Over the last years, I have been commonly found with potential customers in situations where their production app is either down or its main feature is not working (my last work involved a project where previous dev deleted all prod infrastructure).
I have helped them to get their production app back to a working state, which usually takes less than 10h, I just did that again and it took me only 2 hours (causing a tiny bill)! I'm feeling that these small bills aren't worth it for the emergency mindset.
I'm aware that billing by value instead of by time is a common advice but it isn't clear to me on how much I could actually charge for this kind of task. Is this something we can put a price tag before having enough context?
P.S. The reason I usually charge by time is because I have got many estimations wrong, there was a time where I worked on a so-complex project where getting it back on track took many exhausting days.
I'll appreciate any advice.
I recall a HN comment that said they kept doubling their rate way beyond what they believed they could charge but the (new) customers kept happily paying.
Marketing skills will help increase the maximum rate customers are willing to pay.
Some ways to figure out the value to your customers:
- Estimate the cost of not fixing the problem. How many customers will they lose; what is the LTV of a single customer? How will they have to compensate current customers? etc...
- Estimate how much time it would take them to fix the problem themselves, and multiply by $50-$100/hr. I assume you can fix the problem much faster than your customers, and people generally think their own time is worth at least $50/hour.
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Related anecdote: apparently plumbers' favorite contracts are fixing hot water boilers. It's a relatively easy procedure, but they are able to charge relatively higher compared to other types of contracts. When people don't have hot water, they want to fix the problem fast! So they don't haggle or even shop around much.
Compare to a leaky faucet: it doesn't need to be fixed right away, so customers tend to shop around and complain about the cost.
But, based on my experience, it depends a lot on your client and business relationship with them. If you have a good relationship with a client, you can generally get a sense where their finances and business trajectory is. When the big estimate comes, they're okay with it because they know they'll get the results, and finding someone else has huge opportunity cost for them (the devil you know). And, the opportunity cost of finding someone else would be astronomical if it's an emergency.
So when your next agreement expires, just up the price to whatever you think is fair for you, you can even just come down on price if it looks like they won't close. Plus, emergency response is a huge inconvenience to you, so that should cost big time. Personally, I would create a separate fee structure for it, and of course a different line item on my invoices.
Whatever you do, just remember that it's a business relationship, and relationships go both ways.
2. Charge a fixed fee - or even hourly - to figure out wtf is going on and assess things. This is effectively a discovery/consult. For some reason many independents can't wrap their heads around charging for what seems - to them - to be "nothing" but it's literally what consulting is. Get into the issue and help the client map a way out. Then...
3. If you want to help the client implement the map, you are also now in an informed position to give them a fixed fee arrangement to do this - the implementation bit. Or if you stick with hourly you can more realistically set expectations and estimate workloads.
Most independents are great at #3 (though most seem far more comfortable charging hourly for this implementation work rather than fixed fee, but that's fine too - at least they'll be able to estimate it better after doing #2 and end up with a better reputation), but horrible at realizing their real value is in #2 (as well as bridging the gap between #2 and #3).
P.S. If you invest in getting better (more comfortable and effective) at charging fixed fee you can rightfully charge more because you are literally being paid by the client to offload uncertainty (risk) onto you.
I am fascinated that you have done enough of this work to know that you can estimate (to yourself) about 10 hours per job. I can also tell that you are a kind person, because you are clearly undercharging and you even felt guilty for solving a problem fast.
As the owner until recently of a web based business for 20 years, I would have loved access to a resource like you. I assure you that when a website goes down, the owner will normally be thrilled at an estimate of, say, $2000 for 10 hours’ labor (not that you would disclose this number; I mentioned because it means the turnaround would be fairly fast).
You should be loving life right now. The only reason you aren’t is because you are undercharging by a lot.
Up to 10 hours: fixed fee (.e.g $5K)
11 hour or beyond: $5K + $x/Hour
Charge the min. amount upfront and then bill later for additional hours.
Something like that can ensure that you are getting paid some minimum but are not going to lose money on large amount of work.
https://jonathanstark.com/hbin
He also talks about “value pricing”, where you charge clients a percentage of the value you bring them.
As others on HN will tell you (I'm pretty bad at following these advice, but I try) you should charge based on value. That means, the value you are providing to your customer. Max Value = prod * days of lost revenue. (could be zero if the App is not monetizing). The minimum amount you can charge is your hourly rate, that's your base, you shouldn't go lower (example of an app that is making less per hour)
And this isn't a dishonest recommendation. If they make some error, try and figure out a way to prevent it in the future: whether it's a better deployment script or something else that works to prevent this class of error.
I remember someone on HN charged a monthly fee, spent all the time making the prod environment solid then collected a big salary for being on call but never being called :-)
Contract work (e.g. fixed allocation of hours every month) gets charged at $ X / hour.
Ad-hoc (e.g. emergency work, one-off tweaks etc.) work gets charged at $ (X * 8) / hour.
I negotiate my hourly rate depending on how much work is on offer.
When a client ask I explain that a repeating allocation of fixed hours means I don't have to spend time on sales & negotiation to fill those time slots every month. That's why it's so much cheaper.
I was in similar situation to you, and because the work is easy for us it's easy to undervalue ourselves, but ask them what budget they're working with and go from there!