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I read an article for contractors/freelancers about how to calculate a day rate, vs hourly rate. The advice was focused on how to make sure the freelancer is charging enough and provided a few tips to help freelancers determine their rate. (I typically do staff augmentation work on multiple projects, for a single client.)

One tip involved helping freelancers determine a pricing model, such as a day rate. In this case, you'd add a 40% premium, then multiply by 8 hours to get the day rate. The half-day rate and hourly rates are set at 75% of the day rate and 30% of the half-day rate.

Here's an example: Let's say the former full-time salary is $50,000. The day rate is calculated as ($50,000/2040) + 40% premium * 8 hours or $274.40. The half-day rate is $205.80. The hourly rate is $61.74/hour. $274/8 is $34, so why the $61? The higher hourly rate based on the day rate is to encourage clients to book a whole day -- a volume discount for your time.

The details of this math are not for the client to know. Ultimately what would be presented would be something like this, probably rounding up to whole numbers:

I'm looking for a day rate of $274 for an 8-10 hours per day. Otherwise it's $62/hour. We can discuss other terms, if you'd like.

Something like this. How it's calculated is not really their business.

The benefit of this type of calculation is if the client doesn't have you working a full day, you don't lose out on hours that you could have potentially charged to another client.

In my case, I usually end up working a full 40-hour week, but I'm trying to be a bit more structured in my freelance work. Having said that, I don't have experience with day rates and project rates. A lot of advice for freelancers is to charge by the day or project. I also think charging in this way helps companies to remember that you are a contractor, not full-time, as some companies (but not all) seem to go the freelancer route in order to avoid paying US payroll taxes.

There are 2 areas of focus for this questions:

  1. I'm curious if anyone has any advice for how to approach negotiations or pitch this to a potential client. Basically, when someone asks for the hourly rate, I want to steer the conversation into asking for a day rate. I suppose this means a contract on my part will be required, to detail this out?
  2. In terms of a strategy to maximize billable hours with a client, how well do you think this might work? Do you have other strategies?

-- Related: Freelance vs Agency Contract vs Full Time Salary

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    I dunno, this sounds pretty complicated to me. I've never had a client ask me what my "day rate" is. I give them my hourly rate and provide discounting if and when needed based on the length of the engagement and the level of commitment from the client.
    – joeqwerty
    Mar 11, 2019 at 23:46
  • Also, if you're planning on pitching this to a client you're going to need to simplify how you explain it to them. In fact, don't explain it to them at all. Calculate it on your own and present it to them as a single "package" or quote. If you try to explain this to a client the way you've explained it to us, you're probably going to turn clients off. Clients do not want to deal with a complicated pay structure or methodology. They want simple; "What's your hourly rate?"
    – joeqwerty
    Mar 11, 2019 at 23:50
  • @joeqwerty I'm explaining it here, to get feedback on the overall concept. But to clients, it would be something like this: My hourly rate is $61.74; but if you are able to guarantee 8 hours per day, (up to 11), I'll knock that down to $34.30/hr.
    – user70848
    Mar 11, 2019 at 23:55
  • @joeqwerty Also it's very common for some types of contractors to ask for a day rate or project rate. I'm familiar with your technique of discounting if the length of engagement is long, or depending on the project, etc. If you have another. This formula was advice for contractors so they don't charge too little. If you have another formula, please feel free to suggest it.
    – user70848
    Mar 11, 2019 at 23:56
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    Actually my advice was in my first comment. Don't pitch this to clients, at least not in the sense of explaining the math and methodology. Clients don't like things that are complicated when it comes to paying contractors and consultants. Figure out your hourly rate and present that to them or figure out your day rate and present that to them. Do not present this formula to them.
    – joeqwerty
    Mar 12, 2019 at 0:05

3 Answers 3

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This is somewhat confusing. I've never heard of this methodology before. That doesn't mean that it isn't valid or that it isn't used, just that I've never heard of nor seen it in practice before.

However you calculate your hourly or daily rate, don't explain this methodology to the clients. They don't care how you calculate your rates, and explaining this to them is likely to scare them off or turn them off of you completely. It's going to generate puzzled looks and questions. They have way more important things to do than to engage in math gymnastics with you trying to understand what they're supposed to pay you.

From my own contracting/consulting experience, clients don't like complicated payment structures. They want simple; "My hourly rate is $xx.xx per hour".

I'll work on an hourly "ad-hoc" basis for short term projects and tasks and I'll also sell block hour contracts for clients that have longer term needs.

If a client wants me for a short term project or task then I present them my full hourly rate. If they want to use me longer term then I'll offer them a discount on my hourly rate in return for committing to a larger block hour contract.

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    "I'll also sell block hour contracts". So how do you come up with that formulation? Or how is that different to your normal hourly rate?
    – user70848
    Mar 12, 2019 at 0:31
  • In all honesty, it's probably similar in principle to what you're proposing (which to simplify this conversation is a means of offering a client a discount for larger/longer commitments), but I don't calculate it in the manner that you're calculating it. For x hours per month my hourly rate is $xxx.xx. For xx hours per month my hourly rate is $xx.xx." Etc., etc. It doesn't matter how many or few those hours are on any given day. You get x hours per month at $x.xx per hour. Use those hours as you like.
    – joeqwerty
    Mar 12, 2019 at 0:37
  • So... x hours per month will cost you $xxx.xx per hour. xx hours per month will cost you $xx.xx per hour, which is a 10% discount on my hourly rate. xxx hours per month will cost you $x.xx per hour, which is a 15% discount on my hourly rate.
    – joeqwerty
    Mar 12, 2019 at 0:40
  • Ok, so how many hours do you offer per month? What is X? And what do you use to determine X?
    – user70848
    Mar 12, 2019 at 0:40
  • It varies by client. 10 hours per month, 50 hours per month, 100 hours per month, whatever they want. I calculate my standard hourly rate as a multiple of what an employee doing the work would be making per hour. The multiple I use is typically 1.5 to 2.5 times what an employee would make per hour for similar work.
    – joeqwerty
    Mar 12, 2019 at 0:49
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The company doesn't care how you arrive at your figure all they are about is if they are getting value for money.

If you explain it to them, they may even dispute parts of your maths, and steer the conversion away from how you can benefit the company.

They may ask you to justify your rate, in which case you should contrast with market rates. If you charge more than market rates, you should explain the benefits of going with you over someone else.

The fanciest math in the world will count for nothing if you price yourself out of the market.

The unit of time used will depend on the nature of work. If you work on long-term (many month) projects, it doesn't make sense to quote in hours. If the nature of the work is smaller, hours may work better.

It's also important to be prepared to be flexible and indicate that you are prepared to wiggle a little for large projects. (After all, you will be saving time on negotiating contracts).

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  • Actually, the article had advice for the fear contractors have that they will price themselves out of the market. The advice was to negotiate. If a client walks away at your price, they didn't want to work with you anyway. If they find your price high, but they want to work with you, they will start a dialogue. This has been my experience as well.
    – user70848
    Mar 12, 2019 at 14:43
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The rate you charge is up to you, don't get fancy with explanations. Find what works for you and the market will bear. Then charge by the hour or negotiate by the project. This is what employers expect, anything else can cause issues.

My rate changes per client based on lots of factors like how quick they pay, how easy they are to work with, business relationship, type of work (what skillset I need to use), what timeframes they need etc. Or I will negotiate a whole project, but this is best done if you have the experience to calculate the amount without finding yourself underestimating how long you need to complete or what resources you need.

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