How should a professional price their services? These are my opinions on that.

How should you charge?

Clients often asks me:

How much do you charge by the hour?

or the equivalent:

What is your tonnage rate?

It was a question that I never understood: because it makes no sense. The real question(s) should be:

• How much is it going to cost,
• to deliver XYZ (time of delivery, quality)
• in order to achieve my ABC goals. (Clients hire me to solve their ABC problems, not mine).

Now we’re having a conversation about getting to your goals, and the best way of getting there. This insolves questioning your assumptions, or assumed design(s) which are most likely to be problematic. The value of our expertise lies in correcting faulty designs to get to your objective. If you charge for deliverables, you need to have a conversation about deliverables. But if you charge by the hour:

• the deliverables become almost secondary
• the time and quality taken to deliver also kinda becomes secondary.
• the incentives are mis-aligned and this creates distrust.

… worse, the tenor of the project creates disputes: e.g. did you really take 10 hours to do that? (I’ve wasted so much time “arguing” with clients about this.)

The consequence of the above, is that it leads to documentation headaches: do you have the resources and infrastructure to play that game?

The Documentation Nightmare

If you use a metric to determine how much you are going to charge - then the question pivots away from price / deliverables, to one of documentation because that’s what the contract says. The documentation burden is massive:

• Time sheets? You have to fill them, and get all your guys to fill them (good luck) and you need a system to do that accurately. Then send them over for approval, on time. Too busy on-site? Oops: now you’re “time-barred”. Then the arguments ensue:

But how do I know those hours aren’t inflated? Were your guys working on MY job? Do you have photos?

More documentation on top of documentation? The proof required is endless. And you need to become an expert in order to interpret it:

“This job required a lot of grinding, welding, spotters, more time rigging, more crane time: therefore it would take 60 hours vs 20”

A similar logic exists for “tonnage” / “welds” / “bolts”. So now you have to track all the additions and subtractions of tonnage? Or the welds / bolts on the job? What if the client wants a credit e.g. if they remove a column? All of this requires documentation.

In other words, does a specific rate compensate for the actual cost, and value you are providing? ¹

But why?

Big builders do this because they are rigging the game against you ².

They know that unless you have the resources to play the docs game, you’re gonna get screwed.

They also know, given their onerous retention and guarantees - that you can’t walk away.

Charging by the Hour? A Losing Game

The following example will illustrate why it’s a bad idea:

Someone asked me about a Ruby programming problem. I solved it in less than 30 seconds, because I know what I’m talking about. If I charged by the hour I wouldn’t make any money (I can only charge for 30 seconds) and I would be incentivised to take longer. Ironically, tyros may make more money because they take longer (because they simply do not have the expertise)!

If I said:

• I charge $16,500 / hour clients would think I’m crazy.
• But if I said: $550 for a fixed-price turn-key solution (which amounts to the same hourly rate) as above - then it’s a different conversation. In fact, I effectively jacked up my “hourly” rate, by fixing the price, and working like crazy to deliver it quickly. The benefit? Clients appreciate fast solutions and the certainty of a fixed price, without arguments.

Does it make sense to apply a schedule in Building and Construction?

A similar logic applies in the construction game. But the big builders want to nail you down to an hourly or tonnage rate. That keeps it simple (and cheap) for them - and if you go out of business: it’s no loss to them. But, we’re sophisticated professionals. i.e. We know:

• how to build things

• from every aspect of managing a project: from design, all the way to welding, fabricating, rigging, transporting, galvanising, erecting etc.

I don’t want to reduce the skill associated with all of that to a tonne rate or hourly rate.

If I cut the time required or complexity, or am just better at my job - I should be able to charge MORE, not less. i.e. We want to charge for our KNOWLEDGE, rather than time, or material. We don’t want to play the docs game.

Secondly: prices change. What if steel prices rise? What if the government announces a ‘big build’ project and vacuums resources away from you? Fixing a rate up-front destroys your ability to price accurately.

How do you negotiate this?

The question is: can you negotiate a non-standard contract (which omits standardised rates), up-front, with one of the big builders?

If not possible with the big builders, it may be possible with mid-tier builders, especially family-owned operations.

Pushing Back On Restrictive Terms: That’s a good thing

Secondly, contractors seem to think that if they “push-back” on a big builder’s contractual terms: they may be seen as “difficult”. Nothing could be further from the truth: if you can demonstrate that you have an understanding of contracts, and if you have the resources to “counter” what they say - that will be seen as a big “positive” - i.e. that you are a serious professional. Whereas if you simply “accept” the worst contract that they put forward to you - you will be seen as unsophisticated. I’ve spoken to a contract admin - a close friend who worked at a big builder - and this is exactly how you will be characterised. Push back - and just by doing so, you’ll get a better contract.

Conclusion

• Charging to any type of schedule, on non-standard jobs, is a losing game - especially if you cannot mitigate or cut the scope in order to achieve a desired outcome. Also if you fix the price to a rate, up-front, your rate can only be wrong, or horribly wrong.
• Avoid fixing your rates to some arbitrary metric which requires umpteen documentation. The admin requirements are onerous and can only result in arguments.
• Change for expertise and deliverables to a fixed scope. If the scope changes, then so must your price.
• Try and focus on charging for value, as opposed to charging on the basis of “cost”.
• Fixed prices incentivise both parties to solve problems quickly.

¹ But if you reduce the steel / welds / grinding etc. on the job as a result of your expertise - shouldn’t the client be paying you more, rather than less? (because job can be done faster, with less risk of something going wrong)?

² Why are the contracts are poorly worded, contradictory (at times) and deliberately long. I don’t think this is by accident: fighting something out in court takes an extraordinarily long time, and is very expensive.