Here's another great reason not to lower your rate:
If your client base is large companies, all of which have professional purchasing departments, you will never get your rate back. Rate hike discussions are zero-sum negotiations in which either you continue working at your original rate or the purchaser takes a job performance hit. It may be easier to acquire new customers at a higher rate than it will be to jack the rate up on an existing customer. And eventually, you're going to run across clients you really want, under competitive RFP situations, where they'll demand "most favored" rates --- so that 60% "entry" rate is now your permanent negotiating floor, no matter where your industry goes.
Discount with project scope, or with deliverable depth, or with long-term support, or with scheduling flexibility. Some of these non-financial perks are more valuable to your clients than the monopoly money they're spending out of IT budget --- all the more reason not to send an "amateur" signal with a below-market rate. Don't discount with rate if you can possibly avoid it.
This is why it's sometimes better to go free than charge a low price.
One arts group site in particular I transitioned to a CMS, redesigned, did training with several members, implemented dynamic galleries, ... that would have been way beyond their means to pay; instead they pay me for hosting (a pittance!) and I get to support an arts group that create some great inspirational work.
If I low ball it and charge them then the publicity is "this guy is really cheap" and there'd be no way to live on what I'd earn from that. As it is I get to charge a normal rate and the arts group get to tell everyone how generous I am!
Arts is a tricky area. I started out on the bridge between arts and software and I've learned that that is charity work.
I agree with you that if you want to do that sort of thing it is better to charge nothing. The 'lowballing' I had in mind was more of an incentive to pick you over a contender with an established reputation.
I'd see if you could get them to provide you some free advertising in return for your goodwill. Good word-of-mouth advertising is worth it's weight in gold.
Again, good points! But you really have to keep in mind that there are more size customers out there than 'large companies', plenty of companies that require IT services are in the medium bracket (say 10 to 100 employees).
They're also usually quite price conscious, especially in the current climate. Even the bigger ones are looking at their budgets with a pretty sharp eye.
(depending on the market you're active in), you can wonder though, do you want or not want the customers that are shopping around based on price only ?
There is a big difference between your consulting rate and the cost to a customer to get job X done. I'm not saying a scheduling system for your local dentists office needs to be a six-figure job; I'm saying, pull the right levers to get the number where it needs to be. Specifically:
* You can make 24/7 support a line-item premium service.
* You can make support after a 2-week "acceptance" period a line-item premium service.
* You can have your basic rate include a 6-week window for delivery, at your shop's discretion, and make a more predictable delivery date a line-item premium service.
* You can have formal typeset documentation be a line-item premium service.
* You can have access to improvements and feature requests incur a full consulting dev cycle on your basic rate, and offer a line-item premium service to do point- and major- release updates for N years.
* You can staff projects with timelines that allow you to juggle 3-4 projects for different clients simultaneously (even if you do them serially, you preserve the scheduling flex to deliver them all at once), and offer a line-item premium to get a 100% or 200% improvement in time frame.
* In bare-knuckle negotiation with a client who is just being a good businessperson and determined to get the lowest rate possible, you can strip off features from their requirements, down to the minimum they could conceivably accept and still call the project a business win, and negotiate over features instead of rate.
If you do all of these things, you're rustproofing. But if you're not prepared to do any of them, your only lever is going to be your consulting rate, and the dynamics of the freelancing market are going to tend to drive your rate down over the medium term.
You consistently provide very logical advice in the freelancing arena, no doubt from years of experience. I would like to see your version of this book.
Comments
Here's another great reason not to lower your rate:
If your client base is large companies, all of which have professional purchasing departments, you will never get your rate back. Rate hike discussions are zero-sum negotiations in which either you continue working at your original rate or the purchaser takes a job performance hit. It may be easier to acquire new customers at a higher rate than it will be to jack the rate up on an existing customer. And eventually, you're going to run across clients you really want, under competitive RFP situations, where they'll demand "most favored" rates --- so that 60% "entry" rate is now your permanent negotiating floor, no matter where your industry goes.
Discount with project scope, or with deliverable depth, or with long-term support, or with scheduling flexibility. Some of these non-financial perks are more valuable to your clients than the monopoly money they're spending out of IT budget --- all the more reason not to send an "amateur" signal with a below-market rate. Don't discount with rate if you can possibly avoid it.
This is why it's sometimes better to go free than charge a low price.
One arts group site in particular I transitioned to a CMS, redesigned, did training with several members, implemented dynamic galleries, ... that would have been way beyond their means to pay; instead they pay me for hosting (a pittance!) and I get to support an arts group that create some great inspirational work.
If I low ball it and charge them then the publicity is "this guy is really cheap" and there'd be no way to live on what I'd earn from that. As it is I get to charge a normal rate and the arts group get to tell everyone how generous I am!
Arts is a tricky area. I started out on the bridge between arts and software and I've learned that that is charity work.
I agree with you that if you want to do that sort of thing it is better to charge nothing. The 'lowballing' I had in mind was more of an incentive to pick you over a contender with an established reputation.
It finally happened, I agree with you entirely, though I'm sure we can find something here to argue about - erm, web design isn't art .. discuss.
I'd see if you could get them to provide you some free advertising in return for your goodwill. Good word-of-mouth advertising is worth it's weight in gold.
Same goes for releasing open source software.
Again, good points! But you really have to keep in mind that there are more size customers out there than 'large companies', plenty of companies that require IT services are in the medium bracket (say 10 to 100 employees).
They're also usually quite price conscious, especially in the current climate. Even the bigger ones are looking at their budgets with a pretty sharp eye.
(depending on the market you're active in), you can wonder though, do you want or not want the customers that are shopping around based on price only ?
Food for thought.
There is a big difference between your consulting rate and the cost to a customer to get job X done. I'm not saying a scheduling system for your local dentists office needs to be a six-figure job; I'm saying, pull the right levers to get the number where it needs to be. Specifically:
* You can make 24/7 support a line-item premium service.
* You can make support after a 2-week "acceptance" period a line-item premium service.
* You can have your basic rate include a 6-week window for delivery, at your shop's discretion, and make a more predictable delivery date a line-item premium service.
* You can have formal typeset documentation be a line-item premium service.
* You can have access to improvements and feature requests incur a full consulting dev cycle on your basic rate, and offer a line-item premium service to do point- and major- release updates for N years.
* You can staff projects with timelines that allow you to juggle 3-4 projects for different clients simultaneously (even if you do them serially, you preserve the scheduling flex to deliver them all at once), and offer a line-item premium to get a 100% or 200% improvement in time frame.
* In bare-knuckle negotiation with a client who is just being a good businessperson and determined to get the lowest rate possible, you can strip off features from their requirements, down to the minimum they could conceivably accept and still call the project a business win, and negotiate over features instead of rate.
If you do all of these things, you're rustproofing. But if you're not prepared to do any of them, your only lever is going to be your consulting rate, and the dynamics of the freelancing market are going to tend to drive your rate down over the medium term.
You consistently provide very logical advice in the freelancing arena, no doubt from years of experience. I would like to see your version of this book.