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EG67: Answering the “what is your hourly rate” question

Written by Emanuel Martonca
on September 19, 2022

There is nothing that screams more that someone is a buyer of “software services” than when they ask, in the first 10 minutes of the first conversation: “what is your hourly rate?”.

And the way you answer this question, or the ways in which you can handle not answering right away, can make a big difference to the outcomes of all your sales efforts.

Why clients ask this

First, let’s see why this is happening. Why are so many prospective clients so fixated on getting from you an hourly rate?

Because people are lazy.

I don’t mean this in the moral sense of the term, but in a very practical sense.

Most people, most of the time, look for the shortest distance to whatever they are searching for.

This is not a bad thing. That’s how all human progress happens. Somebody thinking to themselves “there ought to be an easier, more efficient way to do this”. This is what leads to new inventions and innovations.

Unfortunately, only a very small percentage of people are inventors. Everyone else trying to be more efficient leads to them cutting corners and taking shortcuts they shouldn’t be taking.

This is the vast majority of people buying software services and asking about hourly rates.

What is the shortest path they see to choosing a vendor? 

Creating a simple table in an excel file (or, even easier, in their heads), that looks like this:

  • Vendor A – X EUR per hour
  • Vendor B – Y EUR per hour
  • Vendor C – Z EUR per hour
  • ……

Is this in their best interest?

Most of the time, it’s not. 

What is your best interest?

The answer the buyers are looking for is typically: here is our rate card, with the hourly rate of each role and seniority in our team.

If you just give this answer in your first conversation, there is no more sales process, because there is very little you can do after this to influence the buyers, their decision making process and the outcome.

By giving this away so early, you have placed your boat at the mercy of the waves, the wind and the sharks swimming around, and you have surrendered all control to fate.

Your best interest is to learn as much as you can about their needs, their context, their requirements, so you can create a project proposal that is close as possible to what they want, and to calculate a price that is optimal for that project setup.

Optimal price means that it’s not so high that you are going to lose the project on price, but also not so low that if you win the project you are going to regret winning it.

What to answer

Some clients buy hours, others buy value.

Depending on who you have in front of you, the best way to answer their question about price changes.

At one extreme, maybe 20-30% of clients buy hours and nothing and nobody can change that.

If you don’t answer the hourly rate question you are disqualified from their process.

Whether that’s a good or a bad thing for you, it depends on your strategy and the types of clients you want to work with.

At the other extreme, maybe 10% of clients buy value. They will probably not even ask about the hourly rate in the first meeting, so you are safe.

But the rest, 60-70% of clients, are in the middle. They ask about hourly rates, even though it’s in their best interest to buy value. They just don’t know it yet.

The right vendor, with the right sales process can make a difference with these types of clients.

I have seen many companies that are looking to buy hours from their software services vendors, but if you take the time to engage with them, understand their context, their needs and possibilities, they can be convinced to buy value.

This is your opportunity: the middle ground clients.

WHAT THIS MEANS FOR YOU

The answer is not so important.

What is more important is how you position yourself in front of the buyer.

Are you selling hours? Are you a commodity that can be easily replaced with another vendor?

Or are you trying to sell value, quality, to differentiate yourself in front of your customers?

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