How much should I charge for my software consulting work?
September 22, 2016 3:32 PM   Subscribe

I've been approached by two independent companies, one in the UK and one in the US about providing specialised consulting work (development and troubleshooting) for them. The problem domain is networking and systems software. I'm looking for advice on how much to charge. More details inside.

The work will be systems level profiling, debugging and optimising network code at the operating system and application level to reduce their OPEX/CAPEX spend, based on a very specific technology for which there are few people in the world (think Mellanox, Chelsio, Omnipath).

I've been approached as I've demonstrated (through open source code and an industry name, being recommended by the manufacturer of the technology) my expertise and skill with both the technology.

I am a little lost how much to charge an hour. The US company is Silicon Valley based, the UK company is London based. In both instances their engineers have tried and failed to get the performance increases they seek.

What framework should I be using for charging them? How much would you estimate work like this would be worth?

I want to be fair to them but I also want to maximise returns on my time.
posted by gadha to Work & Money (18 answers total) 6 users marked this as a favorite
How much will this actually save them in real dollars? Is your time worth 5% of that? 10? Divide by a rough estimate of your time.
posted by sammyo at 3:42 PM on September 22, 2016 [1 favorite]

But yeah, don't listen to me, I got nuth'n for real. But heck go for a big number, if they gasp, double it, no, chop 30%.
posted by sammyo at 3:44 PM on September 22, 2016

Be careful asking others to help you set hourly rates. This can be seen as price-fixing.

I would be tempted to bill them based on performance milestones, however, assuming you are confident you can meet them. Figure out a range of much time you'll need to meet their goals and make sure you're happy with your hourly even if it takes longer than you expect.
posted by kindall at 3:58 PM on September 22, 2016 [1 favorite]

I see 125-150 per hour for software engineers these days. This sounds super specialized where 150-250+ might be okay.

Honestly I might try for 250 and be willing to work backwards.

Totally disagree on milestone billing. Do time and materials and get paid for the time you spend and your margin is consistent and set.
posted by bitdamaged at 4:23 PM on September 22, 2016 [6 favorites]

What would you charge to work for them on a per hour basis? Contract work can be up to 2-3x times your hourly employee rate (give or take, usually erroring on the side of higher than lower if you've got serious chops). I'd either charge them that as an hourly rate to do the job, or spend some time to fully understand the work required, estimate how long you think it would take, add a 20% WTF factor (because things are never as they seem), and charge that.

Because you seem to be in high demand with a rare skill set, I'd definitely start high.
posted by cgg at 4:24 PM on September 22, 2016 [1 favorite]

a few more points.

One 250 might be low - your knowledge seems super specialized.

Two how long are these engagements expected to last?

If it's less then a month or so I'd consider adding a hefty premium to your rate.
posted by bitdamaged at 4:29 PM on September 22, 2016 [4 favorites]

I used to collect all kinds of little tidbits of rules of thumb about entrepreneurial stuff. One rule of thumb for consulting work: For every billable hour, there will be an unbillable hour of work.

So, you should probably double whatever you feel you need as your hourly rate. So, for example, if this kind of work pays $150/hour as an employee, you need to at least double that. Also keep in mind that people who are regular employees typically also get benefits on top of their hourly rate. So, you may need to pad that further to cover things like health insurance.
posted by Michele in California at 4:35 PM on September 22, 2016 [2 favorites]

Are you giving up opportunities to take on this work? Are you having to use leave from a day job in order to do it? Is this ongoing? Will they be keeping you on retainer? How will it affect the taxes that you owe? If you're in a high tax bracket in England, even if you're getting a lot of money, if a lot of it is going to taxes while taking away time you'd rather be doing other things with, it may not be worth it to you at lower price points. Those are things that needs to be priced in.

In the US, I'd expect expert solo consultants to charge somewhere between $150-400+/hour, plus possibly charging travel costs. My back of the napkin figure for consulting rates is to double the hourly rate of a salaried employee. Senior people in Silicon Valley should be making $200K+/year, which is ~$100/hour, so $200/hour is a reasonable starting point.

In both instances their engineers have tried and failed to get the performance increases they seek.

How confident are you that you can solve the problem and what type of assurances are you willing to give them? Can you set reasonable breakpoints to call off the project if it's not going to succeed? If you're delivering solutions that no one else can, it's fine to be very expensive, but running up a large bill and not being able to do better than their team doesn't look good.
posted by Candleman at 4:36 PM on September 22, 2016 [3 favorites]

Agree with Candleman, I wouldn't start lower than $200/hr. It's really hard for anyone else to effectively set your price unfortunately, but $200/hr for serious specialization is nothing.
posted by so fucking future at 4:58 PM on September 22, 2016 [2 favorites]

$ Hourly, with retainer fee set on minimum total hours and minimum billable block of 30 minutes.

Retainer fee works like this, to expect you to work for them, at a minimum you will work 10 hours at $X/hr. This ensures that they are not jerking you around, same goes for your minimum billable block. Asking time-wasting questions gets expensive quickly.
posted by Nanukthedog at 6:17 PM on September 22, 2016 [1 favorite]

the company i work for charges clients about twice what they pay me. which is basically what michele is saying above.
posted by andrewcooke at 6:18 PM on September 22, 2016

It really depends on the nature of your engagement. Will this be a one time thing, or an ongoing, part time thing?

There are a couple of things you can use to figure out our price. Here's the ones I'd use:
- How much is this job going to cost you? For an hour our doing this, what do you need in software, équipement, etc - anything that is part of your cost of doing business, you should factor in. This is your absolute lower bound, don't price under this.
- What's the value of this job to you? Would you be doing something else bringing more joy/more revenue if you weren't doing this ? Is this something worth investing into to get other jobs? If it turns out to be not great, can you get out of it easily?
- what's the value of the job to the company? How much money will they save? Are you helping a specific group reach a target they would miss instead? All these are factors to up your price
- How much is the current approach already costing them. Say they used already x engineers for y days and couldn't solve it. It means that they're currently investing xy * $daily_engineer_cost in it. It's a good thing to be either cheaper than that for an ongoing engagement, or slightly over for a short engagement.
- there is often special budget sets for training. If you're delivering knowledge for a short period of time, be even more expensive.

When I was doing more consulting, I'd share these with my clients - This way, they understand my pricing, and can also use that internally to ask for the right budget.

Fwiw, I prefered fixed costs engagements tied to a success milestone rather than an hourly engagement, but it really depends on your personality and the ability to set realistically c milestones - in the beginning, it might be safer for you to charge for times and means.

So, no simple answer, but a good rule of thumb is : ask for more than you think you need, don't go below your lower bound. The less hours you sell, the more expensive they should be.
posted by motdiem2 at 6:23 PM on September 22, 2016 [1 favorite]

Rule of thumb for all consulting work: take the salary in Thousands of dollar / year and covert that number to hourly wage. $50k/year = $50/hour. Since there are 2000 billable hours in a year, this means you'd actually be making 2x as much (e.g. $100K/year) if you were billing hourly.

But, of course as a consultant you rarely can bill for 2000 billable hours, and consultants have big overhead. So as a rough estimate, it works out OK.

You sound like you have pro level specialist knowledge, so I'd probably take these general numbers and double or triple them. Try $350/hour to start, and see what they say.
posted by soylent00FF00 at 6:45 PM on September 22, 2016 [1 favorite]

For development work that specialized, $300-500/hr seems reasonable.
posted by signalnine at 8:30 PM on September 22, 2016

Time and materials - $250 per hour. I know folks who have been billed at $150 per hour for non-specialized technology work that's basically a commodity. I know an SAP guy who was billed at $275 per hour before Y2K, when SAP was a thing. This sounds *far* more specialized than that.

If you have to give them a project price, give it your absolute, 100% best effort at the number of hours, and then double it. That advice was given to me by someone who job costed work multiple times per year that took 1,000+ employees to complete.
posted by cnc at 8:31 PM on September 22, 2016

the difference between employment and independent contracting discusses some issues to be aware of.
posted by Cozybee at 10:17 PM on September 22, 2016 [1 favorite]

absolutely no milestone or project completion billing. i'm just a run of the mill dev/devops and i won't tolerate that in my consulting. you have a very particular skill. $200 is the absolute floor here and i would try much more if i were in your position.
posted by lescour at 11:17 AM on September 23, 2016

I work at a large law firm in IT, and the standard rate for any external IT Consultants or Professional Services is $250/HR USD.
posted by blue_beetle at 9:33 PM on September 23, 2016

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