Paying too much or too little for freelancers?
For entrepreneurs looking to build a technology start up, it's hard to tell if you're spending too much or too little on contractors.
For clients hiring local freelance developers on an hourly basis, each developer's billing rate can vary dramatically depending on the developer's experience, areas of specialization, and the structure of the team/company they belong to. Junior freelancers may work at minimum wage (or even volunteer) while seasoned professionals may bill anywhere between $100/hr to $300/hr. Individual intermediate level developers with 3-5 years of experience typically bill in the range of $40/hr to $80/hr.
If you hire contractors to deliver the majority of your product development, you should be aware of the consequences of employing contractors who bill under $40/hr and contractors who bill over $80/hr.
When you pay too little
When you plan for a substantial portion of work that requires intermediate developers to be employed at less than $40/hr, you must prepare for these consequences:
Sustainability - Intermediate level developers who deliver good results are highly sought after. If you hire such individuals for less than $40/hr, then you should a) prepare for them to leave for other opportunities in the near future or b) prepare for them to neglect your project at inopportune times. You need to be aware of the scarcity of intermediate developers in the sub-$40/hr price range so that you can plan for product development discontinuities and business discontinuities.
Quality of Work - Typically, developers who work at rates less than $40/hr are junior developers, even if they advertise themselves as intermediate developers or senior developers. If junior developers operate without the guidance of senior developers, you should plan for poor craftsmanship. This means you will experience extraordinary number of product faults and exorbitant costs when it is time to scale. Additionally, junior developers need substantially more management to ensure they understand project requirements and to ensure they develop with acceptable practices.
If you choose to hire individuals who bill less than $40/hr, you should expect junior level talent. If your project is of intermediate complexity or advance complexity, you should bring on a senior developer to initially architect the solution and to continually manage the junior developers. Without the support of senior developers, you will experience frustrating results.
When you pay too much
This should be obvious - You are not using your capital effectively when you have a substantial portion of work implemented by senior developers billing at rates greater than $80/hr when junior developers would be just as happy doing it for less than $40/hr. The benefit of paying greater than market-going rates is that you typically get faster service, especially during emergencies.
On larger projects that require developers of various experience level, senior developers should focus on architecting the system and managing the intermediate developers and junior developers.
Before you hire anyone, you should identify the experience levels you are seeking and the necessary proportions. A senior technical consultant can help you plan the resources you need. If you already have a business plan and product specification document, the resource planning process will cost little relative to the overall project budget. Knowing the talent required and their proportions will allow you to either hire the right people within budget or manage the risks when you bring together a team that deviates from your original plan and your available budget.
With the right team, even start up businesses will realize they have plenty of capital to work with.