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Wed, 29 Jun 2005
There was a recent discussion—which I missed—on the Humbug IRC channel about the difficulties of choosing suitable rates to charge for contracting work. Early in my time as a contractor, I went to see my accountant to review the year’s business in preparation for a tax return and he quizzed me about my rates. I explained the basis I had used to set them, and he told me that I was flat out wrong. As far as he was concerned, the rock bottom amount that I could afford to charge—back in 1984—was $75/hour. And that was only for small customers. He said I should set a base rate for customers with 500 or more staff at $110 and for big companies (i.e., with 1000 or more staff) it should be at least $150.
When I protested that my existing customers would spit the dummy if I charged that much, he said, “you don’t need them as much as they need you and you’re no use to them if you go broke.” When I made it clear that I could not just double what I was charging, he told me to leave the existing customers on the same hourly rate, but to charge them for twice the number of hours and to put those free hours to work looking for new customers.
Despite my fears, most of my customers accepted the new rates, once I explained where the idea came from. So I’ve continued like that ever since, with obvious adjustments over the years to take account of inflation. I should point out that the starting figures above were for the case of direct contracting—if I had ever used an agency, they would have had to charge me out at considerably more.
A year or so later, I had another question for the accountant—I was starting to get lots of requests for fixed-price quotes and I was finding it hard to find a way of being fair to both sides. The accountant was clear about that too. He told me to argue strenuously against fixed-price quotes and to demand payment in advance to prepare such quotes. He suggested a flat fee of $2,000 in advance for a quote and he also suggested that I prepare the quote by carefully estimating everything and then, for simple jobs where there was no chance of getting it very wrong, to double the quote; and for non-trivial projects to triple it (or even quadruple it if in any doubt). Again, this has turned out to be very sound advice.
And just in case this has tempted anybody into asking me to do some work, I should point out that these days I also load my rates with a factor intended to discourage people—I’m certainly not looking for work at this stage of my life.