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Setting Hourly Rate And More

For someone planning to do random small tasks for people as a freelancer,  such as installing and configuring mail and web and database servers on Linux/Unix, website promotion assistance, minor programming tasks, working as a 'virtual' system administrator, what would you say is the best way to charge.  A fixed hourly rate?  A fee based on the job at hand?  How does one choose rates?

I'd like to know what the alternatives are and the pros and cons of each approach.  Thanks a million.

Seun Osewa
Saturday, March 13, 2004

I'm grappling with this myself.

Here is my thinking: make the charges consistent with the value that you are able to deliver to the client.  And as much as possible for the market that you sound like you're targeting, give the client a reasonable expectation of what they'll end up paying before beginning any work. This implies several things: if you can't help the client, you don't charge anything. And you try to set expectations as much as possible, while not working for free.

This, of course, is modified by any extraordinary client demands. If the client demands that you drop everything and come in ASAP for an "emergency" that is a wash, then you should have a minimum emergency trip charge.

What I intend to do for small jobs/small business is present an hourly rate and always figure work based upon the hourly rate. But also estimate beforehand the approximate range of final cost, and attach a top limit to the billing. And, be quite clear to the client when there is a service that may be impossible to estimate.

In other words, say you were asked to replace a hard drive. In order to work with most end users, you need to estimate the total time for this work and give the client a ballpark.

This kind of thing, "soft fixed pricing", is done for most B2C and B2C services.

An example, a few years ago my water heater went out. I had a service come out and look at it. Their minimum charge (1st hour plus trip charge) was $75. They didn't have the heater element, would say they would get back to me. They never did, but they didn't charge the visit.

Or, the lawyer that prepared our wills and did estate planning said that her charge would be "around $500 or so". We had several lengthy seeming consultations with her on several issues. Their billing was finally for about $550, it was actually higher but the lawyer deducted a $110 "professional courtesy". In other words, they protected their rate structure while meeting the original price expectation.

Bored Bystander
Saturday, March 13, 2004

One caveat:

There are two basic ways to expand your consulting business:

A)  Increase the range of services you provide to current clients.

B) Increase the number of clients you provide your current skills to.

(Imagine an X-Y axis with Services on one Axis and Custoemrs on the other).

It's *easy* to gradually increase the services, but it's much less efficient, IMHO, because you have to spend so much time learning new things, and you beome less efficient.

It's much more effective and efficient (although less straightforward) to expand your clients. Thus, you increase your skills because you're doing more of the same.

As someone once said" It's better to get a little money from a lot of customers than a lot of money from one customer". At the extreme of the latter, youre just an employee.

My $.02 worth.

The real Entrepreneur
Saturday, March 13, 2004

I use an hourly rate (to catch feature creep) but also do a 'minimum' project estimate and reject a project if the minimum estiamte is less than $50K (to avoid juggling dozens of small projects).

Joe Hendricks
Saturday, March 13, 2004

Research in your area and determine the hourly rate.  For things that you know you are competent doing, you might want to set a fixed price so the client knows what s/he is going to pay.  The problem with this is that if you run into challenges you can eat up literally hours of time trying to solve the challenge and you can't bill for it.

I've always told people, when I do something for the first time, that I will bill them for what I think I would have billed them if I was experienced at it.  I say it in a funny way: "as if I knew what I was doing" and they ALWAYS appreciate that.

Someone once suggested to me that it can be better to take a nasty problem back to your office to fix.  That way, the computer (or whatever) disappears from their office broken, then magically reappears fixed and you are a hero.  Trying to scratch your head, etc. onsite and taking hours to do it does not lead to high client confidence since a lot of the time the client is standing over your shoulder listening to you mutter to yourself.

Karl Perry
Saturday, March 13, 2004

Consulting is part magic trick: appearances are very important.

SEEMING confident is as important as BEING competent. 

The real Entrepreneur
Saturday, March 13, 2004

If you have a lot of small business clients for IT support, you should have them on a monthly retainer of some sort, and then charge hourly fees for when you have to work on particular problems for them.

The reason for a monthly retainer is that you have to spend time learning their system and keeping up to date with it. Eg do you need to track Lotus Notes or just Windows?

Also, these small clients will often phone with 5-minute problems. They won't be happy paying for an hour's consulting for a simple phone call, yet to able to answer that phone call, you've had to spend a lot of unpaid hours.

Saturday, March 13, 2004

One bit of advice I've heard is to always have a fixed rate, but offer a small discount on the hours if need be (lack of experience, desperation, etc).

Future clients may ask what you charged on previous contracts, and it sucks having a $20/hour rate sitting in your past, even if it was partially for charity.

Haven't done this myself, just heard about it.

Monday, March 15, 2004

There's one thing about Joel's forum that I really appreciate; responses always tend to be to the point and very educative, very straightforward.  Put together I seem to be learning:
- have a fixed (minimum?) hourly rate even if you don't really always follow it strictly.
- from the beginning, have an idea of the numer of hours the project involves and let the client know and as much as possible, err, 'adjust' the price to be close to the original estimate.
- I shouldn't be charging for learning time.
- Customers that need a lot of 5-minute support throughout the month should probably be paying a monthly fee for that kind of attention.

I really don't know how to define what constitutes 'competency' because what takes one person a day might take another person one hour and yet another (perhaps with prepared scripts or modules or lots of prior experience) would do the same with a command.

So my current thinking is:

- If I have a pretested solution, sel it as a product
- If not, a hourly rate applies
- If I am new to that particular task, I first of all go away to play with it before I start billing...??  I don't know the answer to this one, yet!

Seun Osewa
Monday, March 15, 2004

Hi, Seun,

I hope that my previous answer fit your profile. ;-)

One last point. The "Golden Rule" applies.

You wouldn't hire a plumber on an unlimited tab. You'd want them to indicate to you roughly how many hours a job will take. And if you started out thinking that a job would be $200 and it turned out to be $700, would you not be pissed?

Same applies to any other service work.

However, if in the course of the work you find out substantial facts that affect the job (IE, the plumber finds out while doing your job that other plumbing needs replacing in order to complete the current project) you, as a consumer of the service will tend toward increasing the scope of the work, as long as the evidence to do so appears reasonable.

Building a relationship and excellent  communication skills are a must, because unplanned stuff does happen, the client needs to believe your explanation in order for you  to do their work, and you don't want to be caught working for free either. It's a fine balancing act.

Bored Bystander
Monday, March 15, 2004

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