Exceeding Project Hours Vs Underestimated Project Estimates

This post is inspired by a segment from the How and Why to Ditch Hourly Billing episode of the Freelancers’ Show. It’s a great episode that covers client risk, finding what they value, and positioning yourself as an expert. If you haven’t listened to it yet, queue it up on your iPhone and give it a listen.

During an episode of the Freelances’ Show Reuven Lerner mentioned his main reservation to switching to project-based pricing:

I’ve always been gun-shy about trying [project estimates] because I’m still worried that my estimates will be wrong and that I’ll end up doing tons of work for free.

Let’s imagine two scenarios:

An Estimate with Hours

You bill Hourly Hank at $100/hr. You’ve just used up the 200 hours you estimated for this project but you’re not done. You call Hank explaining that you’re late and he has to pay you for another 20 hours to get this thing finished.

A Project Estimate

On the other hand, you bill Project Paige $20k for the project. The project is behind schedule. You give Paige a call to apologize regarding being late on your delivery.

Which type of estimate is better?

Both scenarios suck because you’re delivering the client bad news.

The hourly case seems like the better choice because you’ll still get paid your hourly rate even though you missed the estimate. But is this really a net positive?

Let me tell you from experience, Hourly Hank isn’t going to be thrilled about having to pay for more hours. He’s going to go comb through every invoice looking for areas of wasted time and money. You’ll both play a blame game as to why things are late. Both you AND Hank will walk away from the project feeling like you got screwed. There is no way Hank will ever serve as a referral.

In Paige case she’ll be upset that you’re late but you’re not throwing gasoline on the bad news by asking for more money. In fact, she’ll be impressed that you stuck by your word. That you claimed financial responsibility for a bad estimate. Paige will tell people that you did everything you could to make sure she was taken cared of.

But I’d Still be Doing Work for Free

This isn’t 100% true. What actually is happening is your effective hourly rate is going down.

In Paige’s case you charged $20k. Your effective hourly rate changes based on the actual hours you worked.

  • If you worked 200 hours then your effective hourly rate is $100/hr.
  • If you worked 180 hours then your effective hourly rate is around $111/hr.
  • If you worked 220 hours then your effective hourly rate is around $90/hr.

The 180 hours worked scenario reveals a very compelling benefit: if you overestimate the amount of time it’ll take, your effective hourly rate goes up!

You’re the Expert

Plus, you’re not really doing “free work” you’re claiming responsibility. Your client had to come up with a budget for the project. They trusted you to come up with an estimate. As Jonathan Stark stated on the Freelancers’ Show this conveys to the client:

I’m an expert. I know how long this is going to take and if I’m wrong, that’s my fault, not yours.

How about you? Are there other reservations you have to switching away from hourly? Leave a comment below and we’ll address those reservations together.

Billing Weekly: An Alternative to Billing By the Hour

Does any of the following happen on your weekly quests to get 20 billable hours?

  • Work bleeds into the night or the weekend.
  • When making up for a 10 hour week you find yourself burned out at the end of a 30 hour week.
  • When you are at the gym or at family meals you have an itch to get back to your computer just to click “start” in Harvest again.
  • It drives you nuts when a client says they’re going to call back in five only to call back in 30. Never apologizing for wasting your precious billable time.

All of that happened to me my first couple years of freelancing. I began to ask myself:

What is the whole point of freedom from a full time job if it means feeling trapped by the hours I HAVE to work?

I Bill by the Week

So I decided to try a little experiment and told a new client that I bill by the week.

After several weeks it was evident that billing weekly was a game changer for me:

  • Conversations with clients dramatically improved. Our conversations were based on things like how I was improving their business rather than why I was billing a half hour for a meeting.
  • Clients will no longer micromanaged my time. They didn’t really care what I was doing with every hour of me day. They were just happy the work was getting done.
  • Revenue went up. My weekly rate beat out my average when I was doing hourly billing.
  • It simplified scheduling multiple client work. I no longer had to figure how to squeeze all the my clients’ hours into a given work week. I only had to worry about finishing my deliverables to make my clients feel awesome.
  • I was happier. I no longer felt the need to be at my keyboard clicking a timer whenever I went to go eat or learn something new.

I haven’t billed by the hour since.

I hope you consider to give weekly billing a shot with your next client. Need help with convincing a client to give it a try? Leave a comment below and we can tackle that problem together.

7RRRF Update

Well it’s been about a month since I did the product challenge. It was a fun experience and with it I came with a pre-release version of 7 Recurring Revenue Recipes for Freelancers (or 7RRRF thanks to a reader). Here are all the things I’ve actually done:

  • Setup zenpayroll.
  • Client work.
  • Caught up on all my Fall/Winter TV Shows.
  • Watched a couple seasons of Scrubs.
  • Finished most of the last season of Psych.
  • Beat FTL on Medium and Hard about four times.
  • Continued my olympic weightlifting program.
  • Spent better quality time with my family.
  • Participated in several master minds.
  • Continued reading newsletters from friends.
  • Read 80% of JFDI.
  • Donated all of the Recipe profits from 2014 to charity.
  • Created an autoresponder for people who bought the book.
  • Sent out several updates regarding the book.
  • Started playing in a soccer league.
  • Reorganized the book Trello board.
  • Meeting with my accountant.
  • Getting work done on my car.
  • Setting up my new iMac.
  • Organizing my iPhoto library.
  • Going to several basketball games.
  • Brainstorming about new products, new versions of the book, and articles to write in 2015.

If you looked at that list closely you’ll notice 7RRRF still isn’t done. Taking from the above list these are the only items I really had to do:

  • Setup zenpayroll.
  • Client work.
  • Continued my olympic weightlifting program. This is arguable but I consider it as a have to do because it allows me to work out and socialize which is a double win for me as I work remote.
  • Spent better quality time with my family.
  • Read 80% of JFDI. This is arguable but I’m leaning on it having to be something to be done because it solved several pains I had with book writing.
  • Reorganized the book Trello board. Same as above.
  • Sent out several updates regarding the book.
  • Meeting with my accountant.
  • Finished 7RRRF.

What’s the point of all this? Well, stealing a tip from Warren Buffet I have a list of things that I have to avoid at all costs in order to get the pre-release version of the book done.

The next basketball game I’ve got tickets to go to (and promised my son) is Tuesday the 27th. I’m committing to get the Section complete version of 7RRRF done by then.

Friday Update

Yesterday was a success. Finished all my client work plus the Productized Consulting recipe in my book. I tried my best to avoid all the unnecessary things like the plague. My moments of “relaxation” were replaced with laundry, dishes, and gathering wood for the fireplace. This sounds more like a first world problem and I’m sure I can adapt with a mental shift. My only “cheat” was buying this shirt.

Wednesday Update

So I missed the deadline. Despite the blistering pace I kept up I was only one Recipe short. The good news is that the number of pages for the book has virtually doubled. I was able to avoid must of my time sinks like the plague but realized I wasn’t allowing myself much needed vegging time. I think I’ll be able to wrap up the last recipe tonight and then take a break and think about next steps.

Several Days and a Weekend Product Challenge

Day 6, 12:15 PM – DONE!

The clock stuck 12 noon about 15 minutes ago. If I hadn’t fretted all morning about pricing and just general launching terrors I would have made it on time.

I’m going to take the rest of the day off from product stuff and focus solely on client work. Moving forward I aim to have version 1.0 done in a couple weeks. Although I’ve been told by several people it takes about a month worth of editing.

Get your copy for just $9. You’ll get the edits and expansions for free.

Buy 7 Recurring Revenue Recipes for Freelancers for $9

As of 12:15PM this is what I’ve got left to do. I didn’t manage to complete the book in 6 days.

  • Slightly alter the name of the book so freelancer’s know it’s for them 😛
  • Expanded steps or details with the recipes. I struggled with what should and should not be included here.
  • A chapter to cover principals that will help with implementing the recipes.
  • A conclusion chapter that describes experimentation and next steps.
  • An actual cover.
  • The Amazon kindle version.
  • A better landing page for the book with improved CTAs as well as a freebie email course.
  • A button image instead of the link that’s sure to get lost.
  • Notifying my email list that the book is available.

It was exhausting and terrifying but at least now I can say I launched a book.

No idea what I’m talking about? Read below for the details behind my book launch.

About a week or so ago Amy Hoy and Nathan Barry embarked on their 24 hour product challenges. The purpose was to launch a tiny side project that had been on their minds for a while. Nathan earned about $4,314 while Amy has grossed about $3,681. Those are pretty impressive numbers for a full day’s worth of work.

But They’re Famous on the Interwebs!

I know what you’re thinking. They only earned as much because they’ve got a huge audience a ton of followers but that misses the point. Their purpose was to just finish something small that had been nagging on them for a while. This is what I find fascinating and motivating.

As a lot of you know I committed to writing my own book: The Freelancer’s Guide to Recurring Revenue. It’s been months since I made that commitment but I’ve made little progress. Well today that changes.

Do. Or do not. There is no try.

Over the last several years I’ve been on the product bandwagon but just made a ton of excuses:

  • I don’t have anything to teach.
  • I don’t know who I can write for.
  • I have to worry about developing my freelance business.
  • My kids take up all my time.
  • My wife works too so we don’t really need the money.
  • I need to have at least 1000 subscribers to my newsletter.
  • blah, blah, blah. 

I’m not a precious little snowflake. I know people who have dealt with cancer and still got something out there. One of which is one of my hero’s and managed to inspire millions with a lecture.

Why now?

You could say it’s on a whim but I’m going to have to pull an MJ here and manifest some motivation:

  • Between Nathan Barry and Amy Hoy I’ve purchased about $4,000 in products with the thought that it would be an “investment” towards my own products. I have to earn that money back.
  • For years we used to max out our donations but since switching jobs our donations have dwindled to almost nothing. I have to get those donations back up. With the money earned I’m going to donate it towards some good causes.
  • I’ve also got to prove a point. Internet fame does help a little but I want to prove it helps out a lot less than people think. At the end of the day I’m still the one who has to do the work.
  • Because why not? Even though my lizard brain is constantly trying to tell me otherwise this project is a win-win for me.


I know, I know. It’s supposed to be 24 hours but I’ve got clients. I’ve also got an out of state Christmas Party to travel to this weekend. It’s not as sexy as 24 hours but my commitment is going to be over several days and a weekend. But, if I do this right I can prove to others that this can be done with other things occupying your time. So let’s do this!

I’m committing to shipping a small product (version 0.1 of my book) by 12 noon, Tuesday Dec 15th.

Day 1

12:00 PM Setup

I’ve made the commitment, announced it to Twitter, my list, and a couple of other channels where people are doing the same thing. I’ve also got my standup desk setup to promote good posture and get rid of all this nervous energy feeling. All my slack windows and email notifications have been turned off to eliminate distractions (this includes Twitter). All my computer is running is Spotify (with the Deep Focus playlist playing), the Ulysses Demo (tried writing in VIM and I raged quite Pages due to all the notifications for not being on Yosemite yet), and chrome. I’ve got the following links open in Chrome to help guide me through this process:


As I’ve been thinking about the book and doing research I’ve discovered that recurring revenue for Freelancer’s take a ton of forms. With this in my mind I decided to make each form a recipe. The intro section is going to cover the fundamental skills you need to be successful with each recipe. Similar to a cookbook.

My stomach is grumbling so I’m off to a quick lunch. Glad today is leftover day. After that I’ve some client work and some meetings to attend so I’ll fit in writing where I can.

2:00 PM Update

Had a quick lunch and wrapped up some client work. I decided to head over to my go to coffee shop since my eyes were getting a little heavy. What did I find when I checked my email? A client email requesting something is done ASAP. That’s just the way things work sometimes :)

This coffee shop has a 1 hour window for the internet. My plan is to wrap up what this client is requesting and to spend the rest of the time writing. Sounds like a good opportunity to utilize a couple of Pomodoros.

I’m purposely trying to ignore everything that may derail me. This includes any type of notification (twitter, email, slack), any type of hard decision making (what should I eat now), and anything that may be negative (the number of unsubscribes that may have resulted from this little challenge).

5:30 PM Update

I was derailed a  little by some client meetings but I managed to get a couple more writing sessions in.  I also had some bouts of self doubt but I’m doing my best to just stay positive and keep moving forward. Looking at my timer it looks like I got at least three hours in towards the book which is a lot more than yesterday!

One thing I’m really happy with is a template of what the recurring revenue recipes are going to look like. Here’s a preview:

Recurring Revenue Recipe

It sounds like my kids are home. In fact, my youngest just pressed his face against my home office door. Want a home office pro tip? Don’t get doors with windows :)

I’m off to dinner and getting these kids in bed. If my wife brought work home then I may get a couple more writing sessions in. Otherwise, it’s back at it first thing in the morning.

9:45 PM Update

Well it’s time to call it a night. I got a couple more sessions of writing in and I’m pretty happy with where I’m at. Including the content I’ve copied over plus the content I’ve written today I’m at about 20 pages. I wouldn’t be surprised if this number was cut in half after editing but I’m going to save that until Monday or even post launch. Gasp!

One thing that I’ve really loved about this challenge so far is it’s forcing me to make a lot of decisions on the fly. There’s a lot more doing than sitting around and thinking. See you guys in the AM. I’m going to get a full nights sleep so I can be even more productive tomorrow.

Day 2

6:30 AM Update

Had a good night’s worth of rest (6+ hours) considering my excitement . When I woke up I forced myself to have a healthy breakfast and water to get my day started right. My goal was to get in one quick writing session before the family woke up and that’s done!

I’m really liking the way this book is starting to take shape. Ideas for chapters and sections are starting to come naturally as I write more. I’m going to take a break for a couple hours to help my kids get their day started and out the door for school.

10:00 AM Update and Standing Invitation

Got the kids to school without yelling. A big win considering I’m still grounded (no TV for four more days) for yelling once yesterday. I spent the rest of the morning going to the coffee shop, planning the things I needed to do for clients, and answering several emails with questions on freelancing. I guess that makes me qualified to write a book?

Seriously though, if you ever want to reach out to me with questions I can be reached at rmcastil via twitter and ryan at challengeacceptedhq.com via email. I’m pretty proud that I’ve maintained Inbox Zero for 7 years straight so I guarantee I’ll read all the emails I get.

12:00 PM Refocusing

I started to get worried about the time I was spending on the setup sections of the book so I decided to take a step back and focus on what I was trying to deliver. Luckily I already had a pitch page to help me focus.

The entire premise of the book is to help freelancers overcome the feast and famine cycle with recurring revenue. If I didn’t deliver this in any shape or form by Tuesday people could potentially feel cheated and ask for refunds which to me is the worst case scenario.

I’ve settled on 9 recurring revenue recipes as you can see here:

Screen Shot 2014-12-12 at 12.27.18 PM

Think I missed something? Feel free to let me know.

2:30 PM “We have the best jobs guys”

This was probably the least productive of all the time blocks so far. I got distracted and frustrated with the tools I was using and just feeling tired overall. This resulted in some procrastination in the form of random highlights from the Tonight Show.

To further my procrastination I jumped on our weekly Master Mind call just to see what everyone had been up to. Good thing I did. My pal, Sean Fioritto ended his update by saying “We have the best jobs guys!”. Indeed we do. Time to get back at it.

11:30 PM Cutting the Fat and Ending on a High Note

Well the writing must have stalled after 2:30 because I can’t remember exactly what I did! This caused me to reflect on several things that I did wrong:

  • Attempting to squeeze more work in by sacrificing sleep and consistent meals.
  • Time tracking just because Amy did it with her challenge. This caused me to obsess about trying to hit some kind of magic hour total throughout the challenge.

The good news though is that at 5:30 I stepped away from everything and may have had one of my best Olympic lifting classes. Life’s funny that way, when you think everything is going against you, you get a win.

Moving forward I’m going to give up tracking time with harvest, trying to wake up early, and worrying too much about formatting. On launch day it’s going to look the way it looks. Since I’m self publishing I have all the power to update it and send out updated copies.

I’m off to bed. I have no idea if I’m going to get any work in tomorrow but that’s okay because it’s the weekend :)

Day 3

4:00 PM Sneaking Something In

I didn’t expect to get anything done today with a two and a half drive to a birthday party we were scheduled to attend. During the drive though we let the kids watch a couple shows and I surprisingly got a ton done. I let my wife interview regarding the book and we were able  to generate a ton of content. Plus I think she finally has an idea of the kind of work I do while she’s off at work 😉

Day 4

9:00 PM Value Driven Writing

In the software world there is this concept of outside in development. “Outside” usually refers to a feature but it can be taken a step further by thinking about the value to the business the feature is bringing. Starting from there you can eventually start to work on the internals.

Since working on this book I’ve found a similar process to work for me. I went back and asked myself “what value is this book providing to the reader?” Once I hit those points I was able to get more granular and work on nitty gritty details and principals.

Day 5

10:00 AM Update

In a couple of hours we’ll only have 24 hours left in the challenge. It’s time to start making hard calls on what will be in the book and what will not. Embrace the constraints!

6:00 PM Update

Well it seems like I’m somehow behind schedule. I wanted to be editing at this point but I’m still producing more content. The edits will probably have to wait until after the launch.

At this point I only see two worst case scenarios:

  1. I don’t launch ever.
  2. 100% of my customers feel like they were ripped off and demand a refund.

For a little bit of reassurance I sent a preview of the core content to one of my friends and he gave it a thumbs up.

Day 6

11:00 AM Dealing with “The Terror”

Launch day is here and I can honestly say I’ve been worried, anxious, stressed for the last 14 or so hours. I did get to bed on time but the same questions went through my mind as I woke up: “Are people going to demand refunds”, “How much should I sell this thing for”, “Should this be a pre-release of my book or just a cliff notes version”.

I’ve jumped into several of the Slack channels to find some kind of reassurance but people have had mixed advice. The best advice or response I saw so far was “why do you have to decide now then?” And the honest truth is I don’t. I can decide to charge more or less later. There is no point in dealing with refunds unless I actually get an email demanding one. I can just promise a pre-release of what I have and decide later whether it will evolve into the full book or not.

How to Start Positioning Yourself for Productized Consulting

141HThe other day I was talking to a friend and they mentioned they wanted to get into productized consulting. Specifically he was interested in serving as a CTO for companies and somehow packaging that.

I told him it was going to be challenging for a couple reasons:

  1. He just got into freelancing and
  2. Serving as a CTO doesn’t solve a specific enough pain for businesses

I wasn’t telling him this to discourage him. In fact, I loved his ambition. I just thought he was getting a little ahead of himself.

What he and I suspect you actually need is a better road map to get into productized consulting.

Damnit Jim, I’m a Consultant, Not a Freelancer

The first thing you need to do is to start positioning yourself as a consultant instead of a freelancer.

I love Brennan Dunn’s definition of a consultant being someone who is both a freelancer and a coach. Coaches in sports are valuable because they help guide their teams to success.

As a ‘coach’ of your clients the role is no different. You just need to know where your client is with their business today and take the appropriate steps to guide them to success.

“Show Me the Money!”

Success can mean any number of things. If you want to get into productized consulting though, it should mean one thing: making your client more money.

That is why something like ‘being your business’s CTO’ is a hard sell. It may help a business but what exactly about it helps make the business more money? The technology recommendations? The strategic planning? The hiring?

If you can’t specify exactly how you’re going to help make a business more money it’s going to be hard to sell them on your packaged services.

Aim Small, Miss Small

This brings us to the second stop on the path to productized consulting: focusing on a consulting niche. Niche here means the value being delivered and not the business type. Good examples are

  • conversion optimization (e.g. Nick D’s Draft Revise)
  • team training like (e.g. Jeff Casimir’s Jumpstart Lab)
  • adding a payment model to a site (e.g. Pete Keen’s Payola)

Once you’ve identified the niche to work in, experiment. What tools do you like to work with? What makes your clients the most money? What gets them there the fastest?

As you discover the answers to these questions, share them in the form of case studies. By doing so, you’ll start positioning yourself as an expert in your niche. Your experience is what makes you an expert and even though it’s packaged, clients are still paying for access to you.

Productizing Your Consulting

The final step: package your service. Be sure to keep the following in mind:

  • Pricing – this can’t exceed the amount of money you either make a client or help them save.
  • Scope of work – you need to constrain the engagement. Through your experiments you should be able to define what exactly you’ll be delivering. This is the whole point of productized consulting and if you can’t define this, then you might have to go back to experimenting.

Do you need help figuring out where you’re at and planning your next steps? Leave me a comment below and I’ll help you brainstorm.

Stop Losing Your Word of Mouth Referrals

Life is full of secrets

My Buddy Told Me About You, Here’s All My Money

There are many ways to get leads but word of mouth is by far the best. The main benefit is the lead will already trust you. This is HUGE. All the work that you would usually have to put into selling yourself and building a relationship becomes much easier.

There is one drawback though. Word of mouth referrals are a long play. Meaning, the number of word of mouth referrals you have is based on the number of clients you’ve actually worked with. For freelancers just starting off, it can be quite the challenge to base their entire business on word of mouth.

What Happened to All My Referrals?!

This all assumes every engagement you’ve had has been blissful. It doesn’t take into account the number of referrals you may lose because the project went south.

Losing referrals isn’t limited to positive versus negative experiences though.

If a former client went out of business or was fired, would you still want to use them as a referral?

Hence the advice, focus on all the things you can do to make your client successful.

Making your client and their product the best that they can be should be one of your top priorities.

Can a Business Really Be Built on Word of Mouth?

My business has been built purely on word of mouth. I mean look at my ‘marketing’ page. It’s horrendous.

Screen Shot 2014-10-23 at 3.16.42 PM.png

Despite the above atrocity I’ve still managed to double my revenue in each year of business.

A more well known example is Basecamp (formerly 37signals). To this day word of mouth referrals is still their biggest priority as DHH described on an interview he had on Product People (emphasis added)

The number one thing that has actually mattered for us is word of mouth. All these other things (signal versus noise, the books, etc) got the ball rolling and got the ball started and they helped and they contributed but the NUMBER ONE THING IS WORD OF MOUTH.

He later goes on to give us insight on how they specifically focus on word of mouth.

How do you focus on word of mouth? First of all you make a fucking great product that people want to buy and they want to tell other people about it. Then you have exceptional service.

Now you may be thinking, he’s talking about a SaaS and I’m talking about your freelancing business. It’s like comparing Marvel’s Agents of S.H.I.E.L.D. to the Avengers: they just don’t compare.

But it’s the same thing. You and your freelancing services are the great product that people want to buy and tell other people about.

But the question is, do you provide exceptional service?

Your Client Just Wants to Win, Win, Win

You may think you’re already focusing on exceptional service by delivering your code on time, being agile, and testing all the things but that’s not what I mean. Those things are important, but the real value they provide is primarily to you.

Providing exceptional service means focusing on your client’s success. Nick Disabato exemplifies this concept with Draft Revise. The singular goal of his productized consulting is to optimize a site and improve conversions. If he doesn’t accomplish that in a couple months then it’s a full refund (as he mentions on on an interview he had on Bootstrapped Web).

Notice there isn’t anything in there that describes how he writes or tests the code. It’s all framed around the success of his clients.

How would you describe success in 5 words or less?

How do we figure out and focus on what makes our clients successful?

The following are a list of questions that I ask myself on a consistent basis to focus on my clients’ success. You can download the document for free by signing up for my newsletter below.

  • WHO – Who has the most to lose and gain from this project?
    These are the people who you are depending on to give you a great word of mouth referral. They can be the main client, project owner, stakeholder, etc.
  • DONE – What does done look like to them?
    This is what you are being paid to do. The things that you need to deliver in order for this project to be considered done. Keep in mind there are three perspectives of done: yours, the client’s, and reality. Your need to know the closest representation of all three. The most important of which is the client’s.
  • SUCCESS – What does success look like to them? How about three months from now?
    Here we’re taking a look at the bigger picture from the client’s perspective. What are the tangible benefits for them personally. Will they get a raise if the project proves to be successful? Will they have x number of users next month? Focusing on this specifically is where quality word of mouth referrals come from.
  • FAILURE – What does failure look like?
    The worst case scenario for the client. At a minimum we want to be sure we’re trending away from this.
  • VALUE – What have I done that makes my client more successful?
    This is where we hold ourselves accountable. We want to ensure we are doing everything we can to move our client towards success.

You can just add to these sections as you learn more about your clients. The most important thing is to ensure you’re adding something to the value section on a regular basis.

Reviewing these client success documents will help you focus your efforts toward helping your client succeed.

Switching to Freelance with Pete Keen

One question that I get a lot is how I made the switch to freelancing. More often than not I just shrug and say it just happened to work out this way. I’m not trying to be a vague jerk, I just honestly don’t remember all the details and emotions of the switch.

This is why I recently had a call with Pete Keen, author of Mastering Modern Payments, who just made the switch from full time work to freelancing work in the past couple of months.

Sidenote: I’ve helped a ton of clients build their SaaS apps. The successful ones were the ones that thought about payments from the beginning. If you’ve never built billing code into your app you should definitely check out Mastering Modern Payments. It relaunches October 15th.

Here’s what you’ll learn in this podcast:

  • Using teaching and a writing to position yourself for freelancing (4:23)
  • Planning for the uncertainty and emotions of switching to freelance (7:27)
  • Getting the first check in the mail as your first big win as an aspiring freelancer (12:19)
  • Actually executing a plan to switch from full time work to freelancing (14:00)
  • Using information to avoid the black hole of worry (17:24)
  • Taking time to decompress (18:25)
  • Setting your first rate (21:42)
  • Sending out pre qualifier questions to filter out bad leads (25:26)
  • The relaunch of Mastering Modern Payments (29:18)

If You Want to Listen to It

Transcript: Making the Switch

[Ryan notes: The transcript below has my commentary inserted like this.]

Ryan Castillo: Hello everyone, this is Ryan here. I wanted to follow up with some of you.

I usually get questioned a lot regarding switching from a full-time job to a freelancing or contracting, and I decided to do an interview with someone who has recently made the switch. He’s a good friend of mine.

His name is Pete Keen, and he wrote a book on “Mastering Modern Payments.” Here’s Pete.

Pete Keen: Hi, I wrote a book about a year ago. It’s all about integrating Stripe with a Rails application.

The Stripe docs are really good, but they don’t really walk you through the whole process. The book is about going from a blank, brand new Rails app to having a functional Stripe integration in a story format.

It goes all the way through individual payments and subscriptions and marketplaces and everything. It’s sold really well.

Ryan: Cool. Pete, to clarify, when you were writing this book, you were still working full-time, right?

Pete: Yeah, I had a full time job while I was writing the book. I had a bunch of personal life issues. I got married, I had two relatives die. I moved across the country and I had a full time job, so there was a lot going on in addition to just writing the book. It was almost a distraction from everything else that was going on.

Ryan: Oh, like a productive, healthy distraction.

Pete: Right. But yeah, it was all happening during that. I started in April, 2013 and launched pre-orders July of last year in 2013 and then launched the actual book on August 15th.

Ryan: During that process, was there any time where you thought to yourself, “Hey, this book is going to really take off. Maybe it’s time for me to switch from full time work to working purely on the book”?

Pete: No, not a single moment. It was always like, my expectations were extremely low. My expectation was, if I can make $1,000, I’ll be satisfied, and if I can make enough money to pay for COBRA payments — for those of you not in the US, that’s health insurance payments — for a whole year, I would be ecstatic. I have far surpassed both of those goals. But it took more than a year.

Ryan: OK, cool. Then, what made you switch? I mean, what made you decide, “Hey, I want to stop full time work and go into like a kind of lifestyle where I’m my own boss and work”?

Pete: Sure. I switched jobs in July of 2012 and I worked a Rail shop for two years. Right when I started, it was kind of, I kind of felt like, this is a great environment and all the people are really nice, but it’s not really the job for me. Pretty quickly I was looking for other jobs and then I got sick. I actually got diagnosed with cancer in November of 2012 and that put life on hold. I couldn’t switch jobs because I couldn’t have a gap of insurance. I didn’t want to switch insurance at the time, so I just stuck with that job. Then, I got better and I went into remission in April of 2013.

Ryan: Glad to hear it. Yeah.

Pete: Thanks. Then, I was like well I still don’t want to be here, but the possibilities of changing jobs. It’s a big leap to even change jobs, so I stuck with it and worked on this book. Then, all that other stuff happened. Then, I launched the book and it did really well. Then around the same time, I was reading stuff by Brennan Dunn and reading stuff by Amy Hoy, all about consulting and doing products and I figured well I could do that.

That doesn’t seem that hard and it became real, a real possibility starting earlier this year.

Ryan: OK. For those of you that don’t know, Brennan and Amy have this path to products where you might start off with full time work and then you transfer to another job that’s higher paying then you do some side freelancing and then you make some transition into more consulting based roles. Then, privatized consulting and then maybe actually product stuff. [Ryan notes: Amy  actually had an excellent article that describes how to invest in the future with products. It actually gives steps to improve your situation if you’re working full time, freelancing, or consulting.]

It’s the whole product spectrum that I can’t remember who had talked about it, but someone had written a blog post about that recently. [Ryan notes: the product spectrum article was written by Sacha Grief. It talks about the steps and skills necessary for making the jumps from full time work to running a product business and how some jumps are harder than others.]

Pete: Yeah. I don’t remember who wrote that. We could probably look it up and put it in the show notes.

Teaching and Writing to Position Yourself as an Authority

Ryan: OK. Yeah. It seems like you had flipped that on its head. In stead of going straight into freelancing and consulting as a part time profession, you went into the product stuff and you were somewhat successful with that. Do you feel like that’s given you some sort of an advantage with starting out freelancing or consulting?

Pete: Yeah. Before I wrote this book, I had read “Lean Startups” and then “Start Small, Stay Small” which I believe is by Rob Walling. Is that correct? [Ryan notes: It was by Rob. You can find it here.]

Ryan: I’m not sure.

Pete: I think that’s by Rob Walling. Anyway, I read those books and then I read a book by Nathan Barry called “Authority.” Authority goes through, it’s almost a meta book in the same way that my book is meta. Authority goes through the process of launching a book or really a product of any type, but he focuses on eBooks. I bought it as an eBook and it was inspirational.

Like, Nathan could do this whole thing. He could write a book and launch it successfully and this is the process he used and I followed his process and it worked really well. I’m not the most successful of the people that he’s profiled or readers he’s profiled that have gone through the whole thing. It works really well.

The main thing, to go back to the question, the main thing that has been useful for is I was able to go from full time job, nobody knows who I am to well I wrote a book about this topic.

I am the only one so far that I know that has written a book on this topic. If someone needs help with Stripe and Rails, then, they can approach me and I can say, “Well, I wrote this book. What can I do for you?” By writing a book, you could have gain instant authority in a particular topic. I definitely think it was an advantage and continues to be an advantage.

Ryan: OK, let’s talk more of that a little bit then. Did you realize its advantage right away?

Pete: No, it was sort of in the back of my mind that it could be good. As I was writing and as when I went through the whole launch process. Then, I started getting consulting leads. I didn’t have any time because I was still working full time.

I have to reject or pass them on to other people. I think now, it’s been super helpful because I get call contacts at least once a week about people who wanted to do Stripes stuff.

Ryan: That’s really cool. Instead of you, actually having to build a lead pool, your book has actually provided that for you.

Pete: Yes, I’ve actually had not to contact anyone. I haven’t had to, like try to get a lead yet. I’ve been doing consulting part time since May.

Planning for the Uncertainty

Ryan: OK, let me see if I can try to paint a little picture and you can tell me if this is true or not. You came out with a book, your book did better than you expected. You are still working full time.

Then, the lead started coming in, but like you said you were busy. You built some confidence and potentially going into consulting.

Then, one day you said to yourself, “Hey, this is something that I can really do and I feel really feel confident about. I can make this switch.” Do you think would you call that a true statement? Or would you call that a false statement?

Pete: Partially true. It mainly centered around my confidence. I wasn’t and still not entirely 100 percent confident if this whole thing’s going to work out.

The nice thing is that, I’ve built layers of back up plans that first level back up plan is to just wait. Then, when the money runs out, then I get a full time job.

I’ve been a professional software developer for seven years. Based on how the market is now getting another job would be a couple of phone calls. So I’m mostly confident that this is going to work out. It’s nice to have backup plans.

Ryan: I think that speaks to me and a lot of our listeners who are considering the switch is, that even though, even if you have a book, the jump from full time work to consulting or freelancing is still scary, right?

Pete: Oh, yes.

Ryan: One of the big things, or one of the nice drawbacks in all these is the worse that could happen out of all these is, “Hey, we ran out of money and I can no longer continue freelancing. I’ll just make a phone call and get a full time job.”

Our industry allows itself towards that right now.

Pete: Right now, and that’s not guaranteed in the future. Six months from now, it could be a completely different story. Right now, I count that as a viable plan.

Ryan: Yes, and you have the spouse too, right?

Pete: Yes.

Ryan: What did it take to convince her? Like, you could do this or that you could make the switch.

Pete: It’s funny. She never doubted my ability to do it. She was always nervous about it. It took a lot of, going over the numbers and showing her plans, there’s so many spreadsheets.

I think I have a spreadsheet that’s got eight tabs with different scenarios and different breakdowns and things. That helped her out. Then, we sat down one day and I asked her, “What is the big thing that you’re most concerned about?”

She said, “Health insurance.” She didn’t even hesitate. I was like, “OK, that’s easy. That’s money.” That’s all it is. I sat down and I looked up. I went down through the marketplace which is huge by the way.

The whole Obama Care ACA thing is a huge boon to people trying to do this because prior to the start of those programs, if you wanted to do this, you either had to get insurance to your spouse.

Or you had to get insurance on the private market which was never comparable to what you could get to an employer. Either because, it was cheaper but didn’t cover as much and also they could drop you.

Or if you have a preexisting condition like, “I’m a cancer survivor. There is zero possibility that I could get an insurance prior to the ACA.”

Ryan: Yes, and that also speaks to your wife’s biggest concern. It’s like, “Hey, we have to go through this. I just want to be sure that we’re well taken care of.”

Pete: Yes, exactly. I spent probably two solid days going through all the options for us for health insurance trying to find comparable plans to what we got through my employer. Then, I finally found a couple and made up another spreadsheet that goes through all those options.

It turns out basically if you have a condition that requires medical care, you’re going to pay the same amount every year depending on, like you’re going to pay a higher premium and a lower deductible or you’re going to pay a big deductible on a lower premium.

It all evens out. It’s just like picking the one in the best network and then go for it. That’s what we did. We have a small gap about two weeks. That’s over and we’re totally insured and everything’s great.

Ryan: Awesome, congratulations. Now, do you have to…so, insurance was the big concern.

Pete: Yes.

Ryan: Did you do something from where you were working full time and then you went freelance part time? And showed her that you could earn that money to pay for the insurance?

Pete: Sort of, I’ve been doing consulting on the side since about May. I could point to that and say “I can bring money in. There’s no question that I can bring some of them out of money in.”

It was always enough to cover the health insurance. Then, it was like, what would I have to do to make it cover our whole budget for the month. Now, that’s what I’m working for, it’s getting enough client work to cover the budget.

October is my first full month and I think we’re going to make it. November, based on the clients that I’ve been talking to, we should be able to surpass that.

Ryan: Nice. Starting in May part time.

Pete: Yes, small. Just a couple of hours a week.

Your First Big Win as a Freelancer

Ryan: OK, more than anything I’m sure. If I remember correctly, when I first started out, the biggest thing that I wanted to prove to myself was like, “Hey, can I actually get someone to send a check to me in the mail?”

If I can make that one small thing happen, the rest of the stuff will start to take care of itself. Is that the kind of process that you had with freelancing part time?

Pete: Yes, it was a process that went from, ‘is someone going to send me a check?’, and it turned out yes, someone will send me a check for work that I do for them after I send them an invoice. Like that, right there is a big step.

Then, the next step is, “Well, this invoice is really big. Are they really going to pay it? It’s ludicrous.” It turns out that yes. They will just send you a check.

Ryan: Yes, is that whole impostor syndrome thing again?


Pete: Yes, exactly.

Ryan: It’s not just like limited to technology. It’s also, “Hey, man. I’m billing for this insane amount. There is no way I can convince this person to pay me. They’re just going to laugh when I send them this invoice.”

Pete: Right, or be disgusted or just throw it away, or whatever and never talk to you again, right?

Ryan: Yes.

Pete: Then, that’s not what happens. They pay it and then they talk to you. Then, they give you more work.

Ryan: Yes, at least for me, there has never been any scoffing as far as like, “man, I can’t believe you charge this much.”

Just as long as you do the work that you say that you’re going to do and you deliver it. When you say you can deliver it, people would gladly pay you.

Pete: Yes.

Switching to Freelance

Ryan: Cool. Then you have three or four months where you earn income. You checked all the checkboxes with your wife and gained your family’s approval. What made you say finally like, “Hey, everything’s lined up. It’s time to make the jump.”

Pete: We have agreed upon cut off where we said that we would talk by the end of August. Like, revisit the whole thing at the end of August. Because I was champing to go. She said, “Well, just wait.”

We talked at the end of August and agreed that our emergency fund was in such a place that we could go for a couple of months, almost three months at the time. Then, she said, “OK.”

I started figuring out an end-date to coordinate insurance overlap. It didn’t quite work out how I wanted to. We had a gap of two weeks. Nothing bad happened.

Really, the worst thing that happens is if something happened during that gap, we would have elected COBRA which would have cost us an additional 1,200 bucks through the end of the year.


Ryan: Yes, it’s an extra premium you have to pay. I think we did the same thing when my wife was switching jobs. Our insurance went to an unknown zone a little bit. How often do you look at that number, that war chest?

I think I remember having the same experience. I had a war chest and say, “Hey, this will last our family like several months. If we get to this amount, it’s time for me to start making calls for a job.” Are you looking that often right now?

Pete: Kind of really often. I go through and every weekday morning, I have this routine where I go through. I hand enter all of my financial transactions. I go through it in all the things that happen the last day and check off things that cleared.

Then, I have a couple reports. I’ve got a dashboard report that shows like everything’s in flight and balances and everything. Then, I have a runway slash burn down report that shows really detail like this is how things in the budget hit during the month.

This is how our cash flow looks. It has a graph and it has a date. Like, this is the date when the war chest runs out. This is the date when we totally run out of cash.

Ryan: That’s cool. That’s much more automated than I had. I had to look at the bank account and just do the calculations and the fly [laughs]. Very scientific.


Pete: Yes, I’ve been living in this personal finance system for seven years. Since in 2007, I was a brand new professional software developer being paid relatively well.

I bounced a rent check and I said that was really stupid and started tracking everything to the penny. Then, I transferred that system over to my new business. I basically copied the whole application and made a new one for the business.

Avoiding the Black Hole of Worry

Ryan: That’s good though, right? Because when you make the switch, there are a lot of things you can’t control. A lot of those things quite frankly could prove to a lot of stress. You can’t control when your clients going to pay you whether they pay you on time.

You can’t control leads initially, like how many leads are going to come in a given week. There are a lot of things out of your control.

If you have a system like you’re speaking to with your personal finance system, I wouldn’t say it gives you false confidence but it gives you some kind of confidence as far as like, “Hey, things are OK and things are going to work out.”

Pete: It gives you information. If you don’t have it, it’s just a black hole that you can throw worry into.

If you have information that you can look at, then you can, not necessarily stop worrying have a focus and have actual concrete things you can take action on. That’s what I’ve done.

If any listeners out there are going to, are considering doing this, I think one of the big things is to get personal finances in order.

Either build yourself a system or find a system like you need a budget or Mint or something.

Then, for business finances, it’s even more complicated so, get an accountant. I don’t have an accountant yet. I’m getting to the point where I think I should have one.

Ryan: Yes, I haven’t really made a lot of hires in the past several years, that the big ones for me was finding an accountant. Eventually, finding like some kind of assistant to delegate some of the work to do.

Time to Decompress

Ryan: This was pretty cool that you have told me about before was when you quit your job, it’s not like you went into a straight panic mode and start working right away. You actually took a couple of week break.

Pete: Yes, I had to force myself. Like, I hadn’t take an actual vacation from work since before I get sick. Since 2012, I hadn’t taken any sort of vacation other than three days for honeymoon.

Ryan: I think I remember you telling this about that was like, “Man, I got sick. I had to save my time for my honeymoon. I hadn’t really the time to relax.”

I remember when you kept on considering about doing this switch to consultants like, “I just had the freedom to do that.”

Pete: Yes, that was. The big impetus for this whole thing was freedom to not be butt in seat for a number of hours on a certain schedule that I don’t control. I know there’s full time jobs out there that allow you to do that.

There aren’t full time jobs out there that allow you to do that and work out on your own projects during what would ostensibly be work time.

Ryan: What did you do for those two weeks?

Pete: For the first week, I limited computer use to probably 45 minutes a day, just doing my daily finance routine and then, checking email and stuff.

Then, I read books. I played a little bit of video games. I think one day, I watched “Clone Wars” all day.

Ryan: That’s cool.

Pete: Yes. It was great. It was magical. Then, the second week, I worked on my book pretty exclusively. I think I did a couple little client projects during that. They couldn’t really wait. I mostly worked on my book. That was also great.

I got progress in areas where I hadn’t been able to get progress because trying to focus on that kind of thing for just like an hour a day is really hard. Like, loading all the state into your brain that you need to manage.

What am I going to write about? But, also writing the software that I’m going to write about at the same time that takes a lot of concentration. It really helps that I had full, whole days to work on it.

Ryan: So, it’s the whole context which problem right?

Pete: Yes.

Ryan: For me, that’s a reason why I tend not to take on more than two clients at a time. It’s just because my brain can’t deliver the same kind of value, if I was constantly switching between clients.

Now, do you think this is something you’re going to build in into your, I guess consulting schedule? Or you take a couple of weeks breaks here and there throughout the year to work on your book or other project is?

Pete: Yes, definitely. Part of how I’ve structured my rate, it came to the rate that I came to is predicated on having a certain number of weeks every year where I don’t get paid.

I assume that I have at least depending on which call I’ve looked at this treated it’s like it’s 10 to 15 weeks of unpaid time during the year. That maybe optimistic, I don’t really know yet.

I have my rate set such that I can take that at least that amount of time off and not be hurting.

Setting Your Rate

Ryan: Let’s talk about your rate a little bit. How did you come up with it? Did you come up with a number, or it sounds like you reverse and engineered the amount of money that you would need for the insurance, for your family’s income? Then, came with a baseline number?

Pete: Yes, basically. I took the monthly budget or household budget and divide it into weeks. I guess before that I decided, “So, this is how much I need to make.”

Then, effectively multiplied it by two assuming that my overhead in Brennan’s book, Double Your Freelance Rate, he has a whole couple pages dedicated to those. Like, how do you decide to rate. [Ryan notes: Here’s the link to Brennan’s book. And while you’re at it I’d recommend subscribing to his newsletter. He’s one of the five newsletters that I actually subscribe to and read.]

One of the things he’s got in there is you can reverse engineer. One way to do it is to take your monthly burn rate and then, multiply it by some multiplier. He’s got a really optimistic one in there of 1.5, which I found not to be quite that true, because of the health insurance thing.

That multiplier needs to cover taxes, expenses, putting money away in the business such that you don’t have to worry necessarily about well this check is coming in and I need to pay this bill.

The ideas that your monthly revenue is somewhat divorced from your monthly expenses. At least week to week timing. Building up a buffer is included in the multiplier. He said 1.5 and I tried that but, it didn’t seem it was really enough.

I ended up writing this really crazy complicated spreadsheet that spat out like 2.5 and 2.25. Between 2.25 and 2.5 depending on if we could deduct the health insurance from the taxes or not.

Ryan: That goes back to the whole like having information, right?

Pete: Yes, exactly.

Ryan: One thing that I want to speak to is, it’s misleading to just call this your rate. Because what actually is, is it’s the minimum.

It’s the minimum that you need to make, whereas for clients, you can actually charge much more than that depending what they actually need you to deliver.

Pete: Right, let’s say my minimum rate is a hundred bucks. Then, for example, then what you can charge clients is what you want to be charging is at least some like 20 percent higher, 20 to 30 or 40 percent higher than that.

To build a bigger buffer or to cover other bases that you need to cover or unexpected expenses and things like that. That’s what I’ve done. I unfortunately I have a range of rates right now.

I don’t really like it. I’m trying to say to have new clients start at my top rate right now. I don’t really know how it’s going to work.

Ryan: I think, that way even though you might not like it and feel uncomfortable having a range of rates right now. You’re not putting yourself in a box. Like say, “This is my rate. This is everyone’s get charged.”

There’s a lot of experimentation in all these. I think my first year one of the things that I did was, every time I got a new lead, I would push up my rate like 20 bucks. I know it until people’s going to start saying, “We couldn’t afford that.”

Or just giving me a little bit of feedback. Eventually, you start to rely on other kinds of data to try come up with your rate. One thing that I recommend is knowing actually what the client’s budget and what they’re trying to achieve.

Using these two information to come up with a rate based on helping them achieve their goal and still being able to make money. That’s really cool.

Sending Leads Pre Qualifier Questions

Pete: One of the things that I started doing really early on is sending out a set of, if someone is sends me a cold lead, like if someone calls in and, “Do you want to do some work for us?”

I send them a set of pre qualifier questions, which I customized a little bit depending what they say. Most of the time it’s like, “Tell me more about what you want. Tell me what your proximate budget is or the question is, do you have a budget?

Is it at least a certain number of thousands of dollars?” That weeds out a lot of people that are just like, “Well, I just want an hour of your time.”

Ryan: Yes, because you got a lot of those.

Pete: Right, yes. Exactly. Then, “When do you want to start and who am I going to be talking to. Is it you or is it developers on your team or what?” That’s been super helpful because it helps clients actually think about what they want and concrete terms.

If you just say, if someone sends you an email and then, you just respond, “OK, let’s have a phone call.” That phone call could last an hour and a half. You couldn’t actually get a good idea of what the project is.

In this way, at least an outline of the project is there in written form that I can then think about before we have a phone call. Then, it’s a framework to talk about when you’re forming the idea of what the project’s going to be.

Ryan: Yes, I think more than anything what you’re talking about is like having a process. It’s just having a process that reveals important information. It’s just not like, “Hey, we’ll just take this conversation in the fly.

I just learn anything I have to learn about you. I’ll somehow absorb all that. We’ll just work in our engagement and everything’s going to be perfect.”

There’s certain kinds of information that is pretty important to actually building a successful endeavor like, what’s the delivery date for this? How else are we going to make money? Like, what kind of budget are you working with?

And all those kinds of things. Having a process like that I think also helps filter out specific clients exactly what your pre qualifying emailed us. That’s cool. I think that covers a lot of what we want to talk about.

I think to me, some of the, I guess the key points in all this was one, you can build leads through education. Your book is something that educated people on stripe and because you position yourself as an authority and something that generate leads.

Another thing is the process of switching from full time work to freelancing is scary for everyone. No matter how prepared you are. Preparation does bring a little bit of confidence and gives you more information that whether or not moving into a positive direction or not.

I guess, by having that information, you can make those calls based on information rather than emotional fear of our false confidence. It knows another thing.

I can’t think of anything else right now. I think those really are the key things that struck me through this conversation.

Pete: If at all possible, take a break in between.

Ryan: Yes, taking a break is key. Even now, I’ve been doing this for several years. There are times where I just have to tell the client. “Look, I need a couple of days or a couple of weeks just to decompress.” Just because we have all this freedom.

We should actually take advantage of it and build in vacations to recharge. One thing just to close things, I know that you’re prelaunching your book.

You mentioned earlier that you’re going to be working on that again or you are working on that again. Do you want to give the listeners a little bit information regarding your second book launch?

Mastering Modern Payments

Pete: Sure, the book is “Mastering Modern Payments Using Stripe with Rails”. The relaunch involves several edit passes. Then a completely rewritten chapter on subscriptions. That was the big feedback from the first edition.

It’s been, this didn’t help as much as people wanted to is subscriptions. I completely took all the feedback and I distilled it into a brand new chapter about how to do subscriptions.

Then, updating everything to lead these versions. Then, also a brand new web based reading experience. If you’ve seen Discover Meteor, it’s heavily inspired by that. That comes out on October 15th.

Ryan: All right. I look forward to checking that new copy. We’ll be in touch. Good luck on the next year. I would wish you luck.

It seems like you’ve got everything lined up to be very successful on this freelancing/consulting world.

Pete: I hope so. I take all your wishes if you want to give them. I think it’s a lot of preparation in making your own luck.

Ryan: Alright, cool. Thanks.

Stop leaving money on the table with your freelance rate

When I took on my first client, I had no idea how to set my freelance rate. Asking for too much would make me seem greedy. Asking for too little and I would fall into the trap of being overworked and underpaid. It has taken a couple years, but I’ve finally come up with a system to set a rate that is best for me and my client. First I had to unlearn the hard way.


Most freelance web developers base their rate off their current (or last) salary. Our salaries represent our market value so it makes sense to use it as a basis for our rates. Well, as it turns out, thinking this way is wrong.


To figure out what you should charge, you need to understand how your work fits into a client’s budget. You may know your client’s budget but how did they even come up with this budget? What is the relationship between the budget and what you are working on? A quick story will help illustrate my point.


Sally, the CTO of the Acme Corporation, just got off the phone with Wile, their biggest customer. He wanted some quick drying cement delivered today, but yesterday’s website outage prevented his purchase. Wile is threatening to take his business elsewhere, costing the company thousands of dollars in revenue.

What Wile doesn’t understand, is that the outage was out of the Acme Corporation’s control. Their sales site is hosted on Jeroku and when Jeroku started doing maintenance, it took the sales site down. Sally decides to make a tough decision: it’s time for them to move off of Jeroku.

Sally had seen the warning signs for months: their Jeroku bill is well over $10k/month and outages seem to be happening more and more. She’s wanted to move them off, but delayed the decision because they didn’t have a dedicated web developer on staff. Sally wants this done right away. So they bring in Bill, the freelancer, and ask for a quote. Being new to freelancing, Bill thinks he has to come up with a hourly rate.


At his last job, Bill was compensated as follows:

  • a $70k salary
  • Health insurance
  • 3 weeks paid vacation plus holidays

To come up with his freelance rate, Bill reverse engineers what he was last compensated:

($70k salary + $20k in health insurance)
(49 working weeks * 40 hours)
= ~ $46/hr

Now Bill has an hourly freelance rate.

Based on his experience, Bill estimates it will take two weeks for the migration off of Jeroku. He quotes the Acme Corporation at $3.7k (40 hours * $46/hr * 2 weeks). Sally quickly accepts. Bill doesn’t realize it, but he’s just missed out on a ton of money because he’s missing a key insight in his calculation:


Sally knew it was costing $10k/month to stick with Jeroku. If the Acme Corporation could migrate off of Jeroku by the end of the month they would save $10k next month and every subsequent month afterwards. With this in mind she set an initial budget for the project to $10k. This is why going for Bill’s $3.7k quote was a no brainer.

Sally was considering the amount of money it was saving her company. Bill on the other hand, only considered the money he thought he should be making. Simply put, Sally was focused on a solution while Bill was focused on hours.


Let’s revisit the Acme Corporation but now Sally is contacting you for a quote. Your first task is to talk to Sally and identify two things:

  1. Their problem. The more specific details you find, the better. You get bonus points if you can identify how much money the problem is costing them and therefore, how much money a fix will save/make the company. In our example, the Acme Corporation loose $120k/yr staying with Jeroku and significantly more whenever their site goes down.
  2. The budget to solve the problem. To find the budget out, simply ask: “What is your budget?” If they don’t have an answer for this, it’s a red flag. This client has not put enough thought into their cashflow, what makes you think they’ll be reliable in paying you? You don’t need to know the exact budget number, just a ballpark. Jason Fried of 37Signals has an excellent tip on this:

When they tell you they don’t have a number say, “Oh, ok. So a $100,000 solution would work for you?” They’ll quickly come back… “Oh no, probably something more around $30K.” BINGO: That’s the budget.


You have already migrated 8 or so Rails apps off of Jeroku so the switch for the Acme Corporation shouldn’t be a problem. You offer to get the work done for $8k, knowing their budget is $10k. Plus, you guarantee the work will be done in time thereby assuring their savings of $10k next month.

Compare this to Bill’s quote of $3.7k, and you’ve doubled what he would have made for the same amount of effort. All because you thought about the problem from the client’s perspective.


I was Bill for a long time, each client engagement was just someone paying me for the hours I worked. Then I realized clients only care about solutions.

You should keep this in mind whenever working with clients. Understanding your client’s thought process will add clarity to the value you are providing and how you bill. Most importantly it will help build lasting engagements. Give it a shot.