How I can charge so much(eikonoklastes.org)
eikonoklastes.org
How I can charge so much
http://eikonoklastes.org/articles/2007/09/26/how-i-can-charge-so-much
9 comments
There's math behind the "If half the people don't say 'fuck you', you're charging too little" principle. If you double your prices, you're taking in twice as much revenue. You can afford to lose half your customers, and you'll still be making the same amount. However, you'll spend half as much energy doing so.
It's more striking if you have overhead. Say you charge $5000 for some job, but have expenses of $4000 for it. If you double your prices, you now make $10K, but your expenses remain constant at $4K. Your profit has gone from $1K to $6K. You could afford to lose 5/6 of your customers and still break even.
My mom charges $80/hour for elementary-school tutoring, up about $10-15/hr from when she started tutoring. None of her clients have ever blinked at a price increase. I know 20-somethings who tutor high-school math and make over $100/hr.
It's more striking if you have overhead. Say you charge $5000 for some job, but have expenses of $4000 for it. If you double your prices, you now make $10K, but your expenses remain constant at $4K. Your profit has gone from $1K to $6K. You could afford to lose 5/6 of your customers and still break even.
My mom charges $80/hour for elementary-school tutoring, up about $10-15/hr from when she started tutoring. None of her clients have ever blinked at a price increase. I know 20-somethings who tutor high-school math and make over $100/hr.
Constantly increasing your prices is a pretty fun game.
I did some basic Windows consulting a few years ago; you know, spyware removal, installing hard drives, etc. My initial rate was $50 / hour, and I was charging $90 by the end of the summer. No one so much as batted an eye at whatever number I gave them. Not a single person tried to negotiate.
I did some basic Windows consulting a few years ago; you know, spyware removal, installing hard drives, etc. My initial rate was $50 / hour, and I was charging $90 by the end of the summer. No one so much as batted an eye at whatever number I gave them. Not a single person tried to negotiate.
Yeah, I did the same with my web app scalability contracting work...started at $95/hr, and kept that rate for years, but then when I started getting sick of the business, I started cranking it up. By the end I was charging $150/hr for local work and $3k/day minimum for "have to fly to get there" jobs, and hadn't lost any customers--I was still saying, "No, I can't get out to see you until the week after next, but I'll fix the particular problem you've mentioned remotely tonight when I get back into the office."
Nice post. I especially like the "F*ck you" part. I never quite heard it said like that, but I agree.
Lessons learned from mistakes I made (and you shouldn't):
1. If they say they won't engage you because of your price, it's not because of your price. Find out the real reason.
2. If they're shopping on price, let them. You don't want them.
3. If you won't compromise your quality, then you shouldn't compromise your price.
4. If they legitimately can't afford it, then reduce scope, not price.
5. If you charge top dollar, you better deliver top quality. Otherwise, don't be surprised when word gets around and the well dries up.
Lessons learned from mistakes I made (and you shouldn't):
1. If they say they won't engage you because of your price, it's not because of your price. Find out the real reason.
2. If they're shopping on price, let them. You don't want them.
3. If you won't compromise your quality, then you shouldn't compromise your price.
4. If they legitimately can't afford it, then reduce scope, not price.
5. If you charge top dollar, you better deliver top quality. Otherwise, don't be surprised when word gets around and the well dries up.
Welcome to the crack cocaine of geekdom.
Once you figure out you can bill whatever you can negotiate, it makes it really hard to do startup work. The most dangerous part about it is that you always know you can pick up a bag of cash if you need it. When you've always got an attractive and easy "out", it's always out there calling to you. Yet another reason to do your startup when you are as young as possible.
Once you figure out you can bill whatever you can negotiate, it makes it really hard to do startup work. The most dangerous part about it is that you always know you can pick up a bag of cash if you need it. When you've always got an attractive and easy "out", it's always out there calling to you. Yet another reason to do your startup when you are as young as possible.
Agreed. My girlfriend thought I was crazy when I started turning down $1000/day local contracts and $3000/day "get on a plane" contracts to instead work on Virtualmin (for no money for the first several months, and until recently very little money).
We should talk. I'm in need of some kind of 12-step group.
Seriously. I'd like to hear more about how you managed to quit.
Seriously. I'd like to hear more about how you managed to quit.
The addiction wasn't so much mine as my clients. I had to wean them...and with enough time for them to hire someone to take my place. In the case of my biggest customer, they hired a full-time employee for the role.
I think the impetus I needed was the right business. I'd been working on Virtualmin for fun for two years...somehow it never occurred to me to make it a business for most of that time. When it finally did, it all seemed inevitable: it really felt like, from day one, that as long as I worked hard, it could not possibly fail (and that initial gut feeling is turning out to be right a couple of years later).
Some things I did to make it clear to myself that I was done with that old business:
1. Gave up my downtown Austin office. (Corner of 6th and Congress, Bank of America building...best location in the whole city.)
2. Took down the old business website. I left up all of the support materials and such (and it still gets thousands of hits per day), but I removed all contact information.
3. Gave myself deadlines for launching the new business. "The website will be launched on X, and we'll be selling products by Y."
4. Did Y Combinator. Not everybody gets to do that, but it triggered a number of changes that made the break between the old life and the new one very dramatic and difficult to go back on: I sold my 350Z and had a huge garage sale to get rid of a lot of my stuff, moved to the Valley (the getting rid of stuff is enforced when moving to the Valley--I couldn't afford as much space out here as in Austin), and didn't keep my old phone numbers.
The last one has probably been the most effective. I was still occasionally taking jobs when friends asked when I still lived in Austin. The thought process is, "Hey, what can a couple of days hurt? It'll give the new company more runway." But it slows you down, and gives you a safety net. Once I didn't have the safety net, I started thinking a lot faster and lot harder about how to increase revenues to a livable amount (I've never had a lot of big expenses, even the Z, so I had enough savings to last quite a while, but moving to the Valley dips into that pretty quickly).
NOTE: I don't have a family to feed and house. My co-founder kept his full-time job throughout all of this, because he has a family. I'm not saying the dramatic "drop everything and get serious" is the right path for everyone.
I think the impetus I needed was the right business. I'd been working on Virtualmin for fun for two years...somehow it never occurred to me to make it a business for most of that time. When it finally did, it all seemed inevitable: it really felt like, from day one, that as long as I worked hard, it could not possibly fail (and that initial gut feeling is turning out to be right a couple of years later).
Some things I did to make it clear to myself that I was done with that old business:
1. Gave up my downtown Austin office. (Corner of 6th and Congress, Bank of America building...best location in the whole city.)
2. Took down the old business website. I left up all of the support materials and such (and it still gets thousands of hits per day), but I removed all contact information.
3. Gave myself deadlines for launching the new business. "The website will be launched on X, and we'll be selling products by Y."
4. Did Y Combinator. Not everybody gets to do that, but it triggered a number of changes that made the break between the old life and the new one very dramatic and difficult to go back on: I sold my 350Z and had a huge garage sale to get rid of a lot of my stuff, moved to the Valley (the getting rid of stuff is enforced when moving to the Valley--I couldn't afford as much space out here as in Austin), and didn't keep my old phone numbers.
The last one has probably been the most effective. I was still occasionally taking jobs when friends asked when I still lived in Austin. The thought process is, "Hey, what can a couple of days hurt? It'll give the new company more runway." But it slows you down, and gives you a safety net. Once I didn't have the safety net, I started thinking a lot faster and lot harder about how to increase revenues to a livable amount (I've never had a lot of big expenses, even the Z, so I had enough savings to last quite a while, but moving to the Valley dips into that pretty quickly).
NOTE: I don't have a family to feed and house. My co-founder kept his full-time job throughout all of this, because he has a family. I'm not saying the dramatic "drop everything and get serious" is the right path for everyone.
Indeed, when people ask me what I'm up to I sometimes say "Fending off consulting and contract work."
My experience is that your billing rate is more based on your domain experience than your education/work experience. We bill around this much and have only once had anybody complain, and I'm far from an "oldster".
Yeah, we talked a bit about this at RailsConf. Experience still helps, but far more 20-somethings (especially on this forum) have the chops to justify much higher rates. I'm hoping to encourage more of them to be like you, and screw up the courage to charge more.
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Holy cow, did they get slashdotted by news.yc?
Holy cow, did they get slashdotted by news.yc?
No, I took this high-profile opportunity to geek out and fix the HTML validation down to the character encoding level, in case anyone checked. Then I accidentally committed a slightly broken version, and it took the entire site down. Then, in my panic, my darcs-fu failed me, and I couldn't get the patches to unpull properly.
Moral: even someone who looks great on paper can do something unbelievably stupid. (At least I wasn't charging anyone $100/hr. for it!)
Moral: even someone who looks great on paper can do something unbelievably stupid. (At least I wasn't charging anyone $100/hr. for it!)
Thanks. I'll probably double my per-unit commission cost for my startup product, per your inspiration.
Thank you. That was very informative. :)
You're welcome, aptly named QuestionBoy. Thanks for asking the question in the first place. :-)
The reason this works is that person writing the check is usually not spending their own money, or if they are it's a drop in the bucket for them and $5k or $15k isn't much of a difference. They've probably already wasted $100k+ in salary over time having their employees try to handle the same task before deciding to bring in someone new. The other factor is the (mistaken) thinking that if you charge a lot you must be worth a lot.
At most companies the idea of giving one of their own programmers a $20k cash bonus to do a 10 week project in 1 week is out of the question, but paying a consultant to do the same thing is no big deal.
The Expensive Consultant idea is what IBM basically lives off of these days. In their case I think it's pretty unethical, but for individuals who are truly qualified it's a win-win situation and I highly recommend it as well.