I’ve read several articles, and very much agree on the “charge by the project, not by the hour” philosophy, as hourly is bad for both sides.
Obviously the price of something should ideally be what it’s value is to the customer, and then you can decide if that’s enough dough to do it. But, coming from it the other way, if a customer says, “I need a piece of software to do x”, what sort of system do you professionals use to decide what to quote?
I agree with the “by project, not by hour”… but how i used to calcuate a bid was to determine how many hours I thought it would take, add a bit on , and adjust for customer attiude 
This way if I did it in less hours than I thought then I made a bigger “profit”… but if it took me more hours than I estimated, the customer isn’t dinged for it
Thanks, @DaveS. That’s one way, but as you get better at programming, more experienced, build more libraries, you’ll take less time than you did before to do the same project. So you’ll actually be working for less as you improve if you think of it hourly. Would it not be better to try and determine what the customer is expecting to pay (or can afford to pay) or what a similar piece of software might cost? It doesn’t make sense to charge less just because you can do it faster. (Insert old fable about mechanic that takes 2 minutes and charges $10,000 to hit the motor with a hammer)
No… the only difference is , as you become more experienced the $$$ amount you use to multiply by those hours increase… So at one point I might have said $30hr and 100 hours, today I might say $150hr and 50hrs…
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@bkeeneymight have some useful insights as to how they did this
Perhaps on his blog as well
I know there have been some advocating “value based billing” which seems to amount to asking the client “how much is this worth to you?” and charging that or somewhere in that range (thats a horribly gross oversimplification but it does depend on what value the person asking for it attaches to it)
If you get a project and they say “hey this will save us 1 million a year then that project is probably worth 1 million”
I think Susan Fenema has posted about this sort of billing as well
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… but we only have 10k as a budget !
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You DO know that you can offer flexible payment terms, don’t you?
Thanks, norm!
These?
https://www.bkeeneybriefs.com/2015/01/client-red-flags/
https://www.bkeeneybriefs.com/2019/11/customers-for-life/
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Hourly vs. Turn-key (Value) pricing also can have the following things to keep in mind. For example if the customer and yourself have a super solid requirements statement of work that outlines exactly what is in-scope then you might do better with a turn-key price (the more efficient you are the greater your profit. Additionally if out of scope items creep up you can then have an hourly price built into your statement of work (SOW) for said situations.
When you have a customer engagement that is very unknown as in the case of taking over a project for another developer – There is very little opportunity to have a solid scope so doing a time and material rate/project for this makes the most sense.
Many of times it is so much easlier just to throw an hourly rate out for people in which you open yourself up for devaluation. For example you may have Subject Matter Expertise in the arena of what you are coding so your hourly rate for example may be $150 per hour, but say another coding house that can code their faces off, but are not SME’s may say yes we an do $50 per hour. On the surface the customer may be like – dude $50 per hour it is! (If this happens then you didn’t do a good enough job selling your value - which is the key topic I am bringing up in this example). In the end usually on this one the customer will pay more since the cheap shop will most likely use many more hours than you would as an SME coder.
Hopefully this makes sense – But the moral to my story is that BOTH ways are good – You just need to be comfortable on when and where to use each one (And above all be able to sell your value!)
Past this there are other ways to help a customer to come your way in consulting.
#1. Invoicing: Offer a discount for early payments: For example most US corporate customers these days are NET45-60 – You could give a 10% discount for NET15 Payment which gets you the cash earlier and gives the customer a discount.
#2. Make your warranty terms and conditions clear - this will help
#3. Be gentle pricing out the customer owning source code – Some competitors use this as a bargaining chip (i have seen them do this for free and do this for a significant price line addition).
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Write the specifications expected for the finished product to avoid last minute new features for the same price / delivery time.
Remember: this is a war and you have to win it.
I hope what I wrote above is crystal clear.
There is a book called “Hourly billing is nuts”. See https://jonathanstark.com/hbin . But as Mike said things are not really black and white.
Perry Marshall talks about 10$, 100$ and 1000$ per hour skills. Developing software is in the range of 50 - 100 $. Communicating with the customer and showing that you understand what the customer wants is the key to higher pricing.
Is it a Covid tracing app? Yes? That’s great, you want to charge somewhere in the region of £11 million. Don’t worry about it, it doesn’t matter how it works out.
LOL idd! Here in Belgium it has been given to a totally unknown company in the field of Mobile Apps (they did even lie on their website about their ‘big’ clients).
I know from the CEO of another company who could’ve made it months ago for a fraction of the price (but they did some work on the the Dutch and German one I believe), but were not even considered because they were a non-profit European consortium. I guess not enough money could go back to the politicians pockets in that case… 
The problem is that clients want the Taj Mahal but only have the budget for a lean-to shack. If a client was pestering me about a project being too costly up-front then it was a red-flag indicator saying they’d always be trying to nickel and dime me to death.
One client brought the same project back to me 3 times hoping I’d be cheaper (the first two times they had gone with a cheaper developer and came back frustrated each time). We knew it wasn’t going to be an easy fix and it required some refactoring but they didn’t want to listen. Eventually they went away because I wouldn’t budge on price.
Honestly, I’m glad I’m out of the consulting game. Pricing of projects is stressful given that often the client doesn’t know what they really want and if they do they don’t know the investment required to get it done. We’ve had several projects fizzle due to lack of financial resources on their part. Writing good software takes time, effort, and financial resources…
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Thanks, everyone! Great tips and information.