The tips for negotiating rates and pricing structures with freelance developers differ from the tips and tricks you apply when buying other items for yourself in the real world, let’s say, furniture or a house. I mean here that the tips for negotiating rates on physical goods will always differ from those for negotiating rates and pricing structures of a service where the money earned is directly proportional to people’s cost.
Over the years, I have hired many tech developers in different roles, from full-time to part-time to fractional work. In this article, I will help you with various strategies and tips for negotiating rates and pricing structures when hiring freelance developers.
As a founder and small business owner, you post a job on a freelance marketplace when you decide you need a freelance tech developer. After posting the job, you will receive 10 to 100 applications quoting between $5/per hour and $180/per hour. And that’s where you did wrong at the first stage itself.
Before deciding whom to hire, you must clearly understand the skills, experience, and expertise you need in a freelance developer. The time wasted on hiring and getting work done with the wrong talent will never return, so doing homework matters a lot.
Why is it important to negotiate rates with freelance developers?
Negotiations are necessary in any deal when you believe the other party will play an unfair game. When you sense that the rate asked by the freelance developer or the agency is unusually higher than the market rate, it’s essential to negotiate the rate. However, the input to negotiation is a high-level understanding of the correct price rate range in the part of the world from where you are hiring the freelance developer.
Disclaimer: A bit of a sales pitch is coming your way 🙂
At MMT, we recognized the challenge faced by customers who encounter significant rate fluctuations in the market for freelance developers. We developed a system to standardize rates based on skill level, expertise, experience, and geographic location to address this issue. Our process involves a rigorous evaluation of developers, assigning them a specific skill level, and establishing fixed rates accordingly.
How to determine the standard market rates for freelance developers and development projects?
Globally, there is no standard rate card for hiring freelance developers. To determine the market rate, you can start by looking at the job openings in the country or region where you are hiring and if those job openings mention the salary range. Or you can get the salary benchmarks from websites like Level.fyi
After scanning through and getting numbers from different sources, calculate the median. You can calculate the hourly rates based on the median if you hire a person on an hourly rate card. Another way to determine the standard market rate is to ask people in your network who have previously hired freelancers, though this approach will limit your data points.
At MMT, the rates for freelancers are revised every year, and when the freelancer’s skill level goes up, we revise their rate card. We do this because we believe that quality work can only be delivered when the freelancers are paid according to market standards and when customers are aware of how much it will cost us to complete the project.
Sorry for a bit of a sales pitch once again :).
Factors Affecting Freelance Rates
Many factors affect freelancer rates, primarily influenced by the freelance developer’s experience and skill level in managing complexity. Here is the list of factors affecting the freelancer:
| Factor | Impact on Quality of Outcome | Impact on Cost |
| Skill Level of the Freelancer | HIGH | HIGH |
| Freelancer expertise in the required domain | MEDIUM TO HIGH | HIGH |
| Freelancer Experience Level | MEDIUM TO HIGH | HIGH |
| Your Project complexity | NOT APPLICABLE | HIGH |
| Location of Freelancer | HIGH | HIGH |
How to prepare for Negotiation with freelance developers
Setting clear objectives and budgets
Well-defined objectives, the level of skill you need, the scope of work, and an understanding of the price rate will help you hire the right freelancer developer. A loosely defined scope of work is the number one reason customers don’t get what they want, and freelancers end up frustrated and leaving you in between without even finishing the job.
Knowing your project requirements
Once you have identified the objectives & scope of work for the project that needs to be done by your freelancer, the second step is to define the project requirements in a bit more detail before you hire the freelancer. Here, avoid achieving perfection, but the requirement must be documented so that it’s good enough for a freelancer to work on.
The requirements are defined in terms of user stories. In tech product development, a user story is the smallest scope of work or a feature a freelance developer must deliver. You should have a set of all user stories that need to be developed, define the priority of each user story, and document each of these user stories so that the developer can take this as input and build the required things.
In my third start-up, we hired a Ukrainian app developer to build the mobile app. While the developer’s skillset was high, I could have better defined the objectives and scope of work. We were developing a SaaS tool for HR performance management. The app should have been developed to view the data only, while the web should have been the primary medium to both enter and view the data.
But we created workflows in the mobile app that enabled users to enter data from mobile, which was optional then, and there were better mediums for entering data. Imagine you have to create your performance goals on mobile or fill out your multi-page performance review on mobile, where you also have to give 360-degree feedback to your team members.
The hard lesson I learned after paying more than the budget amount is to define the objectives and scope of work well before you start engaging with the freelancer. This will give clarity to you and the freelancer, and you will be able to negotiate the rates better, as the developer will see that you have clarity in what you want.
How to initially Contact and Communicate with freelance developers & Questions to ask
The key is ensuring that you are hiring the right person for the job you want and that half the job is done managing the communication challenges you will face when getting work done. During the interview, set up a clear initial message around your project requirements, expectations, objectives, and timelines, and then ask the right questions to understand if the developers can help you achieve your goals.
The questions you should ask freelance developers should help you understand their skill, expertise, and experience levels. Here are a few questions you should ask them before hiring a freelance developer. Before you ask these questions, spend 15 to 20 minutes explaining what you want to achieve.
Question 1: According to you, which skills are required of a freelance developer to do the job that I just explained?
Question 2: How have you demonstrated these skills you mentioned in your past assignment?
Question 3: Share the top 3 challenging problems you faced in your past projects.
Question 4: How did you solve these problems?
Question 5: In your project briefing, even if you have discussed the expected timelines for completion, you should still ask the freelancer, according to him/her, how much time this project will take in the worst-case scenario and how much time it will take in the best-case scenario.
Question 6: Based on the brief we just gave you, what will be the most challenging part of completing this project on time?
Question 7: How will you ensure we achieve this project’s best quality outcome and output?
Question 8: Where do you rate yourself on the skills you shared with us?
What are the Key Negotiation Strategies with freelance developers
Let’s discuss some key negotiation strategies you can adopt when discussing rates with freelance developers.
Discussing hourly rates vs. monthly retainer vs fixed-price contracts
There are three pricing models for hiring a freelance developer: hourly, monthly retainers, or fixed-price contracts.
Let’s discuss each of these pricing models in more detail.
Hourly pricing rate: this pricing rate makes more sense when you have a well-defined scope of work, the scope of work is of smaller duration, and the freelancer developer can record time spent using a timesheet system. For an hourly rate to work fairly, you should know approximately how long it will take to complete the work.
But when you are yet to acquire the tech skills to learn and understand how long it will take to complete the work, then the freelance developer might charge you more money than required to get work done. To summarize, the hourly rate pricing model should be used where the scope of work is limited and well-defined, and the duration of the work is shorter, between a week to a month.
A monthly retainer: A monthly retainer pricing model should be used when you want to hire someone for a longer duration, say three months or more. The advantage of hiring freelance developers with a monthly retainer is that the heart and the head will be better aligned with the job that needs to be done. When you want somebody to be fully aligned with the vision and mission of the work, the monthly retainer pricing model is the way to go.
Fixed-price contract: This contract model is between hourly and monthly retainer models. When the objective and scope of work are clear and concisely laid out on paper, and the duration of work is between a month and three, it is better to hire a person on a fixed-price contract.
It’s crucial to get the pricing model right as per your requirement to keep the budget in control and ensure that the freelance developer showcases the right behaviour when delivering the work.
Offering incentives and bonuses to fractional workers or other emploeyees
Leveraging incentives and bonuses along with the pricing model will help you to achieve a better outcome. The incentives and bonuses can be combined with any kind of pricing model that you have deployed when hiring a freelance developer.
When you have adopted an hourly model to pay your freelance developer, you can always pay the developer 10% to 20% of the overall price as an incentive if the work is done on time and within budget.
When you have adopted a monthly incentive model, you can define the incentive based on goal achievement. The goal is to achieve the deliverables on time and with the desired quality. The incentives can be given to the developer quarterly or bi-monthly.
When you have selected a fixed-price contract pricing model again, the incentives and bonuses can be combined with the overall pricing. For example, the overall budget for web app delivery is around $150k. In that case, you can set an incentive model as that the $125K will be paid to the developer in any case, but if the project gets delivered on time with high quality, then the $25K will be paid to the developer.
The challenge with deploying the incentive and bonus structure to your payment model is that if the freelancer is working for the first time with you, he or she may not trust that the decided amount will be paid to him or her when the desired outcome is achieved. To earn the trust of the freelance developer on the incentive structure, you can always use an escrow account service where the decided amount is put in advance so that the developer can trust that if the outcome is achieved, he or she will get paid the incentive.
Leveraging long-term project potential.
When hiring a freelance developer for a long-term project, you can negotiate a better rate with the developer. A freelance developer is always looking for a long-term project to commit to, and when he or she sees that they are in a better place to get a one or two-year project work from you, you will be in a better position to negotiate the rates with them.
Tooltip: always make sure that while you are giving the long-term commitment for the work, always specify in your contractual terms that if you do not find the project gets completed on time with the desired quality, you can always replace a freelance 15 to 30 days’ notice with somebody else.
Negotiating for value, not just price
How many times have you heard that if you pay peanuts you will get monkeys? Hiring people bidding the lowest rate to you is the first indication that you will not get quality talent. While you may be able to save a few thousand dollars initially, eventually, down the line, you will spend more money on correcting the work done by cheap talent.
Remember, you are hiring somebody to get an excellent job on your tech product so you can focus on other aspects of building your business; you are not hiring people to increase their capability or learn how to develop the product or to make them learn how to develop a tech product.
I’ve been in a position where I hired people to save costs, only to spend countless hours teaching a freelance developer how to solve problems, write quality code, and deliver excellent work. When you hire a knowledge worker, you pay for their skills, expertise, and experience. Doing their job for them is a surefire way to foster an unproductive culture and hinder progress within your team.
Handling counter offers
Many times, the freelancers will counteroffer the rate to you before the rate is finalized and documented. The way to manage the counter offers is first to understand the market rates very well and find a middle ground between the highest and lowest rates.
Again, when the freelance developer charges the lowest rate, please understand that you might get low-quality work because the freelance developer needs to have the required expertise and skill level.
How to Finalize the Agreement with Freelance Developers
A well-documented contract is the first step in protecting your intellectual rights. Let’s understand how we can draft a comprehensive agreement. The key to a good draft is ensuring that you and the feelers developer understand the terms and conditions specified in the contract.
Key elements to include in a freelance contract when negotiating rates
Hiring a legal consultant to draft a well-drafted contract is always advisable. The contract should be defined so that it is enforced in the region or country where you hire the freelancer developer.
A well-crafted contract will cover the following aspects
- how the work will be done,
- the scope of work,
- how will the situation be handled in case of conflicts or
- What will be done if the freelance developer misuses intellectual property or customer personal data,
- the rate details, and
- how and when will the rate details be revised?
Take the help of a legal freelance consultant or use platforms like usemultiplier.com, remote.com, and deal.com to get a contract signed by the freelancer developer.
Ensuring mutual understanding of terms and conditions
You have often seen that the customer shares the contract with the freelance developer and signs without understanding and going into the details. Before the contract is signed over the call, get on the call and explain the general terms and conditions of the agreement to the developer.
Once done, give them a couple of days to get a signed copy of the contract, and make sure that you have also signed the copy and sent it back to the freelancer developer.
How to Maintain a Positive Working Relationship with Freelance Developers
Maintaining a positive relationship with the freelance developer is both science and art. It requires a high level of emotional intelligence from your side, and if done right, it will lead to a high level of commitment and quality of work.
Regular communication and feedback after negotiating rates
Regular communication and feedback sessions with your freelance developer will enable you to build the trust required to make any kind of relationship in this world. Regular check-ins must be set up with the freelance developer to
- get the status update on the problems the developer is facing at work done
- discuss what should be done to improve those situations and
- what went wrong or not as per expectations in the past, and how can you improve on those.
Do these regular check-ins monthly or bi-monthly for around 30 minutes. In addition to talking about their work, they also talk about in a journal about life, understanding their families’ situation, and what they aspire to do in the future.
A balanced mix of communication to get work done and build a healthy relationship will go a long way toward ensuring that you are getting what you need and building a solid relationship.
At the same time, I have seen people make the mistake of not giving hard feedback when it is required to improve the quality of work. Hard feedback must be provided straightforwardly and assertively so that the freelance developer clearly understands what is not done as per expectation or which behavior is not.
However, always be respectful towards the individual when giving feedback. Feedback must be given immediately when a team member has done something wrong, needs to go into the details, or just acts intellectually lazy.
Handling disputes and disagreements
Once you have hired a freelance developer, the main disputes will revolve around the scope of work and the rates. The scope of work and the rates are correlated; if the rate is higher, but the scope of work or the complexity of work is greater, the freelancer developer will eventually remain dissatisfied and ask for more money. Thus, it is always advisable to pay the right amount to the freelance developer so that there are fewer conflicts later on.
But whenever two or more people are working together, conflicts are bound to happen. The way to manage these conflicts is to understand when you are in conflict before the situation gets worse and you see that the freelance developer no longer wants to work with you.
When the conflict is around rates, first understand whether you are paying the correct rate to the freelance developer based on where developer is located. Collect the data about the rates of the developers in that geography and talk to the developer based on those data points.
When you pay fairly and the freelance developers see that you are playing fair based on the data, conflict should usually be managed. But even if a freelance developer disagrees and have spent quieter time working with you, increasing the rate by anywhere between 5% and 15% because hiring a new person will again cost you time and money. However, when you increase the rate, update the contract and set the expectation that the next rate will be revised only after twelve to fifteen months.
When the conflict concerns the scope of work, it can be managed by reexamining the product roadmap and priorities of the work. When you have hired a developer on an hourly rate, the conflict will be less as the developer will eventually get more business from you.
When you have hired a freelance developer on a monthly retainer or on a fixed budget project, the situation becomes difficult to manage because the developer has committed a certain number of hours towards your project. Again, the first step here is going back to the drawing board to understand what was planned and why the scope has increased.
Most of the time, the scope increases because you have missed planning a scenario or a workflow. When the increase in scope of the work is required, your only option is to increase the tenure of the work.
Dealing with high-rate demands when negotiating rates
When the developer demands a higher rate, you can manage the higher rate expectation by reducing the scope of work, re-prioritizing what should be done, or reducing the number of working hours the developer has to work. The impact of reducing the number of hours will be that the project length will increase.
One of the biggest reasons freelance developers demand a higher rate is when they can see a high dependency on them to get work done or when the customer has arm-twisted them to get a lower rate.
As a business owner, it is your responsibility to ensure that your team structure is less dependent on one person to balance the resource’s dependency on the business. This can be done by hiring two freelance developers instead of one or aligning a product manager with the freelance developer, which will help you better manage the scope of work and the development process.
Addressing concerns about quality and deadlines
The quality of work and on-time completion are the outcomes that directly depend on the quality of talent, clarity in the written communication of what needs to be done, and the process of developing the product.
When you want to ensure that the product is released on time and with high quality, focus on hiring the right people with the correct skill set and aligning a product manager with the freelance developer to ensure
- clarity in the priorities of the features that need to be delivered and
- clarity in the documentation of those features.
When you see that the hired developer has a skillset but does not behave appropriately regarding work, completing things on time, or updating progress on time is lacking, give feedback and set a ritual and one-on-one for correcting those behaviours.
Negotiating scope creep and additional work
Scope creep and additional work are inevitable in the tech product development life cycle. However, proper product roadmap planning and documenting the user stories that will develop the required features can avoid these.
But situations will always arise when additional work needs to be done in addition to the planned work. The way to manage this situation is to allocate around 10% of the developer bandwidth to the hijacker’s features. When you have allocated this additional 10% bandwidth to the hijacker features, you are already setting an expectation at the developer level that unplanned work might come their way because of situations that are not in the team’s control.
FAQ’s
What is a good freelance development hourly, monthly retainer rate?
The hourly rate varies from $20 to $250. The rate largely depends on the location, skill and experience level of the developer
Hourly rate range across the world(all rates are in USD)
| Location | Hourly Rate Range |
| USA | $70 to $250 |
| UK & Western Europe(Germany, France etc) | $60 to $120 |
| Eastern Europe(Ukraine, Poland) | $30 to $70 |
| Latin America(Brazil,Argentina,Mexico) | $20 to $60 |
| Australia & NewZeland | $60 to $120 |
| Asia Pacific(India, Philippines) | $15 to $40 |
Monthly rate range across the world(all rates are in USD)
| Location | Hourly Rate Range |
| USA | $7,000 to $24,000 / per month |
| UK & Western Europe(Germany, France etc) | $6,000 to $20,000/ per month |
| Eastern Europe(Ukraine, Poland etc) | $3,000 to $10,000 / per month |
| Latin America(Brazil,Argentina,Mexico etc) | $4,500 to $10,500 / per month |
| Australia & NewZeland | $6,000 to $12,000 / per month |
| Asia Pacific(India, Philippines) | $1,000 – $3,000/month |
What skills do you need for negotiation?
Read “Never Split the Difference by Chris Moss” to understand more about the intricacies of developing negotiation skills. Here, we are hiring a freelanced developer where if you win a negotiation with the lowest rate, you might not get high-quality work delivered on time.
So, the goal here is not to win the negotiation at the lowest rate but to hire the right developer and negotiate for a win-win. The skills required to be a fair negotiator are being fair and authentic and having the ability to understand the skill level of the freelance developer so that you can negotiate the price at the right level.
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