You, developer, are underpaid.
And odds are you don’t know the right way to charge for freelance projects or side jobs. Like most developers you charge by the hour. And like most developers you don’t get paid as much as you could.
But the good news is that with a little training you can drastically increase your effective rate per hour. Which means you’ll land more projects, land bigger projects, and get paid what you deserve.
Though when I say training I don’t mean more technical training. You probably know how to improve your technical skills. You probably know how to do programming Katas and how to read up on best practices. But those activities often don’t increase your earning potential.
Really, will one more programming kata boost your bill rate by 10%?
In truth, most developers need more business training. But not a lot. In 11 minutes I can teach you some skills that will drastically increase your revenue on freelance projects. And these skills can help you double or even triple your freelance rates, and still find client work.
And when I started doing contract work I charged $36.50 USD per hour. Back then I worked as a reporting and web developer. These days I charge $1000 per day and I’m still raising my rates.
But what about you?
How can you increase your effective hourly rate? You need to
1) use a better billing method,
2) charge according to the value of a project,
3) understand the importance of choosing a specialty or niche.
And all these can help you charge an effective rate of $150+ per hour. Yes you won’t be charging this overnight, but these skills will help you get there. And with a higher rate you can either work less hours, or work the same hours and make more money. Either way will increase your quality of life.
So do you want more time? Do you want more money? Both?
Then let’s get started.
1. A Better Method of Billing
Hourly billing is stupid.
It really is.
But it is the most common way that developers bill. I know some developers that charge $40 per hour, $50 per hour, $75 per hour, $100 per hour, $125 per hour, or $200 per hour. I even know a guy who charges $300 per hour. But still, each of these rates suffer from the same flaw: when you charge hourly your earnings are capped. If you want to make more, you can work more hours which will burn you out. Or you can increase your rate, which will decrease the amount of work you get.
So what do you do?
First off, you should at least switch to daily (or weekly) billing. This way for every day or week that you work you get paid in full. It means that you won’t get distracted by working on 5 different projects in one day. You can really dive into a project, and get an incredible amount of work done. The best part is that a day doesn’t have to be 8 hours. A day is subjective (just ask someone from Mexico what the average working day is, and then ask someone from Germany. You will get very different answers).
Also, if you work through your lunch and you are extremely productive should you stay in your seat until 5pm? I don’t think so. If you do a day’s worth of work in 6 hours then it follows that you should be able to take the rest of the day off. In short, daily billing gives your clients better results, gives you an incentive to work harder, and makes you more money. And everyone wins.
But the next method is even better. Fixed rates give you an even greater reason to work faster. For instance, I have a client project that was estimated at $4,000. It’s a simple website, and it took me 8 hours in total to deliver that project. Which means my effective rate is $500 per hour! The client is happy that the project gets done in record time. I’m happy because I got rewarded for working fast. And in the end both parties are happy with the results.
Granted, when billing a fixed rate it’s easy for clients to expand the scope of the project. But to prevent that you can do these 4 steps:
- Get better at estimating. Ask more questions. Ask better questions. The better you get at estimating, the less you’ll be surprised at the end.
- Pad your estimates. Give yourself some breathing room on the estimate so if they do ask for a small change you can just spend the 30 minutes doing the task, and eat the cost. It’s well worth eating 30 minutes of work to have a happy client who will give you another $25,000 project.
- If the change request is large then be brave enough to say that the request is out of scope.
- Get better clients. Good clients don’t ask for extravagant changes and try to push the envelope. If they keep on trying to get more work for free then fire them.
2. Figure Out the Business Value
One of the best things that you can do as a developer is find out how much a project is worth to the client. All projects have some amount of value, and most projects can directly affect revenue or decrease costs. So if you find out how much you can make a customer, then you can anchor your price against how much value you give them.
For instance, say a customer has an ecommerce store and it keeps crashing daily. It costs them $10,000 per day on average, or $3,650,000 per year. Most developers might say “I’ll stop the crashes for $100 per hour.” Smarter developers would say “I’ll charge you $10,000 flat to stop your store from crashing.” But the smartest developer is different. He would talk to the client, find out more about what the client needs. He would find out that the ecommerce store crashes, but that is only the first problem. He’d find out that their key selling season is coming up in 3 months, and the business owner is worried about losing even more revenue. And the owner is also worried about the quality of his brand.
So, the smartest developer dives in, finds out more information, and then gives his proposal. He gives a proposal with three options so the client doesn’t have to reject or accept the proposal, but gets to choose how to work with them. The smartest developer lists how much value or money the client will receive from working with them. This helps the client to realize that this is an investment, and they can see roughly how profitable this project will be. This is called price anchoring, and it’s awesome.
So let’s write the key portion of the proposal. This version is slimmed down, but it gets the point across.
For the past month Client Co’s Ecommerce store has been crashing every day. This has cost you over $300,000 in lost revenue in the past month, and if not fixed soon it will cost you even more. Not only that, Client Co’s brand is getting tarnished, and the quality of your image is decreasing. And we will solve this problem for you, and make your store crash free, and make it so your store will hold up during the holiday rush. And that is why we have three options for you. We want you to choose how much you’ll invest in this project. This way you are in direct control of your investment costs.
Option 1: Within 5 business days we will have stopped the crashes. We will diagnose, research, and repair the situation. The immediate crashes will stop, and you can rest easy for the time being. The value of this option has a value of $10,000 per day ($300,000 per month), plus protecting the quality of your brand.
Option 2: This also includes the crash fix from option 1, but improves your server architecture to handle the upcoming holiday load. We will revamp your architecture so it can scale to any load that is place upon it. This way you can be sure you won’t lose money during your holiday season. And from our discussions we’ve learned that during the holiday season you’ll make 5 times your normal daily revenue. Which means that if your architecture isn’t robust, then you could lose out at $25,000 per day for 30 days. This option has a value of at least $750,000.
Option 3: This option includes options 1 & 2, but brings your store to the next level. We will completely optimize your ecommerce store to bring in more sales. We guarantee an increase of at least 10%. We stand by this guarantee, because we’ve given the same results to other clients and we know we can give the same to you. Our last client gained an increase of 43%, and we are confident we can give you at least 10%. Since Client Co. makes $5,000,000 yearly, this option is worth $500,000 plus the $750,000 savings through better architecture for a total value of $1,250,000.
-The investment amount for each option is as follows: Option 1 - $30,000. Option 2 - $75,000. Option 3 - $125,000.
-The prices you see are fixes prices. Which means you won’t pay a penny more, and we stand by these amounts.
Woah. There’s a lot of subtle items parts to this proposal, so let’s break it down. First we give them 3 options so they can choose how they work with us. This is different than usual proposals that say take it or leave it. Second, we list the value of each option instead of the investment cost. This means that if a person just wants to scan for the price then they have to go back and really read what the proposal says. Third, each option has increased value for the client but also allows them to give you more money for more work. Again, this is different than a take it or leave it philosophy. Fourth, each item is basically a percentage of the value for the client. So instead of using an hourly rate, find out the value of a project, and then based your price as a percentage of that. That means the more value you give the more money you make.
Granted there is more to each of these topics than what we can explain in a paragraph, but this gets the point across. But what is certain is that as you master these concepts your effective hourly rate will skyrocket. And with a higher rate you’ll gain a whole host of benefits. You’ll be able to take control of your life, and do the things you want to do. You’ll be able to take days off when you want to, and you’ll be able to hand pick the clients you want to work with.
3. Choose a Specialty
The last reason why developers make too little is that they don’t have a specialty. Too many developers choose to serve “anyone who can pay” them. And at the surface that seems like good business, but that thinking is flawed.
First off, it means that you won’t have a brand. You won’t be well known for a particular skill or niche. There will be nothing to make you stand out in the eye of your potential clients, which means you won’t win as many projects.
Second, if you keep working on random projects then you’ll only have a breadth of experience but no depth. Sure if you take on a project outside your niche you’ll make some money (and if money is tight then just take the project), but it’s a short-term win. It’s better to keep working for the same market, so you can be known as an expert in that market. This way, when you talk to a client you can say that “I’ve built 5 apps for clients in the financial services sector. My best project was an automated email marketing tool that helped a financial investment firm increase revenue by 23%” would you like to learn how I did that?” And you can be sure that the potential client will be interested in what you have to say.
Third, as you keep working in the same market your network will increase. Yes your brand and your experience will increase, but your visibility will also increase. People will look at you as an expert in the field, and work will come to you. You’ll get speaking engagements, get asked to write books, and you’ll have all the work you could ever want.
And is choosing a specialty hard?
Yep. It is. But the payoffs are enormous, and if you want to really increase your effective hourly rate then it’s one of the best ways to do it.
We’ve covered some heavy principles here. We’ve talked about the stupidity of hourly billing, and how daily, weekly, or fixed rates are even better. We’ve covered value pricing, and price anchoring. We’ve talked about specializing and targeting a specific market vertical.
And when you add all these together you’ll be able to raise your rates. You’ll be able to switch to better billing methods, which will increase your effective hourly rate. And soon enough, with a some hustle and some courage you’ll have an effective rate well above $150 per hour. I’ve done it. And if I can do it, you can do it.
P.S. If you want to start freelancing you have two options. You can wait, patiently, while I post new articles. Or, if you want to start freelancing and earning money this week, I have a course you can take. By taking the course you’ll learn how to specialize, how to find clients, and how to price your services. So sign up now, and I’ll teach you how you can earn more money freelancing and have more time to do what you want to do in life.