Daily rates | Dave Smith

A year ago I switched from charging project costs to daily rates. It has been transformative on many fronts.

Everything below comes with the following preface/caveat:

1. There is no universally perfect charging method: I’m writing this to highlight something that has worked for me
2. These thoughts are somewhat of a work-in-progress
3. Your mileage will vary

Until last year I had quoted almost exclusively project rates. This worked fine, but I found it difficult to find the right balance. A few years ago I read Sanctuary Computer’s articles about value pricing and quoting technology: these articles really appealed to me.

The popularity of value pricing has led to pricing gaining a bad reputation among freelancers and independents over time. I had never been comfortable with bargain pricing and found some issues with project-by-project billing, so the switch to time-based quoting was a revelation.

Here are some of the benefits I’ve experienced with pricing by the day:

1. Customers fundamentally understand the concept of days much easier.
   Whether it’s a one-week discovery period or a three-week design phase, I’ve found that clients immediately understand that things take time – something that can be lost in a lump sum (whether broken down or not). In practice, this has meant they have become more comfortable accepting estimates because it is clearer where the money is going.
2. There is no range or over/undercharging.
   There is an inherent flexibility to charging during the day. Describing extra features in terms of extra days is much easier than “this is out of scope” conversations (something I found consistently difficult as a people pleaser).
3. Providing a fixed-cost quote requires a lot of work in advance.
   Instead, I now call clients and usually propose a short discovery phase as the first assignment. This has a number of advantages:
   1. At the end of the discovery phase, we decide on the best next steps and estimate the days required for future phases. We will adjust the scope/features as we learn more.

      When I stated fixed fees, I felt forced to establish the scope before we knew what the problems/solutions might be. This increases the risk of conversations that are out of scope or – worse – result in something that we know is not the best solution because we set the quote before starting work

   2. Customers who accept this are more likely to accept a flexible working approach (i.e. it is an indirect qualification)
   3. The risk of spending hours on upfront discovery is reduced/eliminated (pure anecdata, but every time I suggested a paid discovery phase to fix a scope it was always rejected)
4. My agenda is easier to plan
   There are only so many days in the month, so I have a good handle on my availability.
5. I’ve found it’s much easier to set aside days for requests/small projects.
   When I quoted by project, I felt like I had less clarity in my agenda and found it harder to fit these things in.
6. Income is easier to predict.
   I invoice each month in arrears for the work carried out that month. That means:
   1. The chance of a milestone payment delay is eliminated because I get paid when I work (although delays can still happen of course)
   2. There is no ambiguity about when to invoice (i.e. a feature has been completed but we are waiting for feedback/content/etc.)
7. For some types of customers I offer a rate reduction and daily rates make it easier to demonstrate this.
8. You can see more quickly whether a project is viable.
   If I were charging project rates, it would be very tempting to say yes to a small project that wasn’t viable. If I make an estimate in days, it becomes crystal clear when one or more phases are unrealistically short or difficult from an availability perspective.

I am aware that some of my discomfort around managing project rates is not insurmountable (i.e. ‘out-of-scope conversations’). Changing the way I bill has helped reduce some of the inherent frictions I encountered with project-based pricing, and I have generally found new frictions to be easier to resolve.

Without getting into trouble, there are two common objections to time-based pricing:

1. Invoicing on time hurts efficiency.
   This is partly reflected in the daily rate (which is not low). More importantly, I’m not convinced that everything gets faster/easier the more I learn. Some things do, but other things take longer because I recognize that there are more possible solutions to a problem. The more you know, the more you realize that you don’t know.
2. Affordable pricing allows you to increase rates for larger companies.
   I think this can also be addressed through daily rates. There are plenty of legitimate reasons to increase a rate or daily estimate for larger companies: for example, additional meetings/processes/stakeholders, usage rights, validation, etc.

On balance, I found this new way of charging incredibly positive. I’m only a year into it, so things may change, but for now I’m sticking with this.