Client wants to reduce hourly rate at the start of a new project

Question

I am a freelance developer from Uruguay with 3 years of experience in iOS development and about to get my degree as a systems engineer next December. I worked about a month for a new client from South America, and we set a rate of USD 20 per hour and 40 hours per month. There is no contract.

After a month, I sent a bill for 43 hours (I worked 10 more hours but I did not include them in the invoice), and I got paid. They told me they were happy with my work but because of budget problems, they will not be able to continue paying the agreed rate.

In order to continue working with them, they are offering me a rate of USD 10 an hour for 3 months and then return to USD 20 per hour.

I consider USD 20 per hour a low rate. I believe they can cover that rate. I could renegotiate but this situation does not give me much confidence in the future.

What would you do? How can I say in a professional way that I do not accept their proposal?

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Conclusions after calling my client

I held my ground, as you all suggested.

Then they offered to renegotiate my hourly rate (a midpoint). I said it was not viable.

The client changed the scope

They offered me to work on the highest priority functionality at the same rate as we agreed at the beginning. When this feature is done, we will stop working.

They asked me to send them a budget

They are deciding whether to accept it or not. When they figure out their own budget issues, they're going to call me.

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I am thinking of accepting this proposal because it is what we agreed upon. I'm going to make a contract with the budget and the conditions. I will ask them to make a deposit before starting this functionality.

Lessons learned

• Always work with contracts
• Do not do extra hours without billing them
• Calculate your rate based on standards
• Get some sort of deposit when starting a new project

Answer 1

First, if you worked 53 hours, you need to bill for 53. The client is getting the value of 10 extra hours, and you're giving it away for nothing? Don't do that any more.

Second, "budget problems" is a negotiating tactic in this situation. The value of your work hasn't decreased a bit. You can't call your phone company, electric company, or landlord and offer half the regular rate for reasons of "budget problems", so why would you accept that from your client? If they need you, they pay your price, or find someone else. Stand your ground - and start looking elsewhere. They're playing a game with you to see if you'll bend, and if you bend once, they'll know that you can be bent again in the future.

Answer 2

I can renegotiate but this situation does not give me much security in the future. What would you do? How can I say in a professional way that I do not accept the proposal?

I would refuse to negotiate my rate down. Frankly your rate is on the cheap side for that type of development and they should be grateful you are charging such a generous rate.

If you have other clients and can afford to do to it, I would tell them to take a hike. If you cannot, I would try to get more clients / jobs and then tell them to take a hike.

A couple other points:

• As a contractor you need a contract to protect yourself between you and your client, and it should include a signed definition of scope.
• You should also consider getting a deposit for any new projects so that you can protect your self a bit for non payment.

Answer 3

I can renegotiate but this situation does not give me much security in the future.

A certain lack of "security" is part of the deal in freelancing. You work around that by having a considerable amount of money set aside to cover dry spells, building up a diverse and reliable client base and having a good reputation and network. Most importantly you work with contracts that outline rates and minimum hours, among other things.

Note that this company is either in real financial trouble if they're struggling to pay what is essentially a very cheap rate, or they're a bunch of skinflints. Neither makes for an attractive client.

What would you do?

That isn't usually a question we answer as it's typically dependent on what your goal is, but in this case I think it's safe to say that unless you are dependent on any income, even it's half your usual rate, you should refuse to even consider their offer, push back and start looking for a new client.

As a general aside, you should also stop doing unbilled hours. Either work out an arrangement where you can bill those extra hours (with prior client approval for each instance!), push back against unreasonable demands, or increase your rate to compensate.

How can I say in a professional way that I do not accept the proposal?

Be polite but firm, focus on your core message which is that the rate they propose doesn't work for you, highlight the different ways to resolve this. An example script:

I'm sorry to hear of your budgeting problem but I'm afraid I'm unable to reduce my rate. We agreed upon a standard rate when starting this project and my rates are already extremely competitive.¹ X$ an hour is a very fair price for my services and I'm not able to go below that rate.

What other things you say depends on a few factors.

Contracts sometimes contain breach clauses where the client would have to pay some fixed price even if they no longer need your services to reimburse you for reserving a large portion of your time. They typically refer to a minimum amount of billable hours per month so that you're contractually guaranteed a certain minimum payment. The client can't just get out of such a clause but a contractor in such a situation could say something like "I can make sure not to work more than the contractual minimum of 40 hours per month but I hope you understand that I still have to bill the minimum we agreed on."

In your case you don't have a written contract and presumably only a verbal agreement. That gives you much less leverage. You can try to convince them that they should honor the minimum hours and the rate but if they're suggesting slashing your rate in half I doubt that will accomplish anything.

If you are flexible on time and it doesn't jeopardise other client work you can decide to be flexible on this and propose that you halt some or all work for now and restart the project in a few months' time when their "budget problems" are resolved. But that's up to you.

If they don't budge and refuse to pay you or assign any work without you agreeing to a lower rate then you can either take the hit or walk away. If you are financially stable the later is usually preferable as you generally don't want to work with unreliable clients. If you do continue working with them, perhaps now or once their "budget problems" are resolved then I strongly encourage you to set up a contract this time. You can cite the last-minute changes as the reason for drawing up a contract.

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^{1 - As others said your rate is likely laughably low but it doesn't help to mention that to this client.}

Answer 4

You don't say how large the client company is. But if it's any decent size at all, then saving $800 per month (20 hours @ $40 per hour) is insignificant, and it won't make any real difference to their financial situation. If (by some chance) it does, then surely they can find some other place to save $800. If your project is the place where they choose to cut, then it's not a very high priority for them, and your situation is precarious, anyway.

As others have said, stand your ground. You're already giving them a bargain.

Answer 5

They told me they were happy with my work but because of budget problems they will not be able to continue paying that price. To continue working with them, they propose to work at USD 10 an hour for 3 months and then return to USD 20 per hour.

How can I say in a professional way that I do not accept the proposal?

"I have enjoyed working with you as well! I'm sorry you are having budget problems, have you considered scaling back the software requirements? It may be that by reducing the project scope or stretching the time frame, we can avoid going over budget by allocating only 20 hours a month of my time."

This is a business relationship, and negotiation is expected, particularly at the beginning of a new project. Further, keep in mind that they expect you to haggle, and many consultants are comfortable with slightly reduced rates for longer term projects. However, a 50% cut is unacceptable in most cases. This, however, is just the beginning of negotiations. For a 3 month project you might counter offer:

"I really enjoyed working with you on the last project, and hope to continue to do so. I'm sorry to hear of your budget difficulties, but I'm happy to consider a reduction in my hourly rate given longer term contracts. I'd be willing to accept $18/hour if the contract guarantees 40 hours a month for 3 months (120 total hours). If further reductions are needed we may want to meet to discuss cutting back project requirements and reducing my hours so the project fits in your budget."

Make sure you have a contract, and that the contract has a penalty if they cancel early - if they do not buy all 120 hours the rate for the hours worked goes up to $20/hour, or write the contract so the discount is applied in the last payment after 120 total hours.

Be firm, stand your ground, but always give them paths that allow you to work together. If they want to change the hourly rate, consider asking them instead to change the project requirements, hours worked per month, or some other aspect of the project. This leaves the door open to continued negotiation. Sometimes saying "no" outright will turn a client away who would prefer to work with you but is just trying to get a discount. Giving them no discount but providing other paths to meet their needs will often keep them around.

Answer 6

Firstly, $20 per hour for an iOS developer is a very good price and you are underselling yourself, even with only three years experience you would be paid more than that if you went into the workforce and found yourself a full-time iOS development position with a company.

Before proceeding, I am not a lawyer nor am I qualified to give any kind of legal advice when it comes to contracts and obligations. You should always seek legal advice from a qualified lawyer.

There is no contract

Always get things in writing and signed off for piece of mind. However, if the communication was done via email and you have emails that that show them agreeing to pay you $20 per hour, for 40 hours per month then that in itself is a contract. It might not be an iron-clad contract with clauses and protections, but you have an agreement nonetheless.

If you both agreed to a specific price and you can show that the employer agreed with this, that shows intent and agreement. While emails can definitely be faked, if you use an email provided from a company such as Google the emails can be checked for authenticity (in the case of Google it is DKIM + SPF).

As always, if you're in a different country to the employer (or even the same country), the cost for challenging this in a court would be very expensive and sadly most people who mess remote employees around like this know that is the case.

Answer 7

Understanding Business Agreements and Market Value

For me USD 20 per hour is a low price. I think they can pay that price. I can renegotiate but this situation does not give me much security in the future...How can I say in a professional way that I do not accept the proposal?

Many of the other answers focus on the dollar value, which somewhat misses the key point of your question: how to refuse or renegotiate the terms of the agreement. Therefore, let's first discuss what an "agreement" or contract negotiation is in pragmatic terms.

While you can look up the dictionary definition or research basic economics, in practical terms the value of a good or service is simply the intersection of how much a buyer is willing to pay and how much a seller is willing to accept. In this case, the client is the buyer and you are the seller. If they aren't willing to pay what you're willing to accept, then you haven't reached an agreement. On the other hand, if you're willing to work for the money they're willing to pay then it doesn't really matter what others in the industry are making because they aren't a party to your agreement.

If you are unwilling to work for what the client wants to pay, then you can renegotiate the deal or walk away. Those are really the only two options, although there are a few caveats that I'll cover later.

Renegotiate Based on Value

If you want the work more than you want to walk away, you can try for a better deal. You can point out the value of your work to the company, the difficulty they would presumably have in finding a replacement, or the additional costs they would bear in bringing a new person up to speed on the code you've written or educating that person about the company's unique needs. These all resolve to a dollar value.

Keep in mind that their budget problems are not yours, except insofar as they represent a risk to you getting paid at all. Business-to-business contracts (and as a freelancer you are in business) are all about allocation of risk. Perhaps you and the company might agree to a lower hourly rate in exchange for a lump sum signing bonus, or a flat-fee monthly retainer in addition to the hourly. As an offhand example, if you're willing to work for $15/hour plus a $1,000 signing fee, that may be a win-win for everyone.

However, keep in mind that the company may not value your work as much as you do. They may be deliberately low-balling you, or they may genuinely be unable to afford your services at this time. Regardless of their situation, your sole responsibility it to determine what price for your labor you can accept.

You must also keep in mind that (at least in the United States) companies have no responsibility other than contractual obligations to provide you with "security" of any kind. If it's not in the contract that they must pay you at least a certain amount then, regardless of the agreed-upon rate, they could give you zero work in a given period. You must either negotiate a minimum payment or a certain amount of work, or accept the risk as a cost of doing business.

Walk Away from Unacceptable Terms

If you can't reach a mutually-beneficial agreement about your rate, then you will have to turn down the proposal. This, too, is a normal part of doing business.

If you can't renegotiate because either party says that their proposal is firm (which would be polite) or "take it or leave it" (which is not), then if you can't accept the final offer you simply turn it down politely. A widely-accepted way to do this would be to say something along the lines of:

I'm sorry we were unable to come to a mutually-beneficial agreement. I respect your budget constraints, but I can't accept the offer as it stands. Please let me know if your needs or your circumstances change, and I'd be happy to work with you again in the future.

Then walk away. Your best offer (whatever it is) should be your final offer. It is not a negotiating tactic. It's simply a polite way of saying no, but leaving the door open to do business again in the future under different terms.

Caveats

If you rely on income from this one client for basic needs, then you may not be in a position to effectively negotiate or to walk away. In such cases, make the best deal you can, and then work under the available terms while you continue to look for other work.

If you're working under a fixed-fee agreement or have a burdensome notice period defined in the contract, this can be a problem. However, if your agreement is simply payment for time spent working then you can replace your current client engagement with a more lucrative one at your convenience, just as they can replace you with another vendor at their discretion. Both parties, you and the client, have business risk in this regard; neither party has "security" unless it's written into the contract.

Answer 8

Here's what you do -

Tell the client that you are not going to lower your rate, they are already getting excellent work at a bargain rate.

Tell them you need a formal, written contract for your work that includes the rate, how it gets billed, the accepted timeframe for payment, additional penalties if they don't pay on time, etc.

Even if they agree, find another or several other clients. This one stinks.

Answer 9

I don't think it's a genuine offer from your client. If he hired you for that rate for a month, I guess he can afford that.

Very unfortunately when you look at freelancer web sites, there are some developers from low as $3-$5 (who claim couple of years of experience). Usually they wouldn't do a good job at all. This has been a common pitfall for new customers. May be your employer has seen such low rate freelancers somewhere.

If he is happy about your work after one month, he wouldn't want to lose you. Normally changing developers has some costs. New developers needs more help to understand the context and normally they are slow at the beginning.

So, I wouldn't go for half price. However, to make him happy may be you can offer something but half price rate. May be you can say you will be more effective as you get more familiar with the domain and requirements. If he really can't afford that much per month, may be he can give you 20 hours per month...

Answer 10

As everyone has said, $20/hr is really low by most standards. I would suggest you refuse outright and find someone who will pay you what you're worth. However, another tactic, since you're freelance is to say "Ok, I'll accept $10/hr, but with the understanding that your project will be lower priority for me."

Remember, you have more than pay per hour that you can use for negotiation, consider manipulating things like your hours per week you'd be willing to work at that rate as well as the scope of the problem you're willing to solve at that rate, or your availability for meetings. In this situation, you shouldn't base your rate on what they offer, but what someone with your similar skills is worth.

Answer 11

Your rate is ridiculously low already for a freelancer. I did not work for that kind of money 30 years ago as a student (while I had more years of experience than most graduates, the company I looked at decided to raise the rate for all students in consequence of me refusing to work for that rate: after all, they did not pick their student workers blindly or got them assigned).

In contrast to a student, a freelancer has to cater for pension, social/job security, medical expenses/insurance and taxes. 20USD is not sustainable for that, 10USD is a joke or insult.

I doubt that you will be able to negotiate mutually acceptable rates with this client after starting out on such conditions already, so I don't see much of a point in continuing with them.

It may very well be that their budget for the work you'll do does not permit getting the work done in a meaningful way.

That's their problem. Don't make it yours.