Posted by Handshake 2.0 at 5:31 AM on October 3, 2013:
I'm an independent contractor and have received a query from a potential new client for the same kind of work I just finished for my last client. The new client would be getting a faster, cheaper service from me because of experience I gained on the previous client's dime. How do I bill ethically as a contractor given I keep learning on a former client's tab?
Dear Faster, Cheaper:
How to bill is definitely a thorny issue for contractors. Each of us has finite time to give to a project, much less to our lives. How do we really bill for once-in-a-lifetime time?
Get good, bill less?
And every new project requires learning curve time. Who pays for learning? If we're trying to deepen our understanding or our work and how to do it, how do we factor in the paradox of billing by the hour when the better and more efficient we get at what we do, the less we can charge?
How much is an hour of my life worth?
What has been helpful for me when bidding on projects is to begin by valuing an hour of my time based on opportunity cost. How much would I want to be paid to be working for the client instead of living my life and spending my time on non-work, like playing with my cats or listening to an audiobook? In my mind, what rate is a fair exchange of value, i.e. time for my client's work vs. time for my life?
Next, I compare that rate to the market value for my services. I may have an inflated or deflated perception of the value of what I do. I determine a dollar amount for my hourly base rate that seems reasonable and realistic.
Time is really know-how
To that hourly base rate for time, I add a percentage for know-how. My time is only the container for what I offer a client. The knowledge, experience, skill and efficiency I pour into my hour is what the client really wants. If I have expertise to bring to the project, the know-how percentage is high. If I have just enough skill to get the job done and the client wants me to do it, the percentage is lower.
To the sum of my hourly rate plus a know-how percentage, I may add a client contact percentage based on my estimation of how much time the client might need or want. Some clients say, "Just do it!" and I don't add a percentage. Some clients want personalized explanations and reassurances or technical documentation throughout the project. That takes both time and know-how so I add a percentage.
I then deduct a learning curve percentage. All projects require ramp-up learning time. If my know-how is almost a one-to-one match for what the client needs, the percentage I add is very low. If the client wants me to learn a new skill on the client's dime, I keep the percentage low also. If I'm taking on the project because the client has provided an opportunity to learn a new skill, I deduct a higher percentage, willing to take responsibility for, and absorb the costs of, my own professional development.
When I do this calculation:
hourly base rate + know-how percentage + client contact percentage - learning curve percentage
I've derived a many-factors-weighed hourly rate for my time.
I estimate how much time I think the project will take:
weighted hourly rate x number of hours = preliminary project cost
The "more" factor
I include a final factor, Bob Pack's mantra: "It will cost more than you thought. It will take longer than you thought."
I double the preliminary project cost to determine a final project bid.
I offer the client a flat rate for the project which, to the best of my ability to determine it, is an ethically derived bid, a good price for good work, with which both of us will feel satisfied enough to want to work together again.
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Valley Business FRONT's Workplace Advice Column, written by Handshake 2.0's Anne Giles Clelland, appeared monthly in Valley Business FRONT from 2008-2012. A collection of her columns was published in Work: It's Personal.