I've brought up daily billing to a few potential clients and am always met with resistance to the idea.
I've instead tried structuring my fees to promote long-term engagements.
So I have an hourly rate (highest), day rate (little lower), week rate (little lower), and month rate (lowest). This is working out okay so far, but it sure requires a lot of explaining up front and I'm probably losing out on potential income for longer engagements.
The key is to have your lowest rate still be something that you're willing to work at, or the whole system falls apart.
Has anybody else tried a similar rate strategy? How'd it go for you?
There are two common consulting arrangements in which a customer gets a discount for a commitment.
The first is a retainer. Retainer hours come at a significant discount because they might not get used, but are billed regardless.
The second is long-term forward-looking commitment. A monthly rate is at the short side of long-term commitment; a multi-month project feels like a more typical discounted commitment.
You should not discount for daily or weekly commitments. Daily and weekly rates are industry standard. When you offer a discount on a daily rate, you are effectively communicating a willingness to negotiate your underlying rate.
If there's a second strategic decision I want to urge everyone to make, it is "NEVER NEGOTIATE YOUR RATE". With a savvy customer, you will never get any concession on your rate back; once you establish a new floor, that floor is likely to remain there forever. This is the case at big companies and small ones, but be aware that this is such a common dynamic that Fortune 500 companies have people whose performance is evaluated by how effectively they hold the line on bill rates.
If you have to negotiate, negotiate over the total price of the engagement. I know your nerd brain can't separate the total for a project from what the hourly for that project works out to, but they are very much not the same thing.
I am generally of the mind that your rate structure is your rate structure. Clients want to push back on all sorts of stuff. They also want you to sign their master agreements unmolested. Learn to say "no" professionally: to quickly find ways to accomodate your customer's underlying concerns without budging on your price structure.
This is one of the harder things for me when starting on a contract. I dont want to appear pushy and turn them away nor interested in going back to negotiating.
Ps. I am from south asia so I also think there is a expectation of a need for haggling.
Basically I just tell them the truth - that the project doesn't seem to be a good fit for my business right now. If they insist on knowing why, you can tell them the risk vs profit factor is too high for you at this stage. If they want to know what that means, you can just say that you don't think you can give a good estimate of the total project time/cost so you don't feel comfortable bidding on it.
If they're reasonable, they may agree to just go hourly then upon hearing a reasonable explanation. Sometimes they'll try to negotiate on the price. I tend to be very wary of clients that try to negotiate rates though because even if you get your rate you'll find yourself later arguing about hours, features, etc. Your rate can effectively be lowered if they pressure you into feeling that you are not working fast enough and bill 1 hour for 2 hours of actual work. People who like to haggle tend to haggle over every detail to get a bargain - not just price.
Wish I had seen this post just an hour ago :-) I turned down a prospective client for that very reason. I said basically the same thing, but you phrased it better than I did.
"
I feel that my standard rate is justified due to my knowledge, the quality of the code I produce, my flexibility and my ability to learn and pick up new skills and technologies quickly. I have other clients who are paying my full daily rate and they very satisfied with the work I produce.
I completely understand if this is non negotiable. And I realise asking for an increase on the rate you offered may mean I may miss this opportunity to work with some exciting new projects, technologies and people which would be a great shame.
"
Any feedback on the above would be greatly appreciated.
"Hey, thanks for asking. Here's the deal: we work on a daily rate, because most of our projects demand our full attention for at least the majority of a day. In order to be fair to all our customers and to keep things manageable for us, we bill in one-day increments."
I don't really see why I'd say more than that. If a client kept pushing after that, I'd start saying things like "I understand; let's figure out how we can get your work bundled up efficiently into a day" (or, in my case, more likely: I'd bill a day for the time-consuming stuff and just let the single hours go).
Culture can hugely impact your rate and flexibility. If your client belongs to a haggling culture and it's safe to say they haggle over everything (fairly common in some cultures), then I would recommend adjusting your base rate to compensate for the discount you will end up making.
I know if you try to sell a product in some cultures and refuse to budge on the price it could be considered an insult.
> I probably just need to be more assertive, which I'm slowly getting better at.
To be fair, it took me (a generally obnoxious, opinionated loudmouth) the better part of ten years to get to the point where I feel I should be w/r/t my level of client assertiveness. It's tough!
Comments
I've brought up daily billing to a few potential clients and am always met with resistance to the idea.
I've instead tried structuring my fees to promote long-term engagements.
So I have an hourly rate (highest), day rate (little lower), week rate (little lower), and month rate (lowest). This is working out okay so far, but it sure requires a lot of explaining up front and I'm probably losing out on potential income for longer engagements.
The key is to have your lowest rate still be something that you're willing to work at, or the whole system falls apart.
Has anybody else tried a similar rate strategy? How'd it go for you?
There are two common consulting arrangements in which a customer gets a discount for a commitment.
The first is a retainer. Retainer hours come at a significant discount because they might not get used, but are billed regardless.
The second is long-term forward-looking commitment. A monthly rate is at the short side of long-term commitment; a multi-month project feels like a more typical discounted commitment.
You should not discount for daily or weekly commitments. Daily and weekly rates are industry standard. When you offer a discount on a daily rate, you are effectively communicating a willingness to negotiate your underlying rate.
If there's a second strategic decision I want to urge everyone to make, it is "NEVER NEGOTIATE YOUR RATE". With a savvy customer, you will never get any concession on your rate back; once you establish a new floor, that floor is likely to remain there forever. This is the case at big companies and small ones, but be aware that this is such a common dynamic that Fortune 500 companies have people whose performance is evaluated by how effectively they hold the line on bill rates.
If you have to negotiate, negotiate over the total price of the engagement. I know your nerd brain can't separate the total for a project from what the hourly for that project works out to, but they are very much not the same thing.
I am generally of the mind that your rate structure is your rate structure. Clients want to push back on all sorts of stuff. They also want you to sign their master agreements unmolested. Learn to say "no" professionally: to quickly find ways to accomodate your customer's underlying concerns without budging on your price structure.
How do you professionally say no?
This is one of the harder things for me when starting on a contract. I dont want to appear pushy and turn them away nor interested in going back to negotiating.
Ps. I am from south asia so I also think there is a expectation of a need for haggling.
Basically I just tell them the truth - that the project doesn't seem to be a good fit for my business right now. If they insist on knowing why, you can tell them the risk vs profit factor is too high for you at this stage. If they want to know what that means, you can just say that you don't think you can give a good estimate of the total project time/cost so you don't feel comfortable bidding on it.
If they're reasonable, they may agree to just go hourly then upon hearing a reasonable explanation. Sometimes they'll try to negotiate on the price. I tend to be very wary of clients that try to negotiate rates though because even if you get your rate you'll find yourself later arguing about hours, features, etc. Your rate can effectively be lowered if they pressure you into feeling that you are not working fast enough and bill 1 hour for 2 hours of actual work. People who like to haggle tend to haggle over every detail to get a bargain - not just price.
Wish I had seen this post just an hour ago :-) I turned down a prospective client for that very reason. I said basically the same thing, but you phrased it better than I did.
My response is something like this.
" I feel that my standard rate is justified due to my knowledge, the quality of the code I produce, my flexibility and my ability to learn and pick up new skills and technologies quickly. I have other clients who are paying my full daily rate and they very satisfied with the work I produce.
I completely understand if this is non negotiable. And I realise asking for an increase on the rate you offered may mean I may miss this opportunity to work with some exciting new projects, technologies and people which would be a great shame. "
Any feedback on the above would be greatly appreciated.
"Hey, thanks for asking. Here's the deal: we work on a daily rate, because most of our projects demand our full attention for at least the majority of a day. In order to be fair to all our customers and to keep things manageable for us, we bill in one-day increments."
I don't really see why I'd say more than that. If a client kept pushing after that, I'd start saying things like "I understand; let's figure out how we can get your work bundled up efficiently into a day" (or, in my case, more likely: I'd bill a day for the time-consuming stuff and just let the single hours go).
Thanks Thomas, really appreciate your feedback on this and the rest of the advice you've given in the comments too.
Culture can hugely impact your rate and flexibility. If your client belongs to a haggling culture and it's safe to say they haggle over everything (fairly common in some cultures), then I would recommend adjusting your base rate to compensate for the discount you will end up making.
I know if you try to sell a product in some cultures and refuse to budge on the price it could be considered an insult.
Well said. Thanks for the advice, Thomas. I probably just need to be more assertive, which I'm slowly getting better at.
With regard to retainers, what is a typical retainer discount (percent is fine) for (mostly web) software development consulting?
> I probably just need to be more assertive, which I'm slowly getting better at.
To be fair, it took me (a generally obnoxious, opinionated loudmouth) the better part of ten years to get to the point where I feel I should be w/r/t my level of client assertiveness. It's tough!
great stuff, thank you