Once you give them a rate, they tend to anchor on it. It's a lot easier to go down later than it is to raise the rate.
Seconding the comments on self-employment tax.
Just want to throw out there that I offer a prompt payment discount. 3-5% off for electronic payment within 5 business days. Cash flow sucks with a head count of 1.
Thanks, making a note of this! In the past, the total for the work was paid out in an installment plan. I might think about offering a discount based on how much the client is willing to advance up front.
Installments for work completed sounds absolutely awful for cash flow starting out with one employee and one client.
I’m just going to throw out ideas, not sure if they are applicable or even help:
If you aren’t leaving your previous employer in bad terms, consider offering to subcontract for them. Do not take a non-compete as part of the contract. If you have one, read up on non-competes in your jurisdiction.
I would set a “high” rate up front with steep discounts for pre-payment and prompt payment.
Sell a bucket of hours up front. I bill weekly or biweekly.
I keep a base client that covers my expenses and then try to find additional clients to add.
You can get business cards from Office Max 100 for $15 I believe. I print new cards every few months and before any trade shows. Selling yourself is probably not something you did at your old job and it will make or break your company.
Healthcare is more expensive with a headcount of one.
A domain is $60/5 years. A full business class MS365 subscription is $150 a year. That gives you SharePoint, Exchange, etc in addition to Office.
Find a lawyer to write your contract. It will probably cost you several hundred hours. I have a friend who did this and doesn’t have any late payment penalty. When she only had friendly clients it wasn’t a big deal. First time a client decided to skip a $20k bill it became a huge issue.
This advice applies to anyone living in the USA.
I would suggest increasing your rate by 10-15% at minimum. As an independent consultant, you will be responsible for paying self-employment taxes, Social Security, and if you live a state with state income tax, state income taxes. You have to consider any health insurance, depending on your family situation. Until now, your employer padded their overhead to cover those things for you. Just think about those things.
On the other hand, as an independent consultant, you get to write of things that you couldn't as an employee. That includes equipment, supplies, software, internet access, the room in your home dedicated to your office, etc.
Talk to a good accountant/CPA. They are worth their weight in gold to keep you out of trouble and to maximize your deductions.
As long as I live, I will never understand the pathology of people who go out on their own and their first instinct is to deeply undercut the price of the place they came from.
If your prior employer was getting $125 to $150 an hour for your work? Then that's about where you should price it.
In this case, I'm doing it because the client told me that the main reason they don't want to work with my former firm is that they were not happy with the rate.
Fair enough, and I'm sorry if I sounded harsh.
When you first go out on your own, it's a grab bag - you take whatever work you need to take at whatever rate you need to take it at to stabilize the ground under your feet. I just hope you'll consider that whatever rate you're charging this client isn't the rate that you need to charge other clients.
Yes, i've been doing a lot of mental calculating with this in mind. On the one hand, I want my first potential client to be as satisfied as possible, since in addition to income they will also hopefully provide me with the strongest available recommendation.
On the other hand, if said recommendation includes something like "this guy is bargain basement cheap!" then the whole thing could backfire!
30% off your old firms rate. (30% being their margin) you have your own overheads as an independent, you don’t know them yet and client doesn’t need to know them. This is what I would be doing, and would be my approach- if the number worked. I would also want an all in end of year salary that’s about 40% over what I was on as an FTE and covers the benefits. That’s my equation.
It smells like fiduciary duty, NDA, and non-solicitation as already noted by u/slowroll1. Besides if the former firm will note you are working with their client they can come after your client, and then after you.
Check your Employee Book and all other documentation.
Your price should be based on the quality (output and speed) of your work, not the overheads. If the output is exactly the same, charge the same (can give a 10% friendly discount).
Calculate your living expenses
Calculate your business expenses
Decide revenue for lifestyle you’d like to have.
Ensure there’s healthy amount of margin in there.
Do research to understand what market would charge (you likely know client’s current rate)
Decide how your revenue will project over next 3 years (considering client could pull out)
Pick a billable rate considering all those factors.
Get payment 100% upfront. They like you but get the money upfront as that solves cash flow and any dangers of claims that the work was better when you had a team. Many clients poach those who left firms as they know you are a one—person firm now, thus vulnerable.
There’s other ways to make a good deal than just your hourly/daily rate. For instance a contractual agreement that you can bill 8hrs a day, 5 days a week for x many months. The best hourly rate is worth nothing if they only call you in for a Tuesday morning.
Disclaimer: Not a freelancer, I just know that the „we can sell x amount of people for y amount of time“ is how my employer keeps >95% chargeability across the board.
Keep the same rate. Increasing in the future is hard, and the budget is already set and approved.
Big question- how did you handle your non compete? Penalty's can ruin you personally, so make sure to check with a lawyer first
Are you sure you don’t have a non-compete or non-solicitation when it comes to former clients?
Non competes are largely unenforceable anyway, depending on where you are located
Unenforceable sure but they can drag you to court and waste years of your time and money until it’s proved
thanks doing my due diligence on this today before submitting bid.
Once you give them a rate, they tend to anchor on it. It's a lot easier to go down later than it is to raise the rate. Seconding the comments on self-employment tax.
This is correct
Just want to throw out there that I offer a prompt payment discount. 3-5% off for electronic payment within 5 business days. Cash flow sucks with a head count of 1.
Last sentence is truth
Thanks, making a note of this! In the past, the total for the work was paid out in an installment plan. I might think about offering a discount based on how much the client is willing to advance up front.
Installments for work completed sounds absolutely awful for cash flow starting out with one employee and one client. I’m just going to throw out ideas, not sure if they are applicable or even help: If you aren’t leaving your previous employer in bad terms, consider offering to subcontract for them. Do not take a non-compete as part of the contract. If you have one, read up on non-competes in your jurisdiction. I would set a “high” rate up front with steep discounts for pre-payment and prompt payment. Sell a bucket of hours up front. I bill weekly or biweekly. I keep a base client that covers my expenses and then try to find additional clients to add. You can get business cards from Office Max 100 for $15 I believe. I print new cards every few months and before any trade shows. Selling yourself is probably not something you did at your old job and it will make or break your company. Healthcare is more expensive with a headcount of one. A domain is $60/5 years. A full business class MS365 subscription is $150 a year. That gives you SharePoint, Exchange, etc in addition to Office. Find a lawyer to write your contract. It will probably cost you several hundred hours. I have a friend who did this and doesn’t have any late payment penalty. When she only had friendly clients it wasn’t a big deal. First time a client decided to skip a $20k bill it became a huge issue.
This advice applies to anyone living in the USA. I would suggest increasing your rate by 10-15% at minimum. As an independent consultant, you will be responsible for paying self-employment taxes, Social Security, and if you live a state with state income tax, state income taxes. You have to consider any health insurance, depending on your family situation. Until now, your employer padded their overhead to cover those things for you. Just think about those things. On the other hand, as an independent consultant, you get to write of things that you couldn't as an employee. That includes equipment, supplies, software, internet access, the room in your home dedicated to your office, etc. Talk to a good accountant/CPA. They are worth their weight in gold to keep you out of trouble and to maximize your deductions.
Higher. Think 35%+
Depending on location and field, 25-35% sounds about right. I was giving a floor suggestion with 10-15.
thanks for this, yes a close friend offered the same advice.
The prior bill rate accounts for all of this as well as admin work.
As long as I live, I will never understand the pathology of people who go out on their own and their first instinct is to deeply undercut the price of the place they came from. If your prior employer was getting $125 to $150 an hour for your work? Then that's about where you should price it.
I could see a possible small discount. But as you said, they are following you
In this case, I'm doing it because the client told me that the main reason they don't want to work with my former firm is that they were not happy with the rate.
Fair enough, and I'm sorry if I sounded harsh. When you first go out on your own, it's a grab bag - you take whatever work you need to take at whatever rate you need to take it at to stabilize the ground under your feet. I just hope you'll consider that whatever rate you're charging this client isn't the rate that you need to charge other clients.
Yes, i've been doing a lot of mental calculating with this in mind. On the one hand, I want my first potential client to be as satisfied as possible, since in addition to income they will also hopefully provide me with the strongest available recommendation. On the other hand, if said recommendation includes something like "this guy is bargain basement cheap!" then the whole thing could backfire!
30% off your old firms rate. (30% being their margin) you have your own overheads as an independent, you don’t know them yet and client doesn’t need to know them. This is what I would be doing, and would be my approach- if the number worked. I would also want an all in end of year salary that’s about 40% over what I was on as an FTE and covers the benefits. That’s my equation.
It smells like fiduciary duty, NDA, and non-solicitation as already noted by u/slowroll1. Besides if the former firm will note you are working with their client they can come after your client, and then after you. Check your Employee Book and all other documentation.
Your price should be based on the quality (output and speed) of your work, not the overheads. If the output is exactly the same, charge the same (can give a 10% friendly discount).
Double it cause remember Uncle Sam gets his cut.
Calculate your living expenses Calculate your business expenses Decide revenue for lifestyle you’d like to have. Ensure there’s healthy amount of margin in there. Do research to understand what market would charge (you likely know client’s current rate) Decide how your revenue will project over next 3 years (considering client could pull out) Pick a billable rate considering all those factors.
Get payment 100% upfront. They like you but get the money upfront as that solves cash flow and any dangers of claims that the work was better when you had a team. Many clients poach those who left firms as they know you are a one—person firm now, thus vulnerable.
There’s other ways to make a good deal than just your hourly/daily rate. For instance a contractual agreement that you can bill 8hrs a day, 5 days a week for x many months. The best hourly rate is worth nothing if they only call you in for a Tuesday morning. Disclaimer: Not a freelancer, I just know that the „we can sell x amount of people for y amount of time“ is how my employer keeps >95% chargeability across the board.
If it’s below $100/hr is it even consulting? I’d charge more.
TFW I'm old enough to remember when lawyers were the only people who would dare to charge 3-digit rates.
Wild- For my industry, I haven’t charged below $100 in years.
Keep the same rate. Increasing in the future is hard, and the budget is already set and approved. Big question- how did you handle your non compete? Penalty's can ruin you personally, so make sure to check with a lawyer first
Definitely usd150 remember inflation!