How do I "make up" rates?
5 Answers
- Find out what the rates are for the work you do by determining what it would cost to get it done elsewhere.
- Figure out how much you could earn in annual salary for the same time of work, add in 30% for benefits you don't get by working for yourself, and divide by 2000.
- Estimate how many hours you think you can bill each week (try to be as realistic as possible here) and adjust the number you worked out in step 2 accordingly (e.g. 20 billable hours per week is about 50% working, so double the rate you got in the previous step).
- Adjust for inability to collect on bills, or unexpected costs associated with running your own business.
As an example, if you're building basic WordPress sites, you can get this done for a few hundred dollars, so that's your baseline - you don't want to be charging much more than that. If on annual salary you could earn $40K, then your adjusted hourly rate is about $26 working full time. Let's say you can only bill about 20 hours per week, then your billing rate is $52 per hour.
That means that to keep your prices reasonable, you would either have to be able to finish a WP site in about 5-10 hours, or charge less per hour. But now at least you have a pair of numbers that you can use in your calculations.
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Where does the number 2000 in your second suggestion come from? – Moshe 14 years ago
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It's the number of working hours in a year, taking out weekends and about 2 weeks vacation. – Jason 14 years ago
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The main disadvantage of charging for your time is that it's adversarial; it promotes conflict. The client wants a quick fix and the consultant wants a slow fix. Basing prices on value to be received by the client creates win-win. Both parties best interests are one and the same in this case; both want a great job done within a reasonable elapsed time. – Mark Richman 14 years ago
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Mark, I'm not saying you should charge by the hour. But when calculating your rates, at some point, it comes down to how much you want to earn, and how many hours you want to work, and whether you can deliver the requested product in that time. At the end of the day, though, for the reason you mentioned, you may choose to charge a flat fee, but the calculation remains. – Elie 14 years ago
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Exactly. Sadly all busienss accounted for hourly scales badly (well, but on the other hand tha may mean a a gross income per developer short of 20k USD in IT). Still, as Elie said, the calculations remain - they need to be made. – Net Tecture 14 years ago
Research your competition. See what they charge and what services they offer. You can use that as a pricing start.
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Not always, sometimes rates are given on the phone or in person only. Although recently, I called a competitor about an invention I had and he told me the price straight up. (I didn't mention my plans to compete. :-D ). – Moshe 14 years ago
Contrary to most of the advice you'll receive, I do not recommend time-based billing.
Your training and skill level has a bearing on your ability to do the work. However, this has no bearing on the amount you should charge except that if you can't do the work within the desired time-frame you'll not be able to charge anything.
The price to charge should be relative to the value the client tells you they will derive from you doing whatever you do.
Negotiating some arbitrary hourly rate reduces you to a commodity, and you are not orange juice!
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+1 for `and you are not Orange Juice!`. Seriously though, this is a good point of supply and demand economics. – Moshe 14 years ago
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Moshe, mine was perhaps not the best example in this context since elasticity of demand implies relatively undifferentiated products or services in supply. That's true for products like OJ or services like, say, changing a tire. – Mark Richman 14 years ago
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I'd rather be orange juice than an empty carton. Hourly vs. flat-rate or rate per deliverable both have upsides and downsides, depending on what you are doing. If you're doing something where the scope is well-defined and unlikely to change, flat-rate is probably the best value for the customer and easier for you. But if the scope is likely to change or the customer will just need "one more thing", flat rate is a great way to devalue you. – Duffbeer703 14 years ago
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Scope creep only happens if you let it. If you and the client agree a fixed scope - in writing - before work starts, it is easy to see whether or not any "Can you just ..." work is within the scope and therefore within the fee. If the scope cannot be fully described, documented and agreed at the outset, then a preliminary project to gather the necessary information to allow this needs to happen (and get paid for) first. – Mark Richman 14 years ago
Make sure it's worth it to YOU. When you're doing freelance work, several things are true:
- You're not getting benefits
- You're not (necessarily) getting paid for communication time
- It's not permanent. You go into it knowing you will probably get "laid off" when there is no more work.
You need to factor these things into your compensation. For me, I use a simple formula: I take whatever I'm getting paid at my day job (or what I would ask for at a day job) and double it.
Once you have your rate figured out, strictly stick to it and don't accept less.
I like the value-focussed answers here.
In fact personally I intend never to return to hourly rates.
I love this apocryphal story about Picasso: a man went to Picasso in a restaurant and said, "Wow, you are my hero. I love your work. Would you draw me a little picture right now? I want to give it to my son." As he was wont to do, Picasso whipped up an incredible little sketch in under five minutes, and handed it the man with the words, "That will be €20,000" (or the equivalent currency of the time). The man was shocked and asked, "How can you ask for €20,000 for five minutes of your time?" Picasso replied, "Yes, five minutes of my time, and forty years of one-pointed dedication."
Take-away?
Value who you are, what you have learnt over a lifetime, and don't give it away too easily.
