Correct price of services that would satisfy a client and a service provider is often a big problem for many people. Especially those just starting out in a business. This could apply to plenty of employment forms either it’s a contract or a regular employment agreement.
There are many factors to consider. In reality very small amount of professionals charge a client with a “market price” – whatever market could mean. It’s also a very rare situation where every client just gets exactly the same quotation as everybody else. Actually, it happens that for exactly the same services and the same client – price is quite different over time!
So is there an algorithm or a set of simple instructions on determining the exact price of the hour of my life?
Once in a while some shitty internet medium uncovers horrifying news:
Ministry of XXX just paid 10 millions of XXX for a new logo. Look at this logo, it’s not that impressive at all!
And people in the comments:
- wut?! I would do it better!
- 10 millions? For a logo? Corrupted government!!!11!1!
- This is a joke…… My friend takes 1 sandwich for a logo……….
Those people probably don’t really understand how the valuation works. Valuation process is not simply calculating the costs and adding a fixed percentage value to it. This may be true for a large companies with strict procedures. Definitely not for freelancers/small companies.
Do I like this guy and want to work for him?
Is he a friend of mine?
Could this contract be the opportunity to get a great deal or a connection?
Do I feel like working on another thing at the moment?
How big is this organization and how far can I go with a price?
What can my competition offer?
Is he/she an asshole or his/her project a big piece of shit?
Each of the answers for those questions have some kind of influence on the final price of my time. Is this fair to judge people? To exclude some of them completely or charge them with insane amount of money?
Why should it be fair in the first place?
Returning for a moment to the fake news quoted above – It’s obviously just a clickbait. The more people are triggered by this unfairness, the better.
Does that mean that the government is actually not corrupted and every contract is clear and fair? Probably not. But frankly speaking, if the client is big enough it’s pretty hard for him to hire a good professional for a rate available for individuals.
Does it mean if I send out offers to the biggest corporations in the world with a huge price on it, I will get the deal automagically? I doubt it, such numbers requires some arguments. Like: my friend works at a ministry of XXX! Or you know, some other references – more meaningful ones.
I valuated my time so many times that I can’t even tell when was the first time. And either that was for a job as a dishwasher or a developer of an application for an international corporation – I committed as many stupid mistakes as possible.
My hourly rate through the years ranged probably between $1 – $200 and I assure you the highest one is not the latest one as you could think.
I think you will find useful this list of the things that happened to me, that I consider the mistakes.
- Thinking about money as the most important factor in deciding whether take a deal/job.
- Working for flat fees
- Giving my final price in a first draft of an offer
- Not including my current-need-for-money factor in my price
- Worrying too much about market prices
- No actual knowledge about the things I was charging people for
Nobody tought me anything about this stuff and I was out in the wild, not even an adult yet – trying to look like professional. So when people were so worried about incoming winter finals I was freaking out about finishing another under-priced web project for people that tought I have any clue what I’m talking about.
It often led me to go to my teachers at the university, instead with the project they assigned me to as part of the classes,with an actual business project problem for help. Of course most of them were clueless about things I was talking about.
A few terms later they teach me about these stuff on another classes.
Ad 1 Is money not important?
Hell, it is. It’s so important that some weirdos kill for it. I don’t advice it. Really, don’t. There are easier ways to get it.
In considering a job offer there are factors equally important though. There are actually a few dimensions that are mutually compensative. One is obviously money. But among many others there are also:
- charging strategy – is price only for hour of coding or are we including meetings/research/development costs
- potential for brand promotion – can I “sign it” with my name? Is the product a small, internal use, application or a public facing system that you can brag about (“You know that green, round button in the top-right corner of spotify? I coded it!”)
- potential for skills development – who wouldn’t like to being paid for learning new stuff
- Communication compatibility – believe me that being able to honestly talk about some issues or problems and flexibility of the other side of the deal is really helpful
- potential for paid slacking off time – I’m serious and not talking about cheating your client, but if you know that the projects will have slow downs on the road and you will get money anyway this is a big advantage. Also if the potential client offers you some paid time off, it’s also a great thing to consider.
Why I say those things are mutually compensative? You can easily convert one into another in to some extent. And all of them can be bring down to a common denominator – money.
Ad 2 What’s wrong about flat fees?
Besides being exploited if you don’t know anything about how the business works – absolutely nothing.
Of course, I’m exaggerating.
Truth is there is no perfect charging model. There are examples of jobs that are better from developer perspective to be a fixed price projects. Usually a pretty small jobs or the ones with some generic, implemented earlier parts. If carried out as time & materials would be a lot less profitable.
Most of the first jobs I did – was not suited for a flat fee. If something was – definitely for much bigger fee than agreed.
I learned the hard way about changes in requirements and didn’t know how to deal with them. Many people when starting out as a freelancer with some small projects, for friends of friends have similar problems. Most of those projects I did had an effective hourly rate somewhere at the bottom of the range I presented earlier.
On the other hand at least those people learned to hire professionals not students for their precious projects.
And I learned a lot – have a look at third bullet point of previous list. Told you.
Ad 3 Offering bigger price than calculated
You could say: I’m not going to negotiate, so what for?
Are you sure? Are you the only one to determine this fact?
It doesn’t matter if it’s your mum or a friend – if anything goes wrong you have have a buffer that will take a hit. Even if a client decides not to negotiate – it’s safer to have it.
There is also another good reason behind it: if people are not negotiating that means your price is probably too low. Don’t worry, if that’s what you wanted to make out of the deal, you don’t lose anything. Just remember to offer a bigger price next time. Do it until you hit the wall and a potential client is having a heart attack after your offer. Not literally. Do not kill him, who will hire me to clean up your mess?
In general people don’t like giving away too much money – except for some creepy perverts. Most likely they will try to lower your price. Give them this pleasure and lower it to the initial level you wanted to offer. Make them happy. But not with the cost of your time and money.
Ad 4 Treating each client equally is not wise
Not only, because they’re just not equal at all. At the beginning of my road I felt like I have to monetize every lead I received. Each project seemed like something I have to get, even if I don’t actually need or want it.
The truth is, it crashed me hard. It’s not possible to work on so many things at the same time – especially when I realized that it’s not like I need all those clients to make a living. That’s when I discovered something I very creatively called the current-need-for-money. Current-need-for-money factor can be reflected with the following proportion:
For example let’s say that we’re talking about a regular situation. My need for money is 1 and available time I want to dedicate to additional project is also 1. Price multiplier would be also 1, nothing changes in the offered price.
But if I have a big need for money right now and a lot of time to waste – it would decrease my multiplier. If I have enough money and my schedule is tight my multiplier skyrockets.
The relation between price multiplier and need for money, and time available is clearly hyperbolic. This can be represented on this very simple, straight out of high school charts:
The more time I have / lower need for money – the bigger multiplier is. Why? First – I need to fill that time with something, why not earn some cash. Second – If I don’t need money that much right now – I don’t really want to work on something different than my own project. You would need something special to buy me then.
I know, this rule is not perfect and definitely is not the only factor influencing the price. But it works pretty well and is logical enough for me.
It helps me to first determine how much money I want to make and how much time I want to spend on it each month. That values can be normalized to 1. Everytime I get an inquiry I do the evaluation of those numbers using current-need-for-money factor.
As a hopeless workaholic it helps me to keep away from the deals I don’t need and have some life.
Ad 5 What would competition say?
I don’t care that much anymore. Maybe because of the market situation we currently have in IT. Of course, it doesn’t mean I just shoot the prices straight out of the moon.
No, I just don’t worry about being more expensive than a student or people from outsourcing centers of the world. A few years ago I just wanted each project so badly, that I sometimes I would go down to the really ridiculous rates.
It also depends on what stage of development one is. I think it’s a still good idea to work on small web/mobile projects for shitty money when you’re learning and only thinking about starting out in the industry – again bullet point list. It gives experience, teaches humility and self-confidence at the same time.
Ad 6 Lack of knowledge can be tricky
Don’t get me wrong. Of course you should take overwhelming projects that looks like something impossible to do!
Hell, I did that a lot of times – it gave me a lot! And not only me, it also tought some people to not be cheap bastards when they want something done good.
I’m talking about valuating things you don’t even recognize. I did that a few times and it ended not pretty.
Not-sleeping-whole-week-and-working-on-stuff not pretty I mean.
The best solution is either asking a more experienced friend how much he would take for it, what are the risks and how hard is that. If you don’t have friends like me, you can always send the inquiry to some IT company or other freelancer.
Of course, if you’re just a bambi pretending to know what computer is – take the quater of the price you heard, don’t just copy and paste. It won’t work.
Cool story – how do I use it though?
As you probably guess by now – it depends. I won’t answer the question how much money you should take for taking one hour away from you.
Whether you’re just starting out and have 2 wordpress websites behind you or you’re way more experienced guy than I am and was curious if that noob from the blog thinks he found the holy grail. There is no simple answer.
My experience is that I rarely charge the amount I dream about and also I don’t charge the bare minimum I need. It’s always somewhere between those two. Depending on many private or professional factors.
Don’t sweat it too much. If you rationally come up with some amount of money, it will be ok. Once you get the deal, ask for more next time. When you don’t get it, no worries. There’s enough work to do in the world, you’ll get another project.
Money can be a hard subject – in Poland, where I live and work – it is sometimes a taboo subject. It shouldn’t. I try to be confident about it. There were times when I worked as a cleaner in a public institution – earning two bucks an hour. There was time when with a few lines of code I made $2000 in less than a day.
Once you pick one amount, it’ll get easier – the more clients you have the more you know about negotiations.
Try to fight for a bigger rate each time and you’ll end up just alright. Don’t worry if you’ll end up with a lower rate than usual – fight for some compensative alternative I told you about.
And remember – if you’re not dying of starvation under a bridge – you don’t have to do it. You’ll live.