// Cost of Hiring

Costing model 1: Project-based compensation

In project-based compensation (or) ‘Fixed Price’ compensation, you would need to pay a fixed rate (based on the estimates) to the freelancer. The payment is due upon the successful and satisfactory completion of the project. This type of model works well for small startups where budget is a major constraint, and where strict adherence to the budget is the number one priority.

However, it depends heavily on the initial estimates that have been finalised based on some assumptions. Hence, for long-term projects, which require flexibility and re-alignment during the course of the project, fixed-price projects are seldom used.

Advantages:

• Suited for short-term projects which require fast turnarounds, and payments need to be processed fast
• As the model suggests, you know your costs upfront

Drawbacks:

• Requires the initial estimates to be perfectly accurate for the engagement to run as expected. This is fairly difficult for long-term projects and software development in general.
• Usually results in misalignment of goals between the freelancer and the company. ‘Project completion’ takes center stage, rather than the goal of building the best product possible.
• Problems in estimates, tough deadlines, lack of flexibility in product specs, and misalignment of goals between the two parties, among others, can lead to a High failure rate.

What we have touched upon is that design and development projects require a certain degree of flexibility. This flexibility is necessary to refine the build and make changes along the way. In project-based compensation, achieving this can be very hard, due to its rigid nature.

It applies more so for long-term projects that are highly subjective in nature and often open-ended in certain aspects. Hence, a time-based compensation model might be better suited to design and development projects – evidenced by its higher popularity in the domain.

Costing model 2: Time-based compensation

In the time-based compensation model, you would pay the freelancer, typically, for the hours that they put in on your project. Of course, time-based can also be daily-/ weekly- (or) monthly-fee based in some cases. In such a model, you would be invoiced at regular intervals for the time that the freelancer has put in.

This is more suited for long-term projects, due to more leeway being available in implementing changes as the project progresses.

Advantages:

• Greater degree of flexibility
• Gives the developer freedom to devote time & energy in creating a quality product, rather than purely focusing on meeting milestones and estimates
• Provides an opportunity for better communication throughout the project life-cycle, making it possible to share updates and align on objectives
• Higher success rates due to increased flexibility and alignment of objectives

Drawbacks:

• Needs a flexible budget
• Regular documentation of tasks needs to be maintained throughout the engagement
• The model, naturally, requires a reliable developer whose technical skills are excellent and is also generally trustworthy

As can be concluded, time-based compensation is the advised model of working. However, it does require a reliable, trustworthy, and high-quality developer. Vetted tech talent networks such as Flexiple and Toptal are a good place to find such developers. Such platforms also have a risk-free trial period. This allows you to work with a developer for a week, and only pay if you’re satisfied.

Hourly Rates

Hourly rates are the most popular form of time-based rates, owing to a high level of detail that can be achieved while maintaining documentation. A company can understand precisely what they’ll be getting and how much is being spent on what, paving the way for more accurate estimates. It also allows the freelancer to get adequately compensated for the exact amount of hours that they’ve put in.

Specifically for software development projects, where the outcomes are objective in nature, hourly-rate-based compensation provides the level of detail required to keep a log of each small/big task completed, and how they add up to larger objectives in the project.

Factors that Influence the Cost of Developers

These are the broad factors that have an impact on freelance developer rates:

1. Demand for the skill in the market

The demand for a particular technology heavily influences the price that developers can charge for it. Hence, developers who are skilled in popular technologies of the time typically command higher rates.

A good example to cite here would be the exponential rise of ReactJS in the years 2015/16. Companies began rapidly adopting it, with burgeoning demand leading to the disproportionate increase in hourly rates for developers skilled in ReactJS.

Of course, alternatively, if a developer possesses a very niche skill which not many do, it allows them to quote a premium price. However, finding a constant flow of projects in such technologies might be difficult for them.

2. Expertise in the technology and a well-rounded skill-set

As one can expect, customers prefer to work with the best. Therefore, they are naturally inclined to pay higher if a developer is able to demonstrate their expertise in skills they possess and rank among the top candidates.

Prior work on a variety of production-level projects as well as open-source projects – which are usually visible on a developer’s GitHub profile – are indicative of their expertise, and make a case for higher rates.

This doesn’t just include technical skill sets though. Having well-rounded skills, including soft skills such as quality communication, remote working ability, and good client management, makes a very attractive proposition.

3. Past Work Experience

While past work experience is not a perfect indicator, it does influence a developer’s rates. Typically, clients view a higher work experience as a proxy for a developer having a better knowledge of the technologies they work on, better code quality, the ability to have a nuanced vision of a product, and so on.

Additionally, customers appreciate and recognise developers who have delivered quality work under similar conditions to what would be demanded on the current project.

Therefore, these factors, naturally, increase the hourly rate one can quote.

4. Brands

Brand names on a developer’s resume often are indicative of the quality of their experience.

This can be a reputed college where they studied (or) a popular tech company that they previously worked at. Companies treat these brand names as a proxy for the developer’s quality and hence will be ready to pay a premium.

5. Geography

With the living costs differing across regions, the hourly rates for freelance web developers across geographies also vary. An example of this would be: the hourly rates of a developer in Ukraine being considerably lower than those of a similarly-skilled developer present in the U.S. (where the living costs are much higher).

On a parting note, below are the average hourly rates of freelance developers worldwide. We’ve aggregated the data over the past 4 years, and categorised it by geography: