I need to make money to fund the further development of my game. So, I've been doing paid contract work in VR. Most of the work is pretty easy for me and consists of producing VR applications which run 360 videos with some interactive GUI elements embedded into it. I also have been helping other game developers produce their games. Initially, I charged $50/hour for my early VR programming work. I believed that I needed to figure out the development process and it would take a bit longer because it was new to me, so I felt bad charging a higher rate. I got it figured out now, so I raised my rates to $75/hour. I... think I made a mistake.
The way I came up with $75/hour is pretty straight forward. I took my previous annual salary and divided it by the number of hours in a full working year, and that gave me a rough ballpark on my hourly rate. The flaw in this approach is that I was assuming that the amount of work I have would be constant, that I would be working a full 40 hours a week with billable hours. The reality is that I have huge gaps between projects, so that means I have huge gaps between billable hours. So, the general intuition would be to increase my hourly rate, right? I think that's also a mistake.
The problem is that I've gotten too fast. It used to take me something like 10 hours to produce a 360 VR video app. That's because I built it from scratch. Now, I have a code base and template I reuse. It takes me about 2 hours to produce a simple video app. With an hourly fee structure, it's more profitable for me to work slow so I can charge higher bills. But I can't do that, I'm an honest man and my integrity is priceless to me. I'm also a lazy engineer which causes me to strive for efficiency so I don't have to do tedious, wasteful work. Spending 10 hours on a 2 hour project would feel like a waste of time and an antithesis to common sense. So, I'm tentatively thinking that the correct fee structure is to charge a per project cost. If I quote someone for $5000 to complete a project, that's what I'll charge regardless of how long it takes. If I can finish the project in 5 hours, congrats, I just made $1000/hour. If it takes me 50 hours, then I made $100/hour. Now, I'm properly incentivized to work fast and efficiently. The faster I work, the more rewarding it is. This comes with some risks as well. What if I estimate that a project will take 15 hours, bid accordingly, but it really takes me 30 hours to complete? I'm making another mistake here...
I'm not taking profit into account. If I step outside of myself for a moment and pretend that I'm an employee to myself, and employees are paid an hourly rate (let's say $75/hour) and I'm bidding on the cost of a project based off of just my raw production costs, then I make $0 in profit. All of the income goes directly into paying for the employee salaries, leaving nothing for the company, meaning growth is impossible and I lose money over time due to overhead costs. Instead, I should be taking the employee salary ($75/hour) and multiplying it by a factor of at least 2.5x. If I replace myself with a hired employee and keep the same fee structure in place, then the company is equally profitable because I am interchangeable with other workers. If I add more workers to the team, then of course my bid estimates will change. So, the total bid = sum of all wages * 2.5x;
For clients, this could be a pretty good system as well. Instead of having runaway costs inflate a project budget, there is a fixed cost of production. My biggest challenge will be to accurately estimate the scope of work and bid accordingly. If I underestimate the scope, then I eat the cost difference. If I overestimate the scope, more profit, more reward! But then, I also come full circle to the original problem I had: If I originally took 10 hours to finish a project and bid accordingly based off of that time estimate, but through experience, innovation and increases in efficiency I now reduce that same work to 2 hours and bid accordingly, I would still be losing the hourly difference. So, do I bid as if I'm starting everything from scratch because my competitors would be in the same position? Or do I look at the requirements of a project and use that as an input parameter into a piece-wise defined function to assess estimated cost? Or, do I just pick high numbers in a random ballpark and hope to get lucky?
Obviously, if requirements change, then the cost should change proportionately as well. If I charged a flat $10,000 for a project given its requirements / feature spec, and then a few weeks later the client decides to add/subtract a requirement, how would I figure out how to proportionately adjust the pricing to reflect the change in scope? I... don't... know...
One other thing I'm finding annoyance at is that some clients aren't good clients to take on. Indies and startups are bad because they often don't have money, no matter their good intentions and promises. If it's going to break the bank for them to have me work for them, it's likely they'll be unable to pay me or that it will take 6+ months for me to get paid. I owe people money, I can't keep them waiting because I'm waiting to get paid. If they're sweating over my up front fee of $150, I shouldn't take them on as clients. My policy should be, "If I think they can't afford me, they can't afford me.". It may be better to risk leaving money on the table than taking on bad clients. Maybe I should increase my fee to weed them out?
Another factor I hadn't considered are the non-billable hours I put into project efforts: Responding to emails and answering phone calls. On some projects, I've put more hours into phone calls, conversations and emails than actual, billable hours. Now, I want to be a nice person and to be easily accessible to my clients, but every hour I spend on email or phone calls is an hour I'm not spending making money. Every hour I'm not making money is also an hour I'm not working on Spellbound. I'm tempted to charge for my time here, but I don't want to start a stopwatch every time my phone rings or I get an email requiring a response. Maybe I should just pad my estimated hours to account for time spent communicating? Or maybe I should measure the average amount of time I spend doing administrative stuff on behalf of a project, and adjust my multiplier accordingly? Instead of a 2.5x hourly rate, maybe 3.5x?
The last few factors I also hadn't been considering is that I'm a freelancer, with talent and experience, ready to hit the ground running, today. I'm not an employee, so I don't get "company benefits". No medical. No dental. No vision. No retirement fund matching. No overhead costs (HR, managers, office space, parking, cafeterias, admin staff, etc). When the project is complete, I am done and go away -- an employee would still incur costs afterwards. No employee liability. Don't like me or my work? Fire me, no mess, no HR hassle, no legal wrangling. That means I have to pay for all of that stuff out of my own pocket, so I need to charge more as a contractor.
My girlfriend has taken ample opportunities to remind me that I'm not charging enough. She told me that based on my skill set, I would be equivalent to a "technical editor" in the Hollywood film industry, and they charge something like $175/hour. Based on my background and experience, and how niche my industry is, she believes I should be charging at least $300/hour. That... makes me a bit pale to consider as an hourly rate. I have a hard time believing I'm worth it. But hey, if I can complete a project in hours which would take other people 5-10x longer, if not more, than maybe I am worth it. I recently went and visited a motion capture studio near my office to figure out how I can use them and what their rates are. They charge $3750 for 4 hours, or $8000 for 8 hours. That's a lot of money for a poor indie like me, but... really, it's not a lot of money at all when you think about it. I should be charging roughly in that ball park, right? Deep down inside, I think I feel afraid to charge a lot of money for what I do. But I think I need to reframe the way I think about this. People aren't hiring *me*, they're hiring *my production company*, and for now, I just happen to be the sole employee. If I staff up in the future, I wouldn't feel bad charging high rates to cover my costs. But staffing up would also mean I have to dedicate a significant chunk of time towards staff training, and I'm capable of training staff, so... that means I'm pretty good, right? I guess I just see the work that I do as "easy" and "enjoyable" and I shouldn't be getting paid for this. But, the work is only easy for me because I've got 18 years of experience and the projects I take on are 10x easier than writing my own game engine from scratch, or building enterprise systems for the military. Truly, the biggest risk for me is that the work is such a cakewalk for me that I am bored by it. I was realizing this afternoon that I'm most incentivized to work on other peoples' projects when I'm getting paid really well for them. $75 per hour is not enough money to motivate me to overcome my boredom, but $150/hour is.
My girlfriend also tells me that I'm terrible at business, that I don't really have the head for it. I half believe her because she's a lot more experienced than I am, and she's bringing in a lot more money than I am. I've been thinking carefully about what I'm currently doing, how it's not profitable, and what I need to do in order to make my work profitable and worth my time. With my current flow of contract work and my billing rates, I don't make enough money. Honestly, it's just barely enough to pay my cheap office rent. I'm practically treading water, getting nowhere even though I'm working hard. For the last few weeks, I've been thinking that I need to get more proactive about getting money. I need to get out of my chair, put on a nice dress suit, take my VR goggles, and go door to door at every company and show them what I can do for them and how it can help their business. I need to figure out my sales pitch, refine it, and go get myself some big work. I believe in VR, I think its the future, I am bullish on its prospects, and I can sell. I have proven to myself that I have the personality and capability to sell, I can build what I sell, so... I should just get up and go do it. I'm optimistic that I could do well, but I'm sort of holding myself back somehow. The dream is that I do well enough at bootstrapping that I can work myself out of every job and become more of a CEO/producer type, hiring people to replace me. Programmer? Hire that out. Sales guy? Hire that out. Film guy? Hire that out. Hire people for everything -- delegate -- don't get my hands dirty, don't get into the weeds. If I do, I'm still doing it wrong. While I'm fully capable of writing code and producing everything myself, I can't scale. I would be just one guy, taking on projects with a scope of what only one guy can complete. Big projects = big money.
I also sort of think that I should split my time 50/50 between providing services to clients and creating my own software applications and releasing them online. The problem with exclusively doing work for clients is that it fixes my scalability to whatever workload my production company can handle. My throughput is fixed, and thus my income is limited by my throughput. It would be a trap which limits my growth potential. However, if I build and release my own apps at the same time, my growth potential is limited only by my marketing and sales capabilities. Once an app is completed, I can make an infinite number of copies in an instant and sell them. If I diversify and make several apps in several different market categories, a few of them are bound to succeed. I have been particularly infected by an idea which could potentially establish a new market category for content in the VR market (I'll share details after I execute). If I can produce it, market it, and sell it, and it thrives, then I could scale it out and go big. I'm planning on creating a working prototype this spring and releasing it to the market to see how it fares. Anyways, the point is that it would be easier to make $1m by scaling out a successful app than by scaling out client services, but a successful app could also be an additional service category offered to clients. However I do it, I will fund the production of Spellbound and I will have a well funded team working on it...eventually.
Anyways, I did something cool the other day. I integrated Leap Motion with 360 videos, so you can use your own hands to pan the camera around. I'm also going to add in finger taps for pressing buttons, so people can feel sort of like Tom Cruise in Minority Report. The placeholder video was shot a month ago at a Dell factory in China as a part of their effort to be transparent about their production pipeline. Check it out:
Figuring out what to charge as a contractor is always fun... I wrote a bit about it a few years back, though in retrospect it's woefully incomplete (doesn't account for health insurance costs, primarily, as I wasn't paying for it at the time).
For what it's worth, if an enterprise hires a contractor via a contracting firm, they are going to be paying the contracting firm a good 4x the salary of a full-time employee doing the same job, so your 3.5x may be on the low end.