Friday, September 4, 2009

How do *you* determine your consulting rates?

Customers can pay IBM's $300+ per hour domestic on-site rate or outsource the work overseas for $20 per hour (you know the countries I mean) or pay something in between to have your smiling face walk through their door. In my experience software consulting rates are one of the most volatile costs in the IT industry.

Let's ignore the two extreme cases for the moment and look at the middle. Let's even ignore your personal stable of tame clients who know what you're worth and are willing to pay over the odds for your services. I'm interested in the long term domestic trend when bidding for new customers. Are you charging your time out at less than you were two years ago just to win the business?

Personally, I don't charge top dollar because I want to win the work and I don't want to give that new clients a reason to ever look anywhere else. Certainly I'll negotiate for a big project ("Three months full-time work for one of my people? Let me just sharpen my pencil here and see if we can make the deal more attractive for you") but normally there's only $30 per hour difference between my new-customer-with-an-emergency-at-1am rate and my long-term client rate. My point is that those rates haven't moved for a couple of years despite increases in cost of living.

So is it the consulting market rate perpetually stagnated because of the off-shore alternative? Will it dive further because of all of the down-sized IT workers opening up their own shop and competing for your customers? What's your opinion?

There's a joke in there somewhere about people putting in their two cents worth, but I'll leave it to the comedians to work out how to phrase it.


Lotus Evangelist said...

See my post later on today with similar thoughts like yours from the last 2 posts.

Billing hourly is not practical in many ways, although there are some cases where it's the only way.

The problem with billing hourly is neither side wins. You always are over budget or viewed as a sloth to "bill more hours".

Having said that, law firms don't know how to bill any other way.

But projects should be package priced to make it easy on everyone, just make sure deadlines are committed.

John Smart said...

Rob Novak, at one point, made a very interesting point about how hourly billing is unethical. I keep noodling that around in my head but I've yet to figure out how I can get away from billable hours for custom application development, and still be able to respond to the customer without nasty "well that wasn't in the contract you'll have to sign an addendum" discussions.