Why Your Rates Are Painfully Lower Than They Should Be
Posted April 14, 2008 in Business
When you take on a new project, you take on a very specific per-hour rate – either an agreed upon rate ($40/hr, and I told the client it should take about 10 hours) or a per project rate ($400, but I think it will take 10 hours, so that’s $40/hr). But for far too many freelancers, that rate is never, ever achieved. In fact, most will face the reality that they make far less than their intended rate. Why so? Because a) they fail to estimate the scope of the project correctly, and b) they don’t get honest with how long things really take.
The Accidental Lies We Tell Ourselves
Take web design for an example.
- You think back to the last site you made and think, “Hell, I did that in 10 hours. Easy peasy!”
- You tell Mr. Client it’ll be $400.
- You get to work.
Then reality sets in.
- Mr. Client’s site was a little more complicated than yours was, so it takes longer to code.
- Mr. Client isn’t living in your head like you are, so you have a lot of back and forth email / phone calls / web conferences to get clarity on stuff.
- Your computer keeps crashing for no good reason. It didn’t do that last time.
Suddenly 10 hours comes and goes. So does 15. Soon, your rate-per-hour has taken a huge turn for the worse.
The Easy Way To Make Sure This Never Happens
You want an easy way? Get a magic wand. There is no easy way – delays, setbacks and unforeseen events are just a fact of life. But they don’t have to affect your profits if you learn to become a better estimator of how long things really take.
And the way to figure out how long things really take is to track how long things really take.
That means when you sit down to work on a project, keep a daily log and track how long you expect things to take and how long they really do take. Most people will never do this because it’s (gasp!) work. Then they moan and complain because they are working too hard to make a living. Don’t be one of these people.
Tracking Time Is Your Way To Stress-Free Profits
Keeping a daily log is a magically delicious way to make sure you don’t water down your rates on upcoming projects, because of the power of awareness:
- You promise a project for $400, thinking it should take 10 hours (yay, $40/hr!)
- Harsh reality comes a knockin’; the project takes 15 (and you track this)
- You smack yourself, realizing you only made $27/hr after all.
- Next project comes around – but this time your wiser, wants to make $40/hr self says “That’ll be $600,bub.”
- The project takes 15 hours, though you tried to do it in 10. But you still win!
It’s not always this cut and dry, but the more you track how long things really take, the more you realize that a certain amount of wiggle room has to be factored into all projects. And by tracking your results, that estimate becomes more accurate over time.
Which means you know to adjust your project details/rates so you’re getting the pay you want, and you win. Huzzah.
Now start trackin’, boss. Your rates depend on it.
Dave
(For more rockin’ good tips, head over to Dave’s productivity blog and enjoy.)
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About the author: Dave Navarro is a business productivity coach who loves showing freelancers how to make more money and have more time for themselves. Get more of the good stuff at Rock Your Day or follow Dave on Twitter.
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22 Comments
freelancersky
April 14th, 2008 at 4:43 amYou are right,we should estimate the real working time. In my opinion,if you think a project will take you 3 hours,it will take at least 6 hours in fact. So be honest and smart .
JamieO
April 14th, 2008 at 6:54 amAnyone have recommendations of open source time tracking software they have used with good success?
Dave Navarro
April 14th, 2008 at 7:09 amHave you checked out Klok? Just started using it last week to test it out.
http://klok.mcgraphix.com/klok/index.htm
Avonelle Lovhaug
April 14th, 2008 at 8:23 amI’ll admit I’m not doing this on for all my projects, but truthfully I’m less worried about the smaller efforts – I seem to hit the mark for my estimating on those fairly well. But I’m a bit worried that for larger projects (those longer than a week) that my estimating skills may be less precise. Since I charge by the project, that could be dangerous!
So, I’m tracking my time on this one. So far so good. It is painful to do, but I agree that the results will be well worth it. Good tip!
Adrian | Rubiqube
April 14th, 2008 at 10:03 amGreat post, Dave! And couldn’t come at a better time. I’m doing this “keeping track of time” thing for a while now. I was wondering whether I’m the only time obsessed freelancer out there. It’s reassuring to know that keeping track of time is something other freelancers do as well. ;)
At first, I did it only on hourly rate kind of projects, but now I do it all the time and it helps a lot!
@JamieO: You might want to check this: http://rubiqube.com/paymo-free-web-based-time-tracking/. Like I said, I started using this app and it’s awesome. It has clients, projects, reports, etc.
Stefanie
April 14th, 2008 at 10:19 amI’ve definitely been guilty of underpricing myself in the past, but it’s usually because the market “seems” to demand it. Maybe it doesn’t, but I guess you have to try to find out.
JudyA
April 14th, 2008 at 3:32 pmI see too many hourly rates set by “what I need to earn”. Tracking the time required to accomplish a project seems to be a better way of setting the rate. I need to be worth what I need to earn.
Gary McMahon
April 15th, 2008 at 12:32 amAs a consulting ecologist, my problem has always been trying to determine exactly how much time something will take, as most of my projects are completley different (surveys over different areas/terrain etc.
I’ve been using Paymo free for the past 2 months and cant believe its free. I’ve scared myself on how little I have made on some projects, but now, at least I know.
BTW, I asked paymo for some tech advice, not expecting a prompt answere being a freebe, but recieved a response within 12 hours (I live in Australia, hence way different time zones)- amazing.
my business costings and plannigs are now incorporating my new information and existing clients are not balking at the increase in quoting as I can now back up with data.
Cheers from sunny West Oz.
Michael Martine, Blog Consultant
April 15th, 2008 at 10:44 pmHere’s another drain on your time and which lowers your hourly or project rate: procrastination. The more you procrastinate on the next unpleasant task in a project, the longer it drags out. You’re preventing yourself from completing more projects in a year (to pick an arbitrary amount of time) which means you are earning less money.
Not good!
Lee
April 21st, 2008 at 2:52 amNice post Dave. I started to ensure that I keep track of all my work times now so that after a project is completed I can go back and look over it and make sure I charged the right amount.
I use http://www.slimtimer.com, which is a simple pop-up screen that requires you to start and stop time. Very easy to use.
JB Design and Photo
November 12th, 2008 at 5:30 pmI personally use timelog to track my hours on a project, plus it syncs up with my ical and with a little magic my google calendar, so I have the information available to me just about anywhere. It’s really important to know just how long a project is going to take you (and tracking the project to find out the final hours required) so that you know how much to charge and compensate accordingly (on small jobs even an extra hour or two gets costly).
Tracy Ibarra
November 13th, 2008 at 10:50 pmGreat article. So true. We need to be honest with ourselves first if any profit is going to be made. If not, you might as well give your designs as gifts… + with a red ribbon.
Dietmar
November 17th, 2008 at 10:09 amThanks a lot for this great hints. I will take this advices for my next project!!!
Cheers
Dietmar
Believe Design
December 1st, 2008 at 8:01 amGreat post – also loved the look of the Klok app – have been needing something like this for a while (and a great opportunity to start investigating Adobe AIR too…)
Thanks again!
Matt
January 18th, 2009 at 4:05 amI don’t understand how so many people have so much trouble billing clients. The best method to avoid this is to charge hourly and give them a estimate of hours and $. I then assure them that I will do my best to stick to that budget given how many hours that estimate will yield.If the project goes over in hours, they pay the extra as a separate invoice, and I usually give them a couple extra weeks time to pay the overages. This is more than fair to them. It is also fair to me because I end up compensated for every hour of work. And because the estimates are usually underestimated, I always bill for at least that amount. Another fair deal for the client is that by doing it hourly, if the project takes less time, due to a removal of a feature or any other reason, they do not pay a flat rate which would have left them paying extra. Its a win-win situation. Larger companies benefit from flat rates because there is more room for profit margin and they can usually take that risk of loosing money. As a freelancer, you cant afford to be loosing money on a project. You loose time, you loose money.
To track time: use a freeshbooks widget(or iphone app) or the stopwatch on the iphone.
Paul d'Aoust
April 21st, 2009 at 3:39 pmI thought I’d add two other time tracker programs, both web-based:
Toggl http://www.toggl.com/
A hosted service, which I’m not too fond of, but their basic time tracker is free and you can get a desktop version of their web app. Pretty handy.
OpenGoo http://www.opengoo.org/
My current lifesaver — allows me to keep track of my time in minute detail, which is great for when I want to do estimates for future projects. It’s also got a calendar, address book, milestones/projects, etc, etc, etc. It’s open-source and installs on your web server, but they’ve also started to offer hosted services for a fee.
Susan Jackman
June 25th, 2009 at 4:57 pmI agree with Matt.
I give my clients an estimate (usually a range) and bill them for exactly how many hours it takes. Not only does it provide all of the positive aspects that Matt mentioned, like not under billing or over billing, but it also helps the clients respect your time. Since I stopped doing bid or flat rate projects I have been attracting better clients who take the time to be sure and clear on what they want and it scares off the clients that would have been more trouble than they where worth. I am no longer doing “free work” and they aren’t charged for things they don’t need or decide not to do. If I”m fast and efficient that’s even more of an advantage for them. I’m not sure it would be the way to go for someone totally new to the field, but if you have enough skill and experience it’s the way to go.
Megha
December 9th, 2011 at 5:51 amNice tips Dave. I faced the same issues some time back and then I started using Replicon Time tracking software for managing time to make sure that I charge the right amount.
http://www.replicon.com/time-tracking-software.aspx
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