Here is my situation with rough numbers. I had like to know if my thinking (at the bottom) seems sound to you guys. (Side note: I’ve read many of the related questions on here, and helpful as they were, none seemed to touch on this specific issue.)
For 2 years I was a senior developer at Company X. I was full-time, W-2, and making $100k/yr with benefits. (Roughly $50/hr).
[Then I got laid off, but that’s not the point. I am in a large city and can find work easily. I am very happy to work from home rather than in an office.]
For 2 months I’ve done a few freelance projects for Company Y, a web firm. This was 1099, and I am charging $80/hr. (I did 100 or so hours over 2 or so months and figured I’d need to get some other clients soon).
Company Y loves my work and has gained new jobs because of it. They want more of my time and have offered me a 6 month contract, paid a fixed monthly rate regardless of hours (they assume 40ish per week). I’d still be working remotely.
So…
My freelance rate is higher than my old W-2 full-time rate for obvious reasons. I also realize that since freelancing "full time" requires lots of administrivia and sales, I would never really be racking up 40 hrs/wk at my $80 rate. (I’ve been toying with the idea of charging any other clients more, like $100/hr.)
However, I realize that from Company Y’s perspective, offering me the security of a 6 month retainer contract should drive my hourly rate down (bulk discount?) since I’d now have way more billable hours and less administrivia. This still has got to be a raise on my old W-2 job for it to be worth my while though, especially due to the lack of benefits and the more complex tax situation.
Now I wish I had originally charged Company Y $100/hr for the initial freelance projects so that I could give them a better deal and charge them $80/hr for this 6 month contract.
Sorry for being so long winded, but I hope you guys get my drift. Essentially, I should be giving them a lower hourly, but I really don’t want to.
Is my assumption correct that as far as hourly rates go,
full-time-W-2 < long-term 1099 < short-term-project-based 1099 ?
If so, what might a good negotiation strategy be with Company Y to keep my hourly rate as is, and effectively nix their bulk discount? "You were getting a super low rate on those individual projects!"
Are you sure about this? Anytime I was asked to work “fixed monthly rate” it was a none-too-subtle way of trying to get a lot of “free” hours (effectively a massive rate cut).
I don’t know any consulting project where you can just quit at 40 hrs, especially if the client gets a “push” where they need stuff sooner rather than later… the urgency is always theirs, and frequently manufactured rather than “real”.
So, if they want you AND want a discount, give them maybe $70/hr for an HOURLY contract over the 6 months. That way they get a discount, and you get protection from overtime and any urgency that may arise.
Anything else and you WILL get hosed. Almost guaranteed.