This is part 2 of 3 in our series: “Make More Money as a Web / App Developer”. Check out Part 1: How to Get Consistent Work, and Part 3: Creative Compensation Strategies for Working with Startups.
Back in 2010, when Dan was new to software consulting, he charged a quarter of what we do today. And our income was sometimes touch-and-go.
We’d make bank (and burn out) one quarter, and then have a month with no business.
We wanted to make more and work less. But since our income was unpredictable, it was tough to increase our hourly rate because we couldn’t risk having clients say “no”.
Finally, we asked ourselves:
How do I charge more without tanking my freelance business?
Whether you’re not sure what you SHOULD be charging, or worried about losing clients if you do charge more, you’re in the right place.
In this post, we’re going to share…
- What hourly rates you should target, and exactly how to test raising them
- How to cultivate enough leads to lose clients safely
- Negotiation strategies that’ll change the game for you
Psst…want our “Raise your Rates” workbook? It’s a free download you can get by clicking the button below. 🙂 It’s a great way to put these tips into action so you can start making more money soon.
Ultimately, our goal here is to put you in control of your income, so you can focus on doing the work you love, with the work-life balance you want.
So let’s dig in.
How do you start to raise your freelancing rates?
Last week, we talked about the importance of finding an anchor client (a reliable, long-term project). Anchor clients give you consistent income – and when you have a safety net, you can start to experiment with increasing your hourly rate.
Now here’s the thing: for the time being, you’re only going to want to raise your rates with new clients. Don’t worry, you’ll get there with your existing clients too, just not right away.
Without further ado, our tried-and-true formula for raising our rates:
- Figure out what you’re worth.
- Increase your lead generation.
- Negotiate better.
Now, you can get some degree of success by pulling any of these 3 levers. But to really grow your income, you’ll want to implement all 3.
Before you can charge more, you need to determine what you’re worth.
We like to think of this in terms of the classic concept of Supply vs. Demand.
Basically, there are two good ways of raising a price: 1) Decrease the supply, or 2) Increase the demand (or both). In the next section, we’ll get into increasing demand, but when it comes to what you’re worth on the open market (i.e., the supply), this can be based on a few things:
- Your niche
As a web or app developer, the technology you choose as your focus can have a huge impact on the rates people are willing to pay (new programmers: take note).
For example, if you check out salaries on Glassdoor.com, you’ll see that today, iOS developers tend to get paid more than than backend developers. That’s because there just aren’t as many of them.
Get a feel for how your niche impacts your unique “supply” by doing a quick search for jobs with different specialties.
How much is Google paying Android app developers vs. PHP web developers? How many job listings can you find for Java experts vs. iOS developers?
If jobs with your area of expertise are few and far between, you’re probably in a position to charge more.
- Your skill level
There are a ton of PHP developers in the market, so the salary of entry level web developers in this niche can often be quite low.
However, if you’re an incredibly experienced PHP developer, you might be at the 99th percentile for skill, and can command a way higher rate than your average iOS developer (even though they’re probably paid more than PHP developers generally).
Now, assessing your skill level can be trickier than figuring out the size of your niche, because it’s a little more subjective.
Search for common programming problems developers encounter in your field. Ask yourself:
How easily can I solve them? Have I already written scripts or tools to address them? Am I coming up with the same solutions as well-known experts?
And, rather than looking at how long you’ve been in your field, ask:
How many apps have I shipped compared to other developers? Do I have experience with a wide range of techniques within my area of focus?
Now, the skill aspect of your value is particularly important, because it’s the one part of your value that you can easily control at any stage in your career. So keep that in mind if you want to give your income an extra bump, even after implementing all 3 strategies we’re covering today.
- Your location
If you’re looking at clients locally, chances are you’ll get paid a higher rate if you live in places like SF, LA, or NYC.
However, one of the benefits of being a programmer these days is that a lot of work these days is remote. In fact, I’d say 75% of our client work is remote.
So if you’re shooting for rates above $150 / hour, you may want to focus your lead generation on larger cities – though this certainly isn’t a hard or fast rule, and we’ll talk about why in just a bit.
Now that you know what you’re worth, it’s time to put that information in your back pocket.
Because the reality is, in your case, the “supply and demand” curve is on a really small scale.
Practically, that means that when a client is choosing who to work with, they generally have very limited options and subject-matter knowledge – and therefore don’t have a birds-eye view of what supply really looks like.
So while you may know what you’re worth, and what your starting point for your hourly rate should be, clients really don’t.
And to be frank, they care less about the going rate for developers like you, and more about what they can afford to spend (though we’ll talk about ways to flip this around in a bit).
Need an easy way to calculate what you should be charging? Download our free workbook for an easy-to-use formula.
With that being said…
The best way to bump up your rates is to increase your demand.
Here’s the thing: if you have enough inbound leads, you can secure rates that are even higher than what you think you’re worth.
Because if you have enough demand, someone in that pool is going to agree to a really high rate. Some won’t, and that’s ok, because the idea here is to get so much inbound, you can say no without fear.
As a freelancer, you have the ability to “artificially” increase your demand.
This just means that you put yourself in front of a lot of people. Show them that you exist.
This not only gives you some “street cred” (which will help your leads convert to sales), but it’ll increase the sheer amount of inbound coming your way.
And the more people who want to work with you, the farther you can push your rates (and the more wiggle room you have for testing them).
Some practical tips for getting in front of people:
#1. Hit up your network.
One of the best ways to get inbound is to stay top of mind with people who already know you.
This can be anyone – an old friend, or someone working on something you’re interested in. Contact them and get together for coffee. Dan does this a lot, and most of them are with friends or acquaintances we haven’t seen in a while (this method works really well for him because he’s more introverted).
Now, not every coffee has to be a direct step towards a business arrangement. In fact, most of them won’t be – so you should go into them without any expectations.
But trust us – if you spend a few minutes talking about what you’re working on, your network will remember. And as soon as they make a connection, you’ll get that referral.
Here’s the thing: While it might take some time for these leads to come in, word of mouth is the best way to acquire really quality clients.
So be patient, and keep putting yourself out there. If you keep connecting with really great people, chances are they’re going to send you clients you’d enjoy working with.
#2: Hit up someone else’s network.
Over the years, we’ve developed a list of partners that we recommend through our consulting practice – from graphic artists, to lawyers, to web and logo designers.
We send these folks to just about everyone we work with.
It’s great for us, because we can provide extra value to our clients outside of the services we offer directly, and it’s great for our clients because they know they’re hiring talent they can trust.
One of the best ways to promote a consistent pipeline is to partner with people with complementary skills, and get on each other’s referral lists.
How to find them? If you’re an iOS app developer, Google iOS app designers and find someone whose work you love. Reach out with a compliment, comment on their social media posts, and start building some camaraderie.
Eventually, if you vibe really well, talk to them about referring clients (always offer first, without asking – chances are they’ll be happy to send people your way as well).
#3: Check out some Meetups.
I’m is more of an extrovert than Dan – so I love going to meetups and checking out new groups. This can be a great way to meet people who are in your niche, or are looking for someone in your niche.
Try to pick a group with some folks that have a common interest with you. This makes it easier to connect and make an impression.
One of my favorites here in Austin is the Female Founders group. It’s chock-full of other entrepreneurs, so I’m able to get great tips to use myself, and connect with women running companies that need tech.
Another tip? Stay open-minded. Often people will attend meetups that are adjacent to their own niche, so you never know who you might meet.
For example, Dan met the founders of The Black Tux at a developer-focused meetup in Santa Monica. They needed a developer, so that’s where they were.
#4: Boost your SEO.
While in-person and phone contact generally have higher conversions to contracts, SEO (search engine optimization) can help people find you organically.
If you don’t have a website already, build one.
If you haven’t picked your niche yet, start to focus and build a blog to share your expertise.
One word of caution:
When folks don’t come to you through known channels (like word of mouth), it can be harder to tell whether they’re good to work with. So just make sure you vet them a little harder. Even a high rate won’t make you happy if your client is a terrible person to work with.
Now that you have some leads, you can start testing out different rates. But don’t be hasty – slow and steady wins the race here.
Feeling overwhelmed? Yeah, I know this is a lot – but you don’t have to do everything at once. That’s why we created the “Raise your Rates workbook so you don’t forget any of the steps in this blog post.
Brush off those negotiation skills – they’re key as you raise your rates.
Price is a sticky subject. It can be really tough for clients to reconcile the budget they want with the true cost of a product – and to figure out which developer is the right fit.
As a freelancer and salesperson (yes, salesperson), it’s on you to navigate these murky waters, and guide the client to their beacon of light: you.
But before we get into the psychology of selling, let’s talk pricing strategy.
Try an iterative approach.
- Start with your anchor rate – let’s say $50. With each new project, trying pushing your rate up one tier (we’d ladder up with $75, $100, $125, $150, $175, $200, $250, $300, etc.).
- Read the market. When people start to say no with greater frequency, you know you either need amp up your value, improve your negotiation skills, or lower your price.
- Stick with one price point for 3-6 months. Wait to test a higher rate until you have enough inbound to minimize the risk.
- Weigh your desire to work with someone with the desire to raise your rate. You don’t want someone you’d really enjoy working with to not be able to afford you. It can be a lot easier to experiment with higher rates for projects you’re not as jazzed about. If they end up saying yes, that’s great – you’ll make a ton of money. And if they say no, you’ve tested a theory, and it wasn’t a project you really wanted to work on anyways.
Sounds easy, right?
Well, it can be. But your success can be hugely impacted by how well you negotiate. Not to fear – we’ve got you covered 🙂
1. Take your negotiations slowly.
The biggest mistake people make when they get inbound is jumping into things too quickly.
In a way, it’s a lot like dating – you don’t want to get into any touchy subjects until you decide you like each other.
So, if the client asks what your rate is off the bat, you want to steer the conversation into another direction.
First off, figure out what their project is all about. What do they want to build? What’s been done so far?
This is an opportunity for you to let your knowledge shine. Show them you know what they’re talking about (ask a good clarifying question, or give them a piece of off-the-cuff advice).
You want to start building some credibility so that when you do talk about price, they’re already bought into your value.
2. Focus on absolute price, not hourly rate.
Most people are focused on rate as a measure of cost, when in reality, rate x time is what people actually care about.
So when you’re sharing your hourly rate, NEVER say it without including the number of hours a project will take. This way, you’re priming your client to think about absolute cost.
What if someone asks for your rate before you know how long their project will take?
You respond with the classic: “It depends.”
A perfectly acceptable response is “That depends on how long the project takes”, and follow up with a request for project specs.
If they really push you, you can modify that to something like: “My rate is anywhere from $75-$150 / hour depending on how long the project takes (with the lower rate for a longer project).”
Make the top end of the range the next tier up from what you think you’d actually bill them, so the “real” rate will seem less expensive. relatively.
If you have a fairly good sense of how long a certain class of app would take, you can also say:
“For other apps I’ve done like this in the past, they’ve taken me anywhere from 50-100 hours. So in total, it would be X.”
People really care about total cost in this situation – they don’t actually care about your hourly rate (even though they think they do). Keep the conversation focused on overall value, not rate.
3. Prioritize value over budget.
Never start a negotiation by asking a client for their budget.
Now, this isn’t to say that budget’s unimportant. In fact, once you agree on a project, it’s critical that you stick to your clients’ budget and keep them informed on cost.
But if you bring up budget too early, you’re basically telling your client where to cap the value of your work.
The moment they put out that number, they’re expecting you to come back with something lower.
A better approach is to start with a proposal matching the value of the product they want to make, and let them come back to say that it’s a little too expensive.
Now you’re leading the conversation, and can have a back and forth about how to align the product with a cost range that’s comfortable for your client.
This is the point where we like tell a client what features of their product have lower ROI, and what could wait for a future release. This way you become an active part of the product development process – not just a bystander who says yes to everything.
Need a recap? Use our “Raise your Rates” Workbook to figure out where you’re running into trouble with your negotiations, and how to get them back on track.
When it comes down to it, your rate is whatever someone is willing to pay you.
And the only way to figure it out is through trial and error.
Sometimes, you’ll be shocked at what people say yes to. Part of being a successful consultant is getting used to that.
And get realllly comfortable with the idea that the value you provide is very high, and that people are willing to pay a good amount of money for your expertise.
Because you need to believe it before your clients will.
Just don’t forget to deliver on the value.
Getting your clients to accept a higher rate is only step 1.
Now you have to deliver the value you promised them.
To some extent, your rate is based on how skilled you are, and how good you are. But if you don’t provide enough value for the price people are paying you, you’re going to get fewer referrals, because you’re too expensive for what you provide.
So stay tuned, and sign up for our email list. Next week, in Part 3 of this series (Make More Money as a Freelance Developer), we’ll be covering 5 innovative ways to get paid that can make you the big bucks (yes, we’ve used all of them).
Want us to cover a topic or answer a question in our Friday Q&A? Email me at email@example.com.