’re thinking: “But how will my client know how much work I’m doing?!” In the past year that I’ve been doing this, the ONLY people to ever ask me that were other freelancers, NOT clients/prospects. Clients–the good ones, at least–don’t CARE how many hours you’re spending to do X and Y, as long as you’re doing a damn good job at X and Y and adding significant value to their company.
2. Why tie your rates to your cost of living? (And number of vacation days, and tax rate, and other arbitrary multipliers/divisors…) Your rate should reflect the value you bring to a company. (Yes, figuring the value of your work for a company could be tricky, but that’s another matter…) Using living expenses to calculate your rates makes as much sense as pricing milk by the size of the cow that produced it. Charging based on value will almost always get you more than charging based on your thrifty living expenses. (And if it doesn’t, then either you’re underestimating your work’s value or your clients are way too small.)