💵 Is there any resource for justifying the hourly rate? I am switching within my current company from a full-time employee to a freelancer. 👨🏽‍💻 I am planning to quote between 2x-3x of my current salary as my hourly rate. How do I defend that number? If this is has been previously asked, point me to a previous discussion or resource from the internet. TIA! 🙏🏽

First of all, don't bill hourly. Second, don't bill hourly. Now that that is out of the way, let's talk negotiation. If the company is going to pay you more money, then they need to accept you are bringing more value, or they're promoting you because you're already providing the value and they acknowledge it. Don't think from your perspective, think from the company's perspective. And from the company representative's perspective. If they're your superior and they suddenly think you'll make more money than them, the negotiation will go poorly for you. Standard ratios for contractors working full time is about 1.5x equivalent employee salary. If you're charging more, you need to know why. "I want more money" isn't an answer, unless it's a deal breaker, like "raise or I leave" (in more polite words, of course).

Depends on how you phrase. As swanand said, don’t bill hourly. And talk in terms of value. Otherwise you’re just a commodity. There are only two ways you can provide value to a buisness, a. by saving them money (cutting costs) or b. by increasing their revenue. Phrase it has how you’re going to provide value to them and charge based on value you’re providing. Example: * as freelancer * Business: I want to build a website Freelancer: I charge $50/hour and it’ll take me 30 hours to build this website. You get $1500 in this case * as consultant that provides values * Buisness: I want to build a website You: hmm. why do you want to build a website? What’s missing? Buisness: hmm. I want more leads You: how do you currently get a lead? And how much does it cost you get a lead? And what’s your converstion rate? Buisness: We currently get leads through offline medium. It takes me 1 in 10 leads converts. I get $30k per customer. You: hmm. What if I can get you at least one lead a day. how does that sound ? Buisness: That sounds great. You: I’ll charge $30k. Buisness: Sounds right to me (they can see that you’re giving them a profit of at least $90k a month) In both the cases, you’re doing exactly the same. But you earn way more in the later.

I understand the value around “not charging hourly”. It’s a practical long-term advice and works great if you are moving towards becoming a domain specific generalist. I bill hourly! When working with large scale or enterprise clients, it’s very common to have multiple projects/tasks on-going with multiple project managers , all at the same time. It’ll be impractical to draft a proposal from scratch for each of them. I don’t think hourly rates are that bad. I’d go with a pre-defined contract only for the first or super well defined projects. Even with contracts, there’s hours of work, hourly cost for additional work and support is included in contract. Also, pricing on value work here as well and is based on your placement and quality of work (same case as value pricing). It’s easy to find folks earning 3 digits (USD) hourly and numbers go well upto 4 digits depending on specialisation. PS: For the switch, hourly would be a better transition (Existing relation with client, dependability - not the best way to try out all the details of value pricing if you haven’t done before). You can always try value based pricing with a new client.

(We're definitely deviating from the original question now -- I will come back to it in a jiffy) FWIW, I am not talking about or recommending value based pricing for OP, since that's not what he asked. A topic for another time. From a negotiation perspective, it's critical to understand what is changing for both the concerned parties. Company likely doesn't care about hourly -- for them it's one set of costs to another set of costs, likely increased costs. From OP's perspective: hourly shouldn't matter -- how much were you earning before and how much are you earning now. The delta is what matters, since there's already a working relationship.

Sorry for the lack of context. Here's why I am thinking of an hourly rate. 1. This is a startup I joined a year ago at the same salary as my previous employer. I took the deal because of the promise of a future payout when the company started doing better. What has changed since is that the management is changing and people who would have ensured the promise was kept are leaving. So I have already been working at a lower than expected salary for a year. 2. I have been working on the main product as both an engineering manager as well as a product manager (more than what I signed up for) 3. For me, it is a "raise or I leave" argument because I am already serving my extended notice (been 4 months), part of the management that's leaving had asked me to stay longer until they find a replacement. I obliged because I was on very good terms with them. Now, I don't really wish to stay back for the goodwill while accepting unfair compensation. If I don't get the hourly rate within the range I expect, I don't mind losing the client. 4. I am thinking of extending my work with the company because it's a time when the company needs me and I want to recoup my losses (worked at a lower salary.) Thanks @dry-waitress-7852, that totally makes sense for my scenario, because the new management is mostly clueless about what a software project entails. It will be very difficult to define the deliverables and even more challenging to make them understand the details of the proposal. So, how do I defend my numbers?

@curved-minister-23111 1. Do you have a competing offer? If not, try to get one. It will help your confidence and your leverage. 2. I would still reiterate my original advice: don't think hourly: a) think a salary increment and a change from employment to contract. And b) Think weekly. Or daily. Hourly is a distraction. Renting your time is not. Charging by time is still good, specially for longer term arrangements. 3. You already have a thing going for you: a promised raise was not given. 4. But more than that, the biggest thing you have going for you, is they want to retain you. Understand that no matter how you defend your demand, if the company is not in a position to meet it, it won't meet it. Your calculation is this: Contractor means no holidays, no insurance, no perks, no stock (in some cases). Which means your new remuneration = old salary + added expenses + desired increment

Thanks @victorious-energy-56764 that's a good amount of meat to work with!

I am curious how the "don't bill hourly" thing is working out in real world. I've read a lot of feel-good articles about it. But in practice at least with large clients, the alternatives are hard IMO. And the fact that a "market rate" exists is a good indication. I will be glad if anyone can give real examples and change my view. How many of you know how much value you are adding to the customer, to the point you feel confident negotiating?

See my earlier comment about renting out time and weekly vs hourly billing. Value based pricing is damn hard to pull off and needs you to have a certain reputation. When the leads chase you, engage with value based pricing. When you chase the lead, try if you can get a sense of the value. You can't put a value to "Fix our ingestion pipeline" or "Improve the latency at p99 from > 5min to < 10 sec"

Exactly, it is hard to pull off, and requires a stellar reputation. It is interesting why that fine print is conveniently omitted in most of the "how to" advice on this topic. I think people like patio11 started the whole genre on HN and elsewhere. And it sells because it tells people what they want to hear. Once you reach a point where leads are chasing you, you would rather be auctioning your time than searching for advice on how to price it.

Charging hourly is not the best but justifying a project rate is extremely hard. So, it really boils down to what you're comfortable with. If you are a good negotiator and can confidently justify a project rate, go for it. Else, just quote an hourly rate that you think is fair and you won't feel the need to justify it.