You judge how valuable the solution is to your customer and then structure your pricing to maximize your profits while still being palatable to your client.
Let's say your client has a problem that will bring them 1k/hr of revenue when fixed. You think you can fix it in an hour.
You could quote them 5k/hour, because you think you can fix it in one hour and you estimate it'll take them at least 5 hours to find and talk to someone else who could fix it. This is a big gamble for the client, what if you don't fix it or take longer? The client balks.
Now let's say you offer a "reasonable" hourly rate like 150/hr. Your client is happy to take the gamble because 150 is peanuts compared to the value they get if you do fix it. Client takes the deal, you fix the problem, but you got paid peanuts.
Now let's say you offer them a no-fix-no-fee rate of 5k. The client is happy to take it because once the problem is solved it takes them just 5 hours to go back in profit, and they risk nothing if you end up not solving the problem. They take the deal, you fix it in an hour, the client happily pays you 5k, netting an hourly rate of 5k/hour.
Same hourly rate as the first scenario, yet the first scenario will cause everyone to balk while the second one is a steal for the client (in reality, you can actually charge more than 5k, how much more depends on your reputation and sales skills).
Such consultancies feel like a dying art for the new work force. To consult, you need to be trusted. To be trusted, you need to already have experience working with software at scale. To get that experience you need to go through events like mass layoffs every few years, which limits your expertiese built.
I very much worry for Gen Z. Through no fault of their own.
And if no one takes your price, you fail as a business. I think that's the concern. There's not a lot of vectors I feel I can jump in to say "I'll do this for 1000/hr" without getting some bulging eyes. Because I don't have the credibility to back that up.
How to get credibilty? Well, you gotta be in industry. The thing the two consultants here are besmirching. You can't win.
I think you're just looking at these negotiations from the wrong perspective.
> There's not a lot of vectors I feel I can jump in to say "I'll do this for 1000/hr" without getting some bulging eyes.
1000/hr might be a lot for you, for many businesses it's not even a meaningful expense, the bigger hassle for them is doing the paperwork to get the money sent out.
I'm well out of tech at this point, running a small lifestyle business in a different industry. At least once a month, I get people in my new industry offering me significant amounts of money to build them software. I don't have a fancy public tech resume; really, the only thing these people know is that I'm some relatively pleasant, rich, former tech guy.
If you're someone like Steve Jobs then #3 is a bit optional because #4 is increased, both in truth and in arrogant overestimation.
The hardest part of this really is #4, because most people either get too cocky and overconfident in the value they provide in general, or they are so overcome with imposter syndrome that they believe they offer practically nothing, so they do almost entirely open source work and fail to start a consultancy.
> And if no one takes your price, you fail as a business.
Vimeo employees and all the people part of the recent tech bloodbath experienced that too, but without even pocketing the upside beforehand. I'd argue that for anyone currently searching for a job, they will get a better ROI engaging in sales instead.
Any monkey can (and does) sling ChatGPT'd resumes at anything that moves, hoping to get the job and pocket enough salary before people catch on. That scam doesn't work with consultancy on a "paid on delivery" model, so the market there is much less crowded. There are different scams out there but those primarily target big companies.
> There's not a lot of vectors I feel I can jump in to say "I'll do this for 1000/hr"
We as techies know how the sausage is made and estimate a "fair" price based on the effort it would take us to do it. A car mechanic would probably also consider retail oil change prices to be unfair... because he's already invested in the knowledge and tooling and with those it's indeed a 5 min job.
From a business' perspective though, our work might as well be magic - we are writing prayers in an arcane language to make silicon come to life and do things that generate money for the business. It's magic that they have repeatedly failed to replicate for themselves. The latest fad is AI/LLMs and that will fail too - LLMs only work in the hands of a skilled operator - and otherwise fail disastrously and often generate extra remediation work on short notice.
If you worked in tech there's a good chance your past contributions are netting way more than 1k/hour to someone else already - so you can generate this value. The challenge now is to capture more of said value.
Nobody in their right mind will pay 10x market rate for no guarantee of result; see my other comments in this thread. This would open them up to the same scams that happen with permanent employees and third-world countries will be all over it the next day.
But if they are guaranteed a result then the calculus changes, they are no longer thinking of hourly rates but instead of as a fraction of the revenue enabled by your solution, and their risk is lowered to only the opportunity cost. This is a much better deal for the client. Your resulting hourly rate now purely depends on the value of the solution to the client divided by how quickly you can do the task.
You only explicitly quote the 10x market rate when you want the client to bounce because the job or client sounds like a nightmare. You will get some clients who are cheap and insist on an hourly rate to explicitly prevent you from playing the above game and earning the (much bigger) cut of the solution. The "fuck you" rate is for that, it's not expected to be taken, it's there to set a baseline price for your expertise and make the deals you offer sound more attractive in comparison.
It's basically all sales and reframing your work from salaried/hourly rate to how much your work is worth for potential clients (which doesn't scale linearly with time invested nor software complexity).
As to why am I giving you advice on how to compete with me? Because you're already competing with me by willing to settle for permanent employment market rate for the services I am offering. Encouraging you to charge more helps us both.
I am not sure if I fully understood what you meant exactly with your (detailed) reply.