Rates. One of the most discussed aspect of freelancing.

While I can understand why many businesses discount their prices when a customer is buying in large quantities, I don’t think it makes much sense for freelancers. Especially with long-term contracts. Here’s my reasoning.

Early termination

The majority of freelance contracts are written where the client or freelancer can terminate the contract at any time. This means that even if you sign a 10-year contract with a client, they could still cancel it after one month.

If you happened to give a discount to that client, of say 15% off your rate, you now effectively gave a 15% discount on a one-month, short-term contract.

Value

I believe in pricing my services where the value I provide is much more than the cost of my rate. Typically I aim for a 10x or higher value, but this can be hard to directly measure in software development. But sometimes when your project is a make-or-break project for a business, the multiplier goes through the roof (e.g. startups building a product).

What the client is paying for is the value I deliver. If they want to pay less, then the value of the project to them should also be decreased. Typically by lowering the budget or the amount of hours purchased.

Time

This is especially true on projects that are billed based on time (hourly, weekly, etc).

You’re going to always want to deliver as much value as you can in a given amount of time. Just because you gave a 15% discount to a client doesn’t mean you should work at 85%. It’s both ethically suspect and damn near impossible to measure.

Long-term contracts become more efficient

When a client has a long-term contract the value I’m delivering actually increases over time. As both of us learn more about each other and gain experience, we’ll work more efficiently. For example, knowing how their organization and processes work means you can avoid red-tape. This translates to time saved, which in turn saves your client money.

Don’t lower your rates on a long-term contract

You shouldn’t ever lower your hourly, weekly, or other time-based rate just because the contract is longer.

If you want to lower your rate or offer a discount for other reasons, that’s fine. But not just because you’ll be working longer.

Eric Davis

P.S. Many of my long-term clients actually do get a form of discount when they sign a long-term contract with me. Since my rate is locked in when they sign a contract, that means they will pay that rate for the entire term. As someone who raises rates frequently, in effect this lets my clients be grandfathered in at a lower rate than they’d get on a new contract with me.