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I was recently approached by a small marketing/branding company to do some freelance work on a semi-regular basis. Nothing is finalized yet and the "what do you charge?" question is coming up soon.

I know this is a pretty broad question with lots of "it depends" factors: however, anyone have a general system for figuring what rate to potentially bill at?

Thanks very much.

*RNTT

jhack's picture

Two thousand.

2000 times your hourly rate is your equivalent annual "salary." Factor in that you have to pay your own benefits out of pocket, and you need to do your own "business development", you can then compare your fees to the standard salary for your job.

Of course, your rate (ie, your price) will be determined by the balance of supply and demand. So if your field would pay a full timer 80K, add like a 20 or 40K premium for benefits and SG&A, you get 100 - 120 K base, divide by 2000, and you get 50 - 60 dollars an hour.

John

asteriskrntt1's picture

Thanks John

Makes perfect sense. :D

*RNTT

bflynn's picture

They're price shopping - make sure that your prices are reasonable enough to get you the work, but not so low that you don't make money. As a contractor, you need extra things that you don't have as an employee - potentially your own health insurance and absolutely business liability insurance to name two. The business insurance isn't expensive, but it isn't optional either. You'll have to provide your own equipment, tax accountants, paper, pens, pencils, paper clips to untwist, etc. You have additional overhead that you didn't know about before.

Top notch consulting firms charge upwards of $300 per hour per person. Niche firms get anywhere from $125-$200 per hour. A good individual can easily command $75+ per hour and $150 isn't unheard of. If I were shopping and heard a rate of $50 per hour, I'd be interested because of the price, but that price is so low that I'd wonder if I was getting someone who knew what they were doing.

Late edit: Reading later posts, I realized that I didn't explicitly say that these numbers are based on my experience with the US consulting environment and represent common US dollar amounts - I can't speak for international values. I often forget the international nature of our community.

Brian

jhack's picture

Brian's numbers make sense...

Billing structures in firms are very different from independent contractors.
You must get a copy of David Maister's "Managing the Professional Service Firm" It will explain the economic models of the high-end firms, the niche firms, and so on. You'll understand why and how they can bill $400 / hr (and why you can't and why they HAVE TO).

Please don't use my $50 an hour number as the recommendation - that was just illustrating the math. And I would not be surprised or "concerned" to find a junior programmer at that rate - if she were an independent.

Your rate is going to be primarily determined by supply and demand. Nothing beats knowing your market.

John

stephenbooth_uk's picture

A few other things to take into account:

If you're doing work at home don't forget to factor in costs of heating/cooling and lighting, which you wouldn't have if you weren't at home. Similarly if you're working away from home don't forget to factor in travel and accommodation, unless they're charged separately as expenses. Even throw in a sum for stationery, phone calls &c you use in doing the work. I've had a few former colleagues come seriously unstuck when they decided to 'go it alone' as contractors and bid a really low rate only to find that travel and hotels ate it all up leaving them worse off than before.

What is the shortest period you're prepared to bill for, regardless of how long you actually work? Just because you quote an hourly rate doesn't mean that you'll only charge for one hour. This is important if the customer is likely to be calling you or sending you work packages. If they require you to do an hours worth of work on a particular day they have likely disrupted much more than one hour especially if you have had to travel to do it. Half day (3 or 4 hours typically) seems to be a common minimum charge, many consultancies quote a half day or day rate and charge on that basis. This has two effects, firstly it means that if you're disrupted at least you get a decent payout and it means that customers who want to ring you every day for 'just a quick thing, hardly take you any time at all' have a healthy disincentive to do so. If they try to nickel and dime you then they land up paying C bills.

Stephen

rwwh's picture
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Also: listen to or read David Maister, the world specialist in management of professional service firms. He has some very nice ideas about money back guarantees.

HMac's picture

Don't overthink this if it's just for occasional work (as opposed to being your main livelihood...).

It's right to give 'em a range. Others have provided some good specific around that.

My main point: if this is something you'd be doing "for extra money" DON'T make it hard for them to buy!

-Hugh

fedvarian's picture

You don't price the service. Your customer prices the service. Always. Period.

You need complete understanding of the value of your service to your customer. Make certain that the results you propose to provide create a return on investment for your customer. If you don't, you are creating an inequitable transaction. That is a recipe for complete disaster.

If you can create results and value to price the work above your costs, you create a WIN-WIN transaction. If you cannot, you create a WIN-LOSE, or possibly, a LOSE-LOSE transaction. You should never agree to a transaction where one of the parties loses. A losing proposition for you would be to charge a price that does not cover your costs. A losing proposition for your customer would be to pay a price that does not provide adaquate return on the investment.

Above everything else - NEVER CHARGE BY THE HOUR!!!!!! That method of billing is the most UNETHICAL thing you could ever do to your customer. It creates tension. It creates friction. It creates mistrust. Why? I'll list three reasons. There are lots more than just these three.

Reason 1:

Charging by the hour:
IF you work longer
which delays the results your customer wants
which decreases the value your customer receives
you get paid more.

IF you work shorter
which provides the results your customer wants faster
which increases the value your customer receives
you get paid less.

Charging by the result:
IF you work longer
which delays the results your customer wants
which decreases the value your customer receives
you get paid less (at least, less per hour).

IF you work shorter
which provides the results your customer wants faster
which increases the value your customer receives
you get paid more (at least, more per hour).

Therefore, there is natural gravity for your customer to want to rush the project while you slow it down. That creates tension, friction and mistrust.

Reason 2: Charging by the result allows for the customer to agree to the price of your services before the transaction is consummated. That is professional. That is resonable. That is ethical.

Charging by the hour only provides estimates. At least one of the two parties, and probably both, will lose money with an imperfect estimate. How in the world is presenting a final bill to a customer different that the amount initially agreed upon professional, reasonable and ethical? The customer "knows" that the final bill will be different that the estimate. That creates tension, friction and mistrust.

Reason 3: Pricing by the result forces both you and your customer to agree upon the result before the transaction is consummated. This creates a professional relationship. This reduces misunderstandings. This eliminates tension, friction and mistrust.

stephenbooth_uk's picture

A big problem with charging by result (often referred to as 'Fixed Price Bid') is that it includes a massive assumption, that both customer and supplier know what the final result will be. Unless it is something very simple over a very short period of time, this is a very rare circumstance. Even if both think they know at the start of the work, things change. The environment changes. The customer's needs change. A fixed price bid typically results in one of three things: The customer gets what they initially specified for the price they initially specified but it's no longer fit for purpose; The Customer gets what they need and it's fit for purpose but the supplier loses money because they had to work extra hours to incorporate the changes the customer wanted; The customer gets what they need and it's fit for purpose but they had to pay extra due to the hours the supplier had to put in the incorporate the changes the customer wanted.

It's true that if you are charging an hourly rate that you could pad your hours or slow down to inflate the bill. There's a whole host of unethical things you could do, regardless of your charging model. If someone is doing work for me and charging by the hour then I expect to be told an estimate of how many hours it will take (and therefore an estimate of the charge) and then agree a contingency above that and how we'll handle agreement of any changes to the estimate. For example if the estimate is 100 hours effort I'd might say a contingency of 5 hours, so they can go up to 105 hours without requesting authorisation from me, but over that I expect them to them to get authorisation from me before going ahead. I would also expect them to provide me with an explanation of why they went over and give me plenty of notice so I can choose whether to agree the extra time, abandon the work or re-scope to bring it under the original estimate.

Stephen