How I learned to charge my customers

I do some consulting on the side and I won&#x27;t charge by the hour if I can avoid it because:<p>1) I hate keeping track of time.<p>2) hourly rates aren&#x27;t how my customers think of the issue. They think: &quot;this product will make (or save) me $20,000&#x2F;year&quot; (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&#x2F;hour, and I estimate it will take me 20&#x2F;hours, then I just look like an expensive consultant. Notice that in the first scenario, I made more money and still <i>seem</i> cheaper.

I spent 10 years freelancing. If i can give an humble advice: you don&#x27;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&#x27;t be a commodity, be an expert.

Hey everyone, author here.<p>My experience is that customers will always want more features than they initially ask for. That&#x27;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&#x27;ll break down the average time I will work a week as a courtesy.<p>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.

Very interesting that the author doesn&#x27;t address outcome-based pricing. The rule of thumb I use is 10% of total value - if it&#x27;s less than I want to make, I decline. It doesn&#x27;t make sense for them to pay me, so it doesn&#x27;t make sense for me to work.<p>&quot;Urgency&quot; strikes me so much less compelling of a pricing conversation, but I guess it works.

Those rates seem low. 20 years ago consultancies were charging $150&#x2F;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.<p>Have rates fallen so far?

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 &amp; automates large swathes of our customers&#x27; legacy business processes.<p>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:<p>&quot;&lt;Some Business Feature&gt; will cost you $X to implement, another $Y&#x2F;year to support and will take ~W months to reach acceptance testing phase. Minimum contract term is Z years.&quot;<p>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.<p>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 &quot;core&quot; 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&#x27;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.<p>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.

Ahh yes I&#x27;ve charged $100&#x2F;hr and I have gotten almost no work despite being both an engineer and programmer.<p>I can make half that with employment.<p>If I have a sales team, maybe we can split the $100&#x2F;hr labor once I find a company willing.

When I was doing consulting for small websites, data work and programming through craigslist, much like the original article. I charged $35&#x2F;h with a minimum one hour charge. This was 6 or 7 years ago and at the time, I wasn&#x27;t really thinking about making it full time work.<p>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.<p>I chose my rate because it was higher than the spammy looking cheap ads but was on the lower end for consulting rates.<p>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.<p>I never had anyone quibble about the rates. Luckily, my customers were mostly business owners and stuff.<p>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.<p>Don&#x27;t be afraid to charge a rate you feel is reasonable for your work ans don&#x27;t feel bad when you hand over that invoice.

While this may be somewhat tongue in cheek, I often think of this post from Anil Dash:<p>&quot;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.<p>I think I came up with my best suggestion today, and it involves only two simple steps:<p><pre><code> Slap the client in face. Tell the client your hourly rate. </code></pre> 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.<p>Your mileage may vary, this is not to be construed as legal advice, eye-poking may be substituted for slapping in some states.&quot;<p><a href="https:&#x2F;&#x2F;anildash.com&#x2F;2005&#x2F;05&#x2F;12&#x2F;pay_by_the_hour&#x2F;" rel="nofollow">https:&#x2F;&#x2F;anildash.com&#x2F;2005&#x2F;05&#x2F;12&#x2F;pay_by_the_hour&#x2F;</a>

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.<p>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.

If I were to write an article on this topic, it would be a similar story. I don&#x27;t think this would have helped us answer the question when we were starting out though.

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

I&#x27;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&#x27;t thought it was worth it if the job was too small.