Day Rates

One year ago, I switched from charging project fees to day rates. It’s been transformative on lots of fronts.

Everything below comes with the following preface/caveat:

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

Until last year, I’d almost exclusively quoted project rates. This had worked ok but I’d found it difficult to get the balance right. A couple of years ago, I read Sanctuary Computer’s pieces on value pricing and quoting technology: these pieces strongly resonated with me.

The popularity of value pricing has led to pricing by time getting a bad rep among freelancers and independents. I’d never felt comfortable with value pricing, and found some issues in charging by project, so switching to time-based quoting has been a revelation.

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

1. Clients fundamentally understand the concept of days much more easily.
   Whether that’s pitching a week-long discovery period or a three week design phase, I’ve noticed that clients instantly understand that things take time – something that can be lost in a flat-fee (broken down or otherwise). In practice, this has meant they’ve accepted estimates more readily as it’s clearer to see where the money is going.
2. There’s no scope creep or over/under-charging.
   There’s an inherent flexibility to charging by day. Describing additional features in terms of extra days is much easier than ‘this is out-of-scope’ conversations (something I found perpetually tricky as a people-pleaser).
3. Delivering a fixed-cost quote requires a lot of upfront work.
   Instead of this, I now have a call with clients and usually suggest a short discovery phase as the first engagement. This has a couple of benefits:
   
   
   1. At the end of the discovery phase, we’ll decide on the best next steps and estimate the days needed for future phases. We adapt the scope/features as we learn more.
      
      When I used to quote flat fees, I’d feel forced to fix the scope before we know what the problems are/solutions might be. This increases the risk of ‘out-of-scope’ conversations or – worse – delivering something we know isn’t the best solution because we fixed the quote before we started working
   2. Clients who accept this are more likely to accept a flexible working approach (i.e. it’s an indirect qualifier)
   3. The risk of spending hours on upfront discovery is reduced/eradicated (pure anecdata, but every time I suggested a paid discovery phase to fix a scope, it was always rejected)
4. My calendar is easier to plan
   There are only so many days in the month, so I have a decent handle on my availability.
5. I’ve found it much easier to squeeze in days for requests/small projects.
   When I quoted by project, I felt I had less clarity in my calendar and found fitting these things in more difficult.
6. Income is easier to predict.
   I bill every month in arrears for the work completed that month. That means:
   1. The chance of delay for a milestone-related payment is eradicated as I’m paid when I work (though delays can still happen, of course)
   2. There’s no ambiguity in knowing when to bill (i.e. a feature is complete but we’re waiting for feedback/content/etc)
7. I offer a reduction in rate for some types of clients and day rates make it easier to demonstrate this.
8. It’s quicker to see whether a project is viable.
   When I charged project rates, it would be very tempting to say “yes” to a small project that wasn’t viable. When I put together an estimate in days, it becomes crystal clear when one or more phases are unrealistically short or difficult from an availability perspective.

I’m aware that some of my discomfort around project rate management are not insurmountable (i.e. ‘out-of-scope’ conversations). Changing the way I charge has helped to reduce some of the inherent frictions I found with project-based pricing, and I’ve generally found any new frictions to be easier to handle.

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

1. Billing by time penalises efficiency.
   This is partly reflected in the day rate (i.e. it’s not low). More importantly, I’m not convinced that everything gets quicker/easier as I learn more. Some things do, but other things take longer as I recognise there are more potential solutions to a problem. The more you know, the more you realise you don’t know.
2. Value pricing lets you increase rates for bigger businesses.
   I think this can be addressed through day rates, too. There are plenty of legitimate reasons to increase a rate or day estimate for larger companies: e.g. additional meetings/processes/stakeholders, usage rights, validation, etc.

On balance, I’ve found this new method of charging to be incredibly positive. I’m only a year in, so things may change, but I’ll be sticking with this for now.