I plan to start a small company with a friend and we are trying to work out how to price for people that want to outsource to us for PHP, Python, (My|Postgre)SQL, HTML/CSS JS and SEO.
Assuming that there is no fixed going rate that we can find, how should we work out what to charge per hour?
If you program professionally, consider charging 50-100% more per hour than what you make now. If you're payed on salary, just divide your yearly down to an hourly rate based on 40 hrs/week, 52 weeks/yr.
Mind that this is what your company should take per hour on a project, and you'll probably still end up needing to estimate for projects and commit to a fixed amount. But this is the hourly you should look to base your estimates on.
Don't charge the cost, charge the market value of your product. It will depend on the industry and audience you are serving. Are you targeting home users, bankers, or the government?
Depends on what you are doing and who you are selling to, are you selling as a company? or as a contractor? the two have very different day rates. A good contractor can expect to command between £250-350 a day, however as a company you can expect to charge yourself out at up to £700 a day if you are good. How much commercial experience with the technologies you have will also reflect on what people are willing to pay you.
Again, it depends on the length of contract and your requirement to get a customer or two whether you might want to drop the day rate to begin with (at least until you have a few references).
Have a look on Monster.Com and Jobsite.co.uk to see what the contract rates are. If you are starting out and have few overheads it might be best to go in at those kind of rates than the full on company rates.
No matter what though, whether you get the sale or not, ask the customer for feedback on your whole sales process.
Good luck in your venture!
Also keep in mind that when you do this you're responsible for paying all your own income taxes (no withholding being done anymore) and you're responsible for the full 15.3% FICA tax (if you were salaried, your employer paid half of that). The exact rules are complicated, but be prepared for about that.
Obligatory Disclaimer: I am neither an accountant nor a lawyer.
Theory (for the simple tax-free starting point)
Ultimately you'll be looking to make a profit as a company and a salary as an individual. You get a good ballpark figure by considering this aim from a monthly perspective.
Total up your monthly costs (office rental, Internet connection, salaries and so on). You can easily see that you'll need to be taking in at least this figure to break even. Call this your total cost.
Next consider how much work you'd expect to be completing in a month. Let's say you'll actually be doing 5 hours of client work per day (the other 3 hours you're managing email, learning and so on). At 20 working days per month, that's 100 hours. We're not considering each individuals hours, just the total number of hours people are working.
Divide your total cost by the number of hours and you get somewhere to start. This gives you the hourly rate the company charges to the client.
So as a rough starting estimate, consider dividing your total monthly costs by 100 to get an idea of the bare minimum you need to charge per hour assuming you're working on client projects those hours. So long as you always consider each persons' salary in the total costs, dividing by 100 will always work here.
Example
Total cost: £5500
Hourly charge: £5500/100 = £55
So in that example the company would charge clients at least £55 per hour in order to pay for your office rental, comms and £4000 in salaries (to split between the two of you as you see fit).
That's a good place to start. Add on top of this whatever extra you think your clients should be paying for your personal level of skill and experience.
Your clients are essentially paying for your ability to produce an output. You'll clearly need the skills to do this but also the knowledge and experience to make the right decisions so that you produce the best solution for the client.
Your experience may allow you to make better and more informed decisions giving your clients better solutions. This pushes up the value of that which you produce hence raises the cost and the hourly rate you charge.
The extra you add on top may be much greater than the bare minimum. If your work deserves it, and clients can see this, they will pay.
Future planning
Also consider how you plan for your company to grow. You might find the workload increasing such that you need another employee. Consider when you'll need to take this extra person on and how much to pay them. Increase your hourly rate such that you are making enough extra to employ this new person at around the time you need to employ them. This gets tricky but is worth considering well in advance so that you're prepared for the changes that will inevitably happen.
Keep in mind that you'll be spending 25-50% on administrative aspects of your business (which you probably won't have the revenue to outsource immediately) and 25-50% of your time on getting new jobs - if you don't work to constantly get new leads daily, you'll find that you'll be without work down the line.
This is why many people suggest that you charge 200% or more than what you're making now - the fact is that you'll have less than 50% of your time as billable to the client, and that's not counting the overhead of an office, capitol equipment, staff, services, etc.
You can't put off the administrative and lead finding parts of your job until the current project is done - you have to dedicate time to these parts of your business.
That's the number 1 mistake many new consultants make...
I voted Brian's answer. For me, the quick way to calculate it take your annual salary and divide by 1000. So if you are making 75K you should billing at least $75/hour.
Or: How I stopped worrying and learned what price to charge
You should charge what your time is worth. There's a price/demand graph that show the cheaper you are the more time you are working, and the more expensive you are the less time you're working.
So over the last few years I've adjusted my price upward so that I'm spending less time consulting since I want to spend more time with other aspects of my life.
However, people still keep asking me to do projects for them, so my prices continues to climb.
This is one method of finding "what to charge" - and when you're making more on the side that on your day job because you're price is high enough and you're consistently getting customers, then you know you've reached a point where you can make the switch to full time consultant and you've already solved the problem of what price to charge.
You can even do a binary search on this if you want to find the right level more quickly.
Since this is a thread about consulting, though, keep in mind that in consulting you'll only ever make as much money as you work. There is an upper limit.
I am starting the same thing and I went fixed price for a job and I REALLY underpriced it. I charged 200 dollars for a job that took 40 hours, I probably made less than 5 dollars on it and did 2 onsite visits. But then again you to start somewhere and learn these lessons.
I am curious how many people are doing this successfully...