Under-pricing my work cost me a lot during my freelancing days, so I'll comment on that directly here.
The best advice I got was from my uncle who worked in the tech industry in the 80's, which is to take your normal hourly rate and multiply it by 3. Or, take what you would be making full time, pro-rate it, and do the same.
This might sound high, but the easiest way to think about it is as follows:
- The first 1x is for your normal salary, as if you had a full time job. You are producing a product, or your time costs money, and this is the price.
- The second 2x is for "backoffice" or "cost of doing business" expenses. This is everything from accountants to lawyers, gasoline for trips, software licenses, hardware costs, office rent, etc. This stuff adds up and you should remember to account for it.
- The third 3x is for profit. You're running a business, you're shouldering risk, and should profit from that risk. Also more practically, there will be boom times and bust times, and you need to weather the bust times with float.
All of the above is to say: If you are negotiating a price, especially if you are not used to negotiating prices, think of the highest price you can say with a straight face. It's often more right than you think.
As a final note, having been in a position of hiring freelancers in the past, don't forget that the value you put on money it often completely different than the client who hires you. For you, that money is your dinner. For a company, your cost is nothing if it gets them another advantage, such as a key BD contract or a stronger foothold in a 20m market. I believe the negotiating term is "trading things of unequal value".
Add in a fourth X for taxes/social security/retirement/whatever - depends on your country, but as a freelancer or consultant, you'll carry 100% of this burden/investment, while in 'normal employment' that'd come out of money that's not included in your listed salary.
Under-pricing my work cost me a lot during my freelancing days, so I'll comment on that directly here.
The best advice I got was from my uncle who worked in the tech industry in the 80's, which is to take your normal hourly rate and multiply it by 3. Or, take what you would be making full time, pro-rate it, and do the same.
This might sound high, but the easiest way to think about it is as follows:
- The first 1x is for your normal salary, as if you had a full time job. You are producing a product, or your time costs money, and this is the price.
- The second 2x is for "backoffice" or "cost of doing business" expenses. This is everything from accountants to lawyers, gasoline for trips, software licenses, hardware costs, office rent, etc. This stuff adds up and you should remember to account for it.
- The third 3x is for profit. You're running a business, you're shouldering risk, and should profit from that risk. Also more practically, there will be boom times and bust times, and you need to weather the bust times with float.
All of the above is to say: If you are negotiating a price, especially if you are not used to negotiating prices, think of the highest price you can say with a straight face. It's often more right than you think.
As a final note, having been in a position of hiring freelancers in the past, don't forget that the value you put on money it often completely different than the client who hires you. For you, that money is your dinner. For a company, your cost is nothing if it gets them another advantage, such as a key BD contract or a stronger foothold in a 20m market. I believe the negotiating term is "trading things of unequal value".