Death By Billable Hours
I would have to say that oDesk and eLance and its ilk are poor sources to mine for well paying, serious mobile development projects.
Because these websites permit a lowest common denominator approach to both proposing projects and bidding on projects, you are dealing with many potential clients who want to try and launch an eBay clone sometime in the next 30 days and want it done for $250.
You are also going up against vendors, individuals and companies who can work for lower rates because they, the vendors and companies, are in an area of the world where incomes are usually far below your locale. These same vendors are also usually quite willing to work for what would be considered terrible money even in their part of the world.
I cannot even list all the ways that the willingness to work for below market rates in your locale raises little red flags of danger as a buyer of services. It is usually a very good indicator of desperation, more interest in the money than building a long term client relationship, no intention of developing a good product, no intention of ever supporting the software, and an over-eagerness of trying to deliver what the client asked for rather than what the client needs.
If you have spent any amount of time working as a contractor or consultant, you never, and I have to be very emphatic about this, NEVER, ever meet a client who knows precisely what it is they want and need.
In 35 years of dealing with clients and developing software I have never delivered a project that was actually what the client asked for during the pitch meeting. There is always nuance and edge cases that were never accounted for.
But what you are really competing against is the expectation by people that this is what awesome app development costs and should cost. And they are usually sorely disappointed when they get their final project.
Potential clients have an expectation of buying a beautiful, red Ferrari F350 super car.
But in reality the potential client only has the budget for a 1987, diarrhea yellow, Honda Civic with the passenger door painted primer grey and 200,000 miles on the clock with the entire vehicle requiring constant, on-going maintenance.
The other side of the coin is that contractors and consultants are actually not able to deliver a Ferrari, even if they were offered the money for one. Beware the vendor that inform you they can design and construct and flight test a functioning and beautiful helicopter in their basement workshop. That one peasant farmer on YouTube you found who did exactly this doesn’t fucking count.
I have been paid a lot of money by some high-profile clients to fix a broken project simply because the vendor they were working with was not able to deliver on the contractual promises they made.
There are some good contractors on oDesk and eLance and rentacoder, but as Theodore Sturgeon said, “90% of everything is crap.”
And as a contractor or consultant, you will have to try and stand out and differentiate yourself as one of the amazing 10% in that sea of utter crap that is swirling around you generating so much noise it will leave potential clients – the good ones – utterly bewildered.
Good clients don’t go where bad vendors pitch.
Contractors and consultants, experienced and inexperienced alike, stress over how much to charge their clients. And let’s face it, most charge far too little for their time and services. If you are stressing over whether you will lose the bid to a lower paying contractor or consultant, don’t. You’re completely thinking about your bidding strategy the wrong way.
I started my career with the thinking that “first one to state a number loses” when it came to negotiations over compensation. But I came to realise that is a flawed mindset.
Let’s flip to the other side of the table: As a client, a purchaser of services I find a number that I would be feel utterly embarrassed to offer, and offer that to the vendor. And if I don’t feel utterly embarrassed to make that offer as a client to pay for services, I’m probably overpaying for them.
And if the vendor says “yes” to that utterly embarrassing number, I either said one too high and that’s a lesson learned. Or the contractor doesn’t value their time or skills and I will probably question their ability and value they provide.
As a client, I expect my vendor to bid me up. It’s not in the service provider’s interest to bid me down!
Conversely, back on the other side of the table, as a vendor, a provider of services, I come up with a financial number for how much I should charge for the job — and we can discuss “standard rates” in a bit — and if don’t feel I will lose the job, I’m obviously charging too little.
I expect my client to try and bid me down, it’s not in their interests to bid me up. And if the client says “that’s a good price” I know I’m either charging too little or the client probably has no intention of paying. Beware the client where the price of your services is no object.
Remember this is the negotiation phase, you’ve pretty much nailed the pitch, now you’re just quibbling over price.
If you do bid yourself out of work because of your price, you have two takeaways from the experience.
1. It was probably a terrifically cheap client that really was looking for an eBay clone, on web and mobile and desktop, delivered by next Thursday and fully tested. And expecting support and upgrades for the next two years
Or…
2. Your prices really are… no scratch that. Your prices can never be too high – you just didn’t have the right client.
What about standard rates?
I’ve done the freelancer bit for quite a bit, and I generally charge by the hour, which clients hate because they have no expectation of costs. They try to get you to work for either a fixed bid contract (rare that I take these) or that they want a weekly or monthly price – which can work so long as you carefully control the scope of each segment of work.
How do you respond to a client that tells you you’re over-priced and you have to come down to meet their requirements?
You walk away.
Always walk away.
If I told my dentist or my lawyer that they were charging me too much and they had to cut prices by 60% to get the work because there were other dentists and lawyers out there in that price range, what do you think either of them would tell me?
“Oh yes Justin, you are so right, I should stop charging you $300/hr for my legal services and only charge you $120/hr because you’ve spoken to other lawyers out there that charge that price.”
Let’s say you state your price and you’re informed you are too expensive and you decide to then and there cut your rates to match what your client wants.
What’s going through the client’s head at that point in time?
“They were trying to overcharge me.”
“They don’t believe in what they are trying to do.”
“They are desperate for the work.”
“They aren’t as good as they say they are.”
There are a dozen immediate thoughts racing through your client’s head at that point in time – and not one of them is good and seeing you in a positive light.
I tell my dentist to cut his billable rate and the next time he has to put a drill in my mouth I know it’s going to hurt because he cut corners on pain medication. It is the same problem with any software project.
How do respond to someone telling you you’re too expensive?
That depends on your audience.
If it is a peer, or someone who considers themselves your peer, you’re just setting up for an endless argument with someone else who rightly or wrongly believes they are better than you but undervalues their own work. It is up to you, of whether you are willing to discuss your prices with your peers.
A software engineer of one or two years’ experience, with perhaps a few small projects on their resume, telling you that because you charge five times what they do means you are over-priced is really comparing apples to oranges.
A client telling you that you are over-priced.
That’s a completely different matter.
This is also a very deep subject.
You have to consider it from the viewpoint of the client to understand the motivation.
The client’s motivations are many; Find the cheapest vendor possible. Extract the maximum amount of work for the minimum price. Price comparison to other vendors who have said they can do the same job for far less.
Uneducated and unsophisticated clients are the bane of contractors and consultants everywhere. As a highly paid contractor and consultant it is your job to educate the client as to why it is worth paying for services at the higher end of the cost spectrum.
We, as a group, can argue about whether you get what you pay for or whether the perception that because it is expensive it must be good, but at the end of that argument is “what value does the client extract from my services” and that is what you really should be selling.
Not your time.
Not your skills.
But your value.
You can charge someone $200 for a month’s worth of programming work and it would be hilariously over-priced. And you can charge someone $10,000 for a week’s worth (I do) of value and it would be a bargain.
Selling value is actually harder because it takes time and effort and most people suck at it.
It is the unsophisticated client’s that buy on price or on what it costs per hour or per project.
Sophisticated clients, and you can find those by prospecting and targeting them specifically, and by raising your prices to the point where the cheapskates and the unsophisticated clients, the ones that expect an all-singing, all-dancing mobile app on three platforms for $500, are priced out of the equation.
When you start selling value, and consequently raise your prices to realistic values, you attract a whole different caliber of client.
What should your standard rates be for a week’s worth of value?
That’s entirely up to you, but basically two or three times what you are paid hourly, before tax, is what you should be thinking about, and then charging that hourly rate multiplied by forty to arrive at your weekly rate.
Seriously!
If you’re charging anything less you are undervaluing yourself and your skills and the value you provide.
Got qualms about charging so much?
It’s not the price you are really having difficulty with.
You just don’t think you provide enough value to justify the dollar amount. You’re either right on the value, or you’re wrong on the price.
Live in any major metropolitan area of the United States? A software developer of eight or more years’ experience? You are probably getting paid between $100K and $120K per year as an employee. Maybe up to $160K in the Bay area.
Your contracting or consulting rates should start at least at twice that amount and go up from there.
Why would you charge less for your years of experience as an educated and highly trained software engineer than you would pay your gardener?
Or your housekeeper?
Or your plumber?
I frequently see freelance IT contractors charging $125/hr and up in the Los Angeles. Yet I see programmers arguing about all the reasons that you cannot charge that much and they are proud they *only* charge $40/hr for their freelance contracting or consulting services.
Do you honestly want to be paid less than someone whose amazing job skills entail knowing how to upgrade the RAM on a laptop?
The other thing about charging for your services is that contractors and consultants try to minimize their rates or minimize the shock of what they charge by charging hourly or charging for 15 minutes.
What are you?
A minimum wage clerk working at the grocery store?
It is not in your interests to charge hourly and it is certainly not in your clients’ interests either.
I switched over to weekly rates a while back and it has had an amazing effect on my billable time and the amount of productive work I can concentrate on.
Which sounds more expensive?
$140/hr?
Or $5,600/week?
These aren’t my rates, they are just examples.
When you are on an hourly clock you’re looking for billable hours to charge your client, and your client is worrying about this 15 minutes and that 15 minutes.
You are nickel and diming your client when you need to take a phone call at 8PM on a Thursday from them.
Let’s say you charge a minimum of 30 minutes for your time. Clients don’t call because they know you will charge $70 just to listen to the voice mail. And if you aren’t billing to listen to someone’s rambling voicemail after it pulled you out flow then that needs to stop.
When you charge weekly, it takes away the client’s fear. The client gets allocated a block of your time that they can spend how they like: Intense development effort? Wasteful meetings? Travel to the client site to look at some print outs? Quick chat to catch up?
You take all those issues off the table. It’s a value to the client knowing that you will be there to pick up the phone and discuss an issue, and they don’t have to talk fast and get done in under 30 minutes so as not to spend another $70.
“But you’re so expensive!”
No matter what you charge, you will always be over-priced to someone. I would rather charge what I charge and be listened to, than to charge only a few dollars for my time and not be heard at all.