The advice that everyone trots out on HN whenever someone mentions hourly rates of BILL BY VALUE CREATED!!1 goes beyond being trite: it's confusing and damaging.
One of the most important things I ever did was work out my hourly rate, using exactly the method outlined in this post.
If you're early in your career, you can't just waltz in and say you're going to charge someone $4,000 to write them an email responder sequence.
By working out the inelastic base hourly rate at which you need to work in order to earn a level of salary you ensure that:
1) You know exactly what your opportunity cost is versus getting a job (ie. you are making a conscious decision to work for $40k/year instead of the $90k/year you could earn if you went and got a job somewhere)
2) You know that when it's time to scale, what you'll have to be able to charge in order to hire someone at "market rates"
3) It makes your negotiating position much much stronger - when people try to screw you down on price you know precisely where your "bottom line" is - at what point am I losing money here?
If you want to bill based on value created, that's great and it's something you can achieve once you've developed a strong position in the market and a bit of a track record.
Up until that point (and even afterwards) it's vitally important to know the base cost of an hour of your (or your employees time).
Saying that someone shouldn't work out their base hourly rate because we should all be billing based on value created is like saying that you should run a retail shop and sell everything according to the maximum you think people should pay, but never look at the cost of purchasing the stock in the first place.
One of the most important things I ever did was work out my hourly rate, using exactly the method outlined in this post.
If you're early in your career, you can't just waltz in and say you're going to charge someone $4,000 to write them an email responder sequence.
By working out the inelastic base hourly rate at which you need to work in order to earn a level of salary you ensure that:
1) You know exactly what your opportunity cost is versus getting a job (ie. you are making a conscious decision to work for $40k/year instead of the $90k/year you could earn if you went and got a job somewhere)
2) You know that when it's time to scale, what you'll have to be able to charge in order to hire someone at "market rates"
3) It makes your negotiating position much much stronger - when people try to screw you down on price you know precisely where your "bottom line" is - at what point am I losing money here?
If you want to bill based on value created, that's great and it's something you can achieve once you've developed a strong position in the market and a bit of a track record.
Up until that point (and even afterwards) it's vitally important to know the base cost of an hour of your (or your employees time).
Saying that someone shouldn't work out their base hourly rate because we should all be billing based on value created is like saying that you should run a retail shop and sell everything according to the maximum you think people should pay, but never look at the cost of purchasing the stock in the first place.