How to determine the rate to charge for software projects – part 1


Charge by time (least best)

The first and the most common way to charge for software projects is to charge by time. You set an hourly or day rate, and the client buys your time. Personally, this is my least favourite way to charge. However, I still do charge using this method for some projects as those circumstances require it.

Oglasi

Let’s say for a moment that you need to charge on a time basis. The question that gets asked often is how much should I charge per hour/day. What most people would do is they “look at the market rate” and charge based on their skill and experience.

This strategy is wrong for the reason that market rates are nothing but a statistic based on the amount people charge. It can increase or decrease based on how the people in the industry adjust their prices. Furthermore, you are letting external forces determine your rate.

A question that you would be better asking is how much do you want to make. A simple example is, say you want to make $50,000 a year. You divide the number up by 12 months, 22 working days a month, and 8 hours a day, and you would come to an hourly rate of about $23/hour. Something that would require a bit more advanced calculation is to take into account the downtime when you do not have any projects, or are on vacation, but we won’t get into that. I’m sure you can do the math for that.

Oglasi

However, this is not the best way to charge for several reasons. Firstly, it ties the amount of money you can make with your time. You get paid for the time that you spend working, and the amount you earn is capped by the amount of time you have. Besides that, it provides no incentive for you to work faster, which is terrible for both you and your client.

There are certain cases where this method is required. It is when you and your clients are not sure of the project requirements. Therefore, a flexible term such as this is required.

Oglasi

Advantage

  • Flexible
  • Suitable for projects where the requirements are unclear or changing.

Disadvantage

  • The money you make is tied to your time, your not earning if you are not working
  • Earning is capped by your time
  • No incentive to work faster

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