The Value of Time – How to Charge What You’re Worth

Last night I posed a question to my followers on several social media networks. It went something like this:

If I were to pay you to stand still and alone and do nothing for an hour, how much would you charge?

The responses varied from $40 to $800 but the majority landed at or around the $100 mark.

The purpose of the question was to find out what people think their personal time is worth when there are no other factors involved such as enjoyment, value, communication, relaxation, or learning. My theory, bolstered by this completely unscientific study, is that people value their time greatly but are willing to undercut themselves in the extreme when it comes to work. This is especially true for freelancers.

What should I charge per hour?

One of the first and most difficult questions facing a freelancer is how much to charge per hour. In most cases new freelancers come from previous employment in companies and the only gauge they have for hourly pay is their salary. Because of this and their general devaluation of the worth of their own time they tend to set the bar much too low and charge hourly rates that are unsustainable and irresponsible.

To guide you away from this pitfall and spark a discussion about what fair pay is for freelancers in web design and development and in particular WordPress let me present a model for calculating your hourly rate. Keep in mind this is not the only one and there are many people who have published content about this (check out the excellent course Running a Design Business: Pricing and Estimating at lynda.com and Curtis McHale’s aptly titled book Don’t Be an Idiot for starters).

For the purpose of this article I define a ‘freelancer’ as a person working in web design and or development focussing on WordPress and/or Open Source with several years experience and education in the field. She runs her own business out of her home or a rented office space and is responsible for all business related activities including invoicing, contracts, accounting, hardware and software costs, and general office overhead.

Step 1: Set a base rate for your time

The process starts with finding a base rate for your time. This is where the question I asked above comes in: How much is your personal time worth to you in cash? If you could sell it to someone in hourly units, what would you charge? It is important that you set this rate based on your personal time (spending time with family, reading a book, watching your favourite show, doing your hobby) because if you think of it as work you will automatically devalue your time. More on that later.

Based on my unscientific query it appears the people in my social media circles value their time at approximately $100/hour. That seems to be a reasonable estimate.

Step 2: Set a value to your expertise

Next  you need to set a monetary value to your expertise. This can be done by asking a question:

Compared to a novice with zero experience, how much more is your hour worth?

This returns a dollar value. How exactly you reach that figure is up to you. Some say you should charge $5 per year of experience, some say you should charge $10 per year of school, some say you should charge on a scale from $0 (novice) to $100 or even $1000 (the best of the best). For the purposes of this article we can say you charge $5 per year of experience so with 4 years experience your expertise is worth an additional $20.

Step 3: Set a value to your speed and effectiveness

The more skilled you are, the faster you’ll work compared to your competition. This also means the more skilled you are, the fewer hours will be logged and the project will be completed quicker. Both of these elements need to be factored in to your hourly rate.

Start by asking a question:

Compared to your closest competition, how much faster do you work?

This returns a percentage. If you are 20% more efficient you’ll work 20% faster meaning you’ll log 20% fewer hours and will wrap up 20% sooner. This should at minimum be evened out and in most cases be charged as a premium (you work faster and that is more valuable). I think the premium on more effective work should be at least 20% giving us the following formula:

Your speed (%) x 1.2 (20%) = Speed Value (%)

So if you work 20% faster you’ll charge an additional 24%.

Step 4: Set a discount

The last step is optional and should be applied with great care: If you are just starting out as a freelancer or want to break into a new market you can opt to set a discount to your fees. This is tricky territory and needs to be done in a systematic way to avoid problems down the road.

The discount you set for yourself is governed by several factors including how much you can afford to cut your own rates, whether discounting your rates will devalue your services in the eyes of the customer, and whether discounting your services will undercut the competition and devalue the market as a whole.

This last point is important and you can see the real life implications of wholesale discounting in many creative fields including photography services and WordPress consulting: New actors have been using price as a competitive factor for too long and have driven the overall price down to the point that the general public have a false impression of the true cost involved in these services.

If you feel you need to set a discount for your hourly rate, you also need to set a firm plan for how to phase the discount out over time. Otherwise your discounted rate ends up being your permanent hourly rate.

A real life example

Let’s put this into practice with a real life example: Maiken (not her real name) is a seasoned designer and developer with 4 years experience building custom WordPress sites in an agency. Now she is breaking out on her own and needs to set an hourly rate for herself.

She starts out by setting her own base rate at $120 (she really likes to spend time outdoors and this takes more time than just watching TV or reading a book so she values her time higher than the norm). She has 4 years of experience and decides that’s worth an extra $20/hour. Because she is an extremely efficient coder she estimates her speed to be about 35% higher than her peers for a total Speed Value of 42%.

Putting it all together Maiken’s hourly rate calculation looks like this:

(120 + 20) x 1.42 = $198.8/hour

Justification for charging what you’re worth

At this point I’m pretty sure you’re thinking “$198.8 per hour? You’ve lost your mind Morten!” If you ask around you’ll find very few freelance web designers and developers who charge an hourly rate in this range, especially in the WordPress field. In fact you’ll find very few who charge an hourly rate over the $100 mark. That is alarming and indicative of a disconnect between what the work is worth and what the people who do the work think it’s worth. What’s needed here is a generous serving of perspective:

Freelancing is a business

Freelancers often think that because they are freelancers they should charge less than a full scale business. This is just plain wrong. A freelancer has the same expenses that a business does, just on a smaller scale. The fallacy happens because you don’t consider many of your expenses real expenses: If you work for a business you just do your job. If you work as a freelancer you do your job and you also do invoicing and accounting, procurement, licensing, legal contracts, HR management, maintenance, and cover overhead. You may outsource some of this to a 3rd party, be it an online service like Harvest for invoicing or Redbooth for project management, or by hiring a real accountant for your year-end taxes, but most of these costs are invisible to you – especially if you work from your home office.

To get a clear picture of what running your freelance business actually costs per month you need to do the math:

  • Hardware (computers, peripherals, bags, etc)
  • Software including licenses
  • Office expenses (printer ink, paper, notebooks, pens, etc)
  • 3rd party expenses (taxes, legal, medical, dental)
  • Office overhead (power, heat, maintenance)
  • Office rental (what would it cost you to rent an equivalent office in an office building?)

You’ll find that these costs easily run over $1200/month and usually a lot more. So if you are charging $20/hour you need to bill a minimum of 60 hours per month just to break even. That may not sound like much but ask any freelancer and they’ll tell you getting 60 hours of billable hours in a month is a real challenge.

And this doesn’t include all the other elements of your job like advertising, chasing leads, website maintenance, client pitches, meetings, project management, the list is endless. In a typical company all these things are handled by people. As a freelancer you do all these jobs and they all eat away at your available billable hours.

Freelancing and salary work are two different animals

When I meet people who charge $20, $40, or $60/hour for freelance work I always ask them how they came to that number. The answer is usually “that’s what I would get paid in a real job”. Based on what I just told  you it should be pretty obvious why this is just plain wrong. While you might get paid $25/hour in your “real job”, the company probably charges the client upwards of $250/hour for the work you do. That money is divvied up into business expenses, salaries for other employees in peripheral jobs, and profit for the owners. As a freelancer you need to do the same thing.

You are not a salary worker: You are a business owner. So charge what you’re worth.

People will pay what you’re worth

“But Morten, if I charge over $100/hour I won’t get any business!” you say. That simply is not true. You might not get the business of people looking to have a $600 website built, but you will get the business of people who actually know what a website costs. Charging more will more often than not increase your business and your success. And it also means you can take on larger and more time consuming projects and not have to worry about always landing new contracts. Charging more allows you to go after bigger fish. And think about it: Call a plumber to your house and she’ll charge you at least $150/hour plus travel time and materials. Why do you think your ability to build that plumber a website is any less valuable?

Let the games begin

The issue of charging what your worth is a hotly contested one and my approach is an extreme one. There are as many opinions on this as there are business owners and all those opinions can and should be heard. So I invite you to join the conversation in the comments below or in your own blog. If you do write an article of your own, let me know and I’ll link to it right here.

To wrap up I’ll give the final word to Grant Landram who responded to my query on Twitter last night with this observation:

28 thoughts on “The Value of Time – How to Charge What You’re Worth

  1. Morten, I love this, please allow I mess with it for a minute.

    If there’s an assumed average workday of 8 hours, we get the following daily income:
    $198.8 x 8 hrs = $1,590.4 per day

    Sounds like a nice return for a day of work? Let’s assume 250 working days per year and take off a good vacation of 50 days. We’re not going to bother with sickness, taxes and other pitfalls in this example, so we’re left with a solid 200 working days per year:
    $1,590.4 x 200 = $318,080.00 per year

    Now I find it getting very interesting: let’s say you are blessed with a life-span of 85 years, but you’ll only work until you are 75, and right now you’re around 25. So you have an assumed overall of 50 years left of a working life:
    $318,080 x 50 yrs = $15,904,000.00 per life-time

    So during your entire working life until you’re 75 years old you would make roughly $16 Million. Think of $16 Million as the price tag for your very life, does it sound a lot?

    What if you were asked to sell your life right now for that price? Meaning you would be payed $16 Mio in return for dying instantly, but for the deal to make any sense at all, you’d be granted an extra of 1 day to spend all the $16 Mio on? Would you do it?

    Great article, thank you for allowing me to go bananas with it. 🙂

  2. What I figure my hourly rate to be is $150/hour though I price weekly at $3k/week currently.

    One thing that starting freelancers totally miss (and I get it you’re just starting there is so much to learn) is how to price yourself to clients at higher rates.

    It’s great to say that you should be charging close to $200/hour but how on earth do you convince anyone that you’re actually going to provide $200/hour of value?

    First clients seeing $200/hour won’t think you’re worth it unless you have some real brand/name recognition. It takes years to get that just for your name.

    So instead of just setting your price and anchoring against your name you should be anchoring agains the value the client will receive. Will your 10k budget earn them 10k new leads or 20k of business?

    I just had a great talk with Brennan Dunn about value based pricing over on the Freelancer’s Show. Required listening for anyone looking to really start charging properly for their time.

    1. Yes Curtis. You are right on the money. The value proposition for the client is different from the valuation of your own work. Generally the way I recommend approaching this is by doing the math for them: Let’s say you charge $150/hour and you estimate a 100 hour project (quite large). That means a total cost of $15,000. If you take a 100 hour project to a large agency they will likely charge double or even more. If the client thinks that sounds like a lot you can either use the lawyer or plumber analogy or simply ask them how much they would pay for a new car. Unlike a new car the website will make them money. That’s a trick that always works for me.

  3. Thanks for your article! I have never seen it broken down the way you have. Do you have any thoughts on adjusting for contract rate, where you are selling to agency who is then reselling your time to the end client? It cuts out time finding and making sales and lets you focus on producing. How do you adjust for this?

    1. Personally I don’t adjust my rates for contract work. When working as a 3rd party contractor for a larger agency I know that they’ll put a premium on my time regardless of what I charge. The agency hires you for your expertise, not for your price.

  4. I like what Morten has to say. From what I have researched, hourly charges to the client should be avoided whenever possible. Package bidding is best. I’m experimenting with the Freemium concepts to start up my business (ex: offering a lesser value package at a steep discount or free for a limited time to bring in new business).

    1. We usually charge on a weekly basis (you get us for a week for $XXXX) or on a project basis with a very strict scope written out in the contract. That said our contract always has a detailed spec of hourly rates should the project go beyond the stipulated time. This last part is vital, otherwise you end up working far more than you intended for no pay because all projects will have feature creep. By setting an hourly rate to out-of-scope work you lessen the risk and ensure you get paid what you’re worth.

  5. Given most people who go freelance are looking for freedom to live their life how they want to live it and do the things that they love. There is a correlation to your time value that will change over time i.e. initially you will be able to do basic sites and therefore charge appropriately. By working hard on yourself/expertise and providing value over a period of time you will build a brand/reputation for value, then, your time rate will increase. This will take much longer than most people think or hope as, like Morten says you have all the other aspects of running your business, particularly sales and marketing. Once there though, you will find you “work” less hours, leverage other peoples time and expertise and charge more for your time. So just one aspect of the overall strategy for creating your life the way you want it to be. What most people dont get is that you have to put in focussed, hard work and time initially to create your life. My focus is property but given the huge impact of the web I can’t do this alone. Therefore, I’m looking to work with a wordpress developer/online marketing person to bring a vision to life by working with me in the UK. If you could work with someone on a business that was primarily online and learn your craft AND generate income rather than all the other aspects of business would that work for some people? Great post Morten and you have clearly reached that expert status 🙂

  6. Great website! I was looking for why MS axed EW and came upon an old article of yours from 2012. I do my own work so I generally do not have the time or inclination to keep up with all the turmoil.

    Having done a little hiring of late (not a great experience unfortunately), I suspect the answer to this question is what it always is. You can charge what the market will bear. What you value your time at has little relationship to what you can charge unless you can get all your colleagues together into a union and charge a set rate.

    I think lawyer rates are ridiculous which is probably one reason why half of newly minted lawyers are not working as lawyers. Plumbers are pretty expensive but not unreasonable and you can comparison shop at online services like Angie’s List.

    You may think (we all may) you are worth $150/hour but if no one pays that then you are not. Just my observations from someone who is a DIYer and sometime client.

  7. I agree with @CONFUSEDALLTHETIME’s comment: “You can charge what the market will bear.”

    I live in southern CA in a specific area/market where creative services are horribly undervalued. I could try to charge what I feel my skills are worth in my local market, but then I’d never be able to obtain any local work or clients. I know, I tried for 9 MONTHS once before (charging the same rate I charge to clients in what I’ll refer to as “sophisticated markets”) without landing a single local project. The reason? Repeatedly I was told my rates were simply too high, they couldn’t afford me (even when I would explain the reason for my rates and lay it out for them). They’d rather have far less polished work or “just good enough” than pay what I consider a very competitive rate for professional creative services. One of my friends and his wife ran a web design business in this same area, and they went out of business after just one year for the same reason (Clients: What??? I’m not paying more than $600 for a web site!). They’ve long since moved away.

    I would also move away in a heartbeat so I could charge more and work with clients who understand the value of what I do better, however my wife has a great career here that pays very well and housing in this area is very affordable (for SoCal) as well, and crime is low and schools are good. With a second child on the way, these things are important to us. If I was very early in my career again with no real financial or familial responsibilities I would not be living in this area, so perhaps it would be a non-issue.

    With that said, I can easily (and have, and still do) charge more than 2x my current “local” hourly rate to clients in San Diego, LA, or Orange County, but housing those areas is 4-5x more expensive than where I live now. Let me reiterate: I can charge over 2x my local rate to clients in SD, LA, or OC, but housing in each of those areas is 4-5x more expensive for about 50% of the space. A home comparable in size and lot to the one we live in now costs on average between $800,000-$1 million+ in any one of those locations (I know, I’ve searched repeatedly). Additionally, the other primary reason I freelance locally where I live (versus driving out to LA, SD, or OC on a regular basis) is so I don’t have to spend the 3-4 hours round-trip in my car everyday on the horribly congested SoCal freeways (I’ve done this many times before as well, and no, 3-4 hours is not a joke, even with the FasTrak and toll roads). Additionally, I prefer not to be a contributor to the already smoggy air here.

    So, yeah, I think my time is worth much more, and I wouldn’t hesitate to charge accordingly for it if the local market could bear it, but it hasn’t and won’t, at least not at this point in time. I am fortunate that I have a very few clients in LA, OC, and SD that let me work remotely (although not all the time), but they are not enough alone to sustain the income level I need to take care of my family, so in order to gain local clientele, I have to charge what my local market will bear, which is less than I feel I deserve. I have made many attempts at finding additional clients in the better SoCal markets that will allow me to work remotely, but it has always been very difficult to find them – in many cases the potential clients insist I be on-site every day for the duration of their project(s), most which last a few weeks to a few months (I typically work on fairly large-scale projects).

    So, while I agree 100% that you should charge what you are worth, I feel that being successful at doing so is highly dependent on what your local market will bear. If you (and your family, if you have one) are independently wealthy and/or don’t mind living in a closet in a pricey market like the Bay area, LA, SD, or OC that can bear substantially higher hourly rates, then by all means charge away!

  8. I totally agree with Confusedallthetime and Multimediaguy. While these kind of articles are always nice too read, they almost always are simply not in line with reality. I live in Europe (The Netherlands), so a completely other part of the world. Yet the mechanics of the web design market are exactly the same as in the US of Canada.

    Unless you are some famous guru there is a maximum hourly rate you can get as a freelance allround webdesigner, and that is EUR 100 (about USD 140). It’s likely to set a rate just under it, say EUR 97, to avoid a 3 digits rate.

    But the problem is, almost every client wants a fixed project price. So when you build a typical small business website, you know it has to be somewhere in the range of EUR 2000 tot EUR 4000 (depending on the complexity and amount of work), otherwise you just won’t get the job. But that price is not in line with the hours you really spend. Even a simple site that cost 1000 will likely cost me far more than 10 hours. So my official hourly rate of 100 is more likely to be 50 or 40 in reality.

    The article suggests that that get more expensive jobs if you just set a higher hourly rate. That’s something many articles like this suggest. But it’s not true. Why? High hourly rates are being paid by bigger clients, but bigger clients will not hire a singular allround freelance webdesigner who creates a complete website. Not ever. They go to some agency. There are several reasons for this, and many are completely valid. But it leaves the freelance site builders in the lower and lower middle parts of the market.

    I am a freelance allround webdesigner since 2002, and I have experimented with my pricing and marketing several times. The above is based on my expereinces so far, and are backed by experiences I read on the web. Despite of guys writing blogs about the pitfalls of under pricing.

    We simply have to deal with the market, and the market has some pretty fixed ideas about what “a website” is worth. The market doesn’t care about decent freelance rates, it only cares about what it thinks is a decent rate for a site. There is a gap between these notions, but that won’t go away if you raise your hourly rate. You just get less jobs. Too less to be able compensate with that higher rate.

    1. First of all, the point of my article is not to say everyone should charge $200 per hour. You have to set your rate based on your own market and your own competition. That said I respectfully disagree with your counterpoints for the reasons that are stated in the article itself. The reason your market undervalues web design is because you are undervaluing your work. As you say big agencies can easily charge more than you, and that’s because they don’t undervalue their work. The strange reality is that if you increase your fees you will not get fewer clients. I work in Vancouver, Canada, an extremely competitive market in a country where the average income is significantly lower than it is in the Netherlands. Even so I got so many offers for work as a freelancer I had to turn most of them down. And this was in spite of my well into three figures hourly rate. Taking these bigger projects allowed me to take less projects and focus more on seeking out other big projects. As for the clients not trusting me because I’m not an agency, that’s simply not the case. If you present them with enough competence and a solid plan that can be executed they have no reason not to trust you.

      One final point: As a freelancer you have a unique opportunity that is rarely explored by freelancers: Big agencies often need outside consultants to take on specific work for them. As a freelancer I’ve worked with several large agencies in several different countries, and when you work with them you charge their rates. In other words, if you are looking for work chances are you can call up a couple of the big agencies in your country or even elsewhere and see if they are looking for single-project consultants.

      Rather than starting out by saying “this is ridiculous, it’ll never work”, try doing what I say: Figure out what you believe your time is worth and set an hourly rate based on that. If you think it’s too high, compare it to a plumber or electrician and see how well you fare. If you are charging less than other trades people you need to change your perception of your own work. And if your clients don’t think you’re worth the money, then they are not the clients or the client base you are looking for.

      And finally, I’m just giving advice based on my experience. I am not presenting a one-size-fits-all solution nor a magic bullet. If you don’t agree with me or feel my proposal is preposterous you are free to ignore everything I say and charge what you think is fair.

  9. ““But Morten, if I charge over $100/hour I won’t get any business!” you say. That simply is not true. You might not get the business of people looking to have a $600 website built, but you will get the business of people who actually know what a website costs”
    Well, yes, as P.T. Barnum famously put it, there’s a sucker born every minute. No matter what ridiculous price you put out there, there is somebody dumb enough to pay it.
    Despite the fact that I could train anyone with rudimentary HTML knowledge 90% of the job I do in 30 minutes, prices vary from person to person in my freelance work as much as they do in your field. My rates generally result in prices under $100 for 2-5 hours worth of work, but I’ve seen prices as high as a grand for the same job.

    Now, granted, I don’t do web design. I do ebook formatting, which is essentially a super stripped down subset of HTML. So my arguments and your arguments are slightly different. But I don’t think experience and education don’t account for as much as people think. They matter some, but at the end of the day, you either know what you are doing or you do not.

  10. Your entire premise is wrong.

    An interesting article, but it’s focused 180 degrees away from where you and your readers should be looking, which is value to clients, not time delivered or self worth.

    You wrote two things that are dead on the money: People will pay what you’re worth; higher price imputes higher value. (Okay, you didn’t write the second one, but you implied it.) Charging hourly rates is, for most freelance jobs, a bad idea to begin with. Bad for you and bad for your client. Alas, most clients and freelancers are stuck in the 19th century when hourly rates (based on time and motion studies) became the standard.

    The bottom-up approach (what are your costs, what would it take, yada yada) does freelancers a disservice. The question that should determine your rates is, “What is my end product worth to my customers?” Said in other words, “What is the real, substantive impact on my client’s business, customers or employees?” When you know the answer to that question you can command much higher rates.

    I don’t charge hourly rates and I encourage the freelancers I work with not to either. But those that do are generally getting $300-$600/hour. Why? Because they’re not starting with their own worth in mind. Instead of looking into the mirror to determine your rates, look through the windows to the world of your clients. That’s where you’ll find your value.

    1. Thanks for the input David. What you are saying is that people shouldn’t charge hourly rates. My article is about how to find your hourly rate should you be forced to charge an hourly rate. Those two are not mutually exclusive nor is either of them “wrong”. In our company we have two main types of clients: Complete projects that are charged on the full project scope + hourly when scope creep kicks in (pretty much your model) and hourly contracting which is charged at an hourly rate. To say that one is wrong and the other is right is not constructive because taking one side or the other excludes a large part of potential business. At the core we are in agreement.

  11. Thanks for sharing that link with me, Morten. I wanted to read it twice, together with the comments, so that I could lay down another perspective. It’s a great resource that reveals a lot of valid points in the industry and, sadly, it’s an underdiscussed topic at various events.

    First off, I disagree with your research regarding the rate for doing nothing for an hour. Why, you ask?

    Well, let’s say that the person X works a 9-5 job somewhere at a $30/h and charges $100/h for consulting over the weekend or in the evening. What if that person receives an offer to get paid for doing NOTHING all night? Would it be reasonable for him to charge that $100/h if he’s being offered $50/h, or even $30/h? Wouldn’t it be easier, less intense, and getting more billable hours by preventing burnouts?

    While I’m definitely not saying that you’re faking your research (as I value and trust the rest of your posts that I’ve read online), I believe that people act primitively when it comes to that question, and don’t give it a real thought as would be the case if the opportunity is actually presented before them. It’s like that moral idea that some of us repeat in the public: “I won’t sell myself to another dark corporate company, as I value my services, Open Source etc.”. I’ve said that myself several times, yet I remember the few opportunities where a large corporation sends the offer with the fat number + social benefits, travel costs covered, long holidays and my mind tweaks itself in other frequencies, willing to accept the tempting offer. So, it’s one thing to just comment randomly, and another to be faced against the actual proposal.

    That naturally leads me to what Curtis said above:

    Will your 10k budget earn them 10k new leads or 20k of business?

    The hourly rate and the skills reflect the value that our services would bring to the client. And they represent a final cost. One of the longest conversations I’ve had with clients were related to hourly rate, although we’re comparing apples to cucumbers.

    hourly rate * number of hours = work, and that work quality is a variable itself.

    Unfortunately too many clients don’t think about that and just have a blind number of how much are they willing to spend based on what they’ve seen in online ads, without considering the effect of their online presence and the monetizing and popularity opportunities.

    What you said yourself makes a lot of sense, too:

    Unlike a new car the website will make them money.

    Several years ago I was (much more) foolish and I was trying to sell only what I was able to build (which was a fraction of a complete business solution). It didn’t present any end value to the clients as they had to use more freelancers for different services such as drawing, copyrighting, SMM. Nowadays, after listening more to smarter folks than me like Chris Lema and Troy Dean, we’re building complete solutions that actually convert visitors, call to actions, track activities and more, which is what could be measured and what a client actually needs to increase the sales. But then again, presenting only a plain hourly or weekly rate without a business proposal, ideas for increasing the visits/revenue, improving the CRM or the stats mechanisms won’t translate to any final number that would bring visible value to the client. I’ve heard that a few times from CEOs at meetings: “We can invest $30K in that project, but we’re also willing to invest $300K if it brings half a million).

    So, to change the view even more, we have different rates based on the type of work and the amount of work. I, for one, charge $130/h for up to 8h of consulting; $95/h for 9-30h and $80/h for more than 30h worth of work for a client. It makes more sense to me as the longer the project, the more time I have booked, the lower the risk of tricky clients, less time spend on sales and marketing, negotiation, R&D even and so on. If I get a retainer which is an easy gig (doesn’t require much involvement from me) for 2 years, 10h/w, I could probably drop that to $60/h as that would mean that I’ll bring $2400/month for general questions or comments, without putting too much effort and yet having 30-40 spare hours to do whatever else I want.

    Fixed-cost wise, again it depends on the type of client. I’m generally bad at scope creep yet open to fixed-fee projects and I’ve recently shared my point of view that, given a budget, we could go with: “It’s most likely going to be a failure so it’s unlikely that we’ll get this one” or “We’re certain that it would bring profit, and even willing to invest more in business consulting and product management so that the project gets perfect and we overdeliver and still get a decent number at the end”. That same thing depends on the geographical location, the size of the company, the amount of communication, the length of the project and other factors, but the hourly rate could vary drastically depending on how much is the client ready to pay and how much extra buffer had you planned upfront and used later.

    I’ll stop here as I could brainstorm much more on the subject, and I also have other pricing options selling the time of my team members, so let’s discuss that in other posts from the Pricing series here. Or jump on a Hangout! 🙂

  12. Thanks for your article. It also got me thinking about how you charge for your time in another way.

    I don’t know how many times I have had to spend my time and effort to correct issues created by other companies. For example, insurance companies that send a bill for services that are incorrect and I have to spend the time contacting the doctor and hospital, etc. to find out what the correct services should have been.

    You would think that I should get compensated for that time and research that I performed on behalf of the doctor, hospital and insurance company. In other words, charging for what I am worth.

    Is this possible? Any thoughts?

  13. Great thoughts overall!

    A small point of disagreement with the basic premise of the $100 starting point. Doing nothing for an hour provides me no value, whereas work does. I create no portfolio work, build no skills, establish no relationships. This time spent doing nothing was utterly wasted for me beyond the money paid, so I’d better be paid extraordinarily well for it. My number would be around $300/hr, but I still might go insane and quit after 3 hours.

    My professional work, however, provides tremendous value for me beyond the hourly rate. Every day I’m learning new things, interacting with interesting people, and building a body of work I am proud of. These must be factored in as well.

  14. Great article and some fun comments.

    This makes me think about a somewhat related idea, which is that when a client “helps” you with the work, your hourly rate should actually go up. If you’re a capable professional, the client should treat you as such by giving you clear requirements and letting you work your magic.

    That’s the most efficient process. Otherwise their “help” often slows you down. I’m an architect, and if a client has worked out a floor plan themselves as a timesaving starting place, it takes me extra time to evaluate it, figure out the problems, and 95% of the time gradually back them out of it and into something else. If they just give me a clear program of needs and desires I can design something that addresses all those things, meets code, works structurally, etc….in less time.

    The same goes for software designers getting amateur code from clients, or web designers getting a basic web site done by a client and being asked to just “add on” to it.

    It can certainly be fun and rewarding to work closely with people, but everybody has to realize that it takes more time.

    There’s a great saying I heard: A plumber is working on fixing someone’s sink, and he says “I’ll charge you $100/hour if I do it alone, $150/hour if you watch, and $200/hour if you help.” Says it all.

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