How do I charge for warranty if I have an hourly rate?

Question

When I'm developing a website, the contract with my customer specifies that if I do something wrong, I'll fix it for free. That's the warranty for my work.

However, nothing is really free. If I'm working, I deserve to be paid. The warranty is just something to protect the customer from being over charged and that's fine. But, errors happens and if there is just a few errors, I want to put this risk in my final cost. How can I achieve that?

For example, let's say that I have to do a task and I estimate that I need 10 hours to complete it and I have set an hourly of $ 100. My costumers want a breakdown of my estimative and I have created one first just for myself:

• Task1: understanding the problem - 2h
• Task2: creating the solution - 6h
• Task3: documentation - 1h
• Task4: delivering the solution - 1h
• Total: 10h

However, if I do something wrong, for example, I may need to work 4 hours for free to fix it.

So, I would like to charge for this work at least 12h to be fair with my customer and avoid working many hours for free. The question is: how can I show this to my customer if my contract says that I must disclose my estimates?

Option 1: add a taks for "risk"

• Task1: understanding the problem - 2h
• Task2: creating the solution - 6h
• Task3: documentation - 1h
• Task4: delivering the solution - 1h
• Task5: 20% of risk - 2h
• Total: 12h

Problem: my customer don't want to pay for risk. He says that my hourly rate is too high and he is already paying for it. However, I never said that my hourly rate considers the risks of the job.

Option 2: raise my hourly rate in 20%

For example, if I charge $ 100, I need to charge $ 120.

Problem: increasing the hourly rate is dangerous and I don't want to loose costumers for freelancers that charges a lower hourly rate but have charges much more hours than needed to complete a task.

Option 3: increase the estimates of each task to add a hidden risk

• Task1: understanding the problem - 2h
• Task2: creating the solution - 8h
• Task3: documentation - 1h
• Task4: delivering the solution - 1h
• Total: 12h

Problem: raising the estimates of tasks have a downside: the customer will think that I have a low performance. I'm currently using this strategy, but my customer keeps complaining that I'm overly charging him saying that I need much more hours than I need to complete a task.

Question: which option is better? How do you charge warranty?

Answer 1

Estimate more, charge less in the end. The customer will thank you and think you're amazing!

First off, why do you need to break it down so much? That to me is a sign of a customer not trusting you... Which can turn it into a toxic relationship. Do your estimate yourself, and deliver a final price, based on projects that size and magnitude. Do not let the customer dictate how long you take to do your work.

If you are going to quote 10 hours, you better be done in 10 hours or less. Otherwise, the customer is going to feel you're not very good at your job. Do not quote too high, or they will think there's more to it, and look for cheaper alternatives. Your 20% is very conservative, and it's great if you can deliver it in 11.5 hours. At 12.5 hours, you don't seem as competent as the person putting in a quote for lower.

So, those are your two choices: raise the rates, keep the hours low, or keep your rates, increase the hours. Either way, do not break down every cost, unless they are paying for certain parts of the projects in milestones. Small projects that take 1-2 days, simply say "The total will be $xxxx for the project, I estimate it will take around yyy hours."

Answer 2

I agree with Canadian Luke regarding breaking down exact times for your fixes or work. As suggested from the question I asked earlier in the year about End of Project Process, User45623 advised charging/accounting for these types of situations in advance.

My suggestion is add extra hours for completing the project if you're using a technology or developing a custom aspect that may bring up issues later.

My other suggestion is to stipulate in your contract that after the website is complete and bug free, all other revisions, maintenance and additions are charged hourly.

Answer 3

Hmmm.. I'm thinking out loud here, but what about adding a line item for "Warranty Policy" that contains 2 hours worth of $$? When the customer says "what is this, I'm not paying for any insurance policy?" you reply, awesome, then you simply remove the warranty from the agreement, per the customer's guidance. (obviously they are not going to accept that.. so the answer is.. here's my quote with detailed breakdowns per your request. Have a nice day.)

I will say, I've seen some pretty aggressive businesses drive down price with continual requests for cost breakdowns, and then argue over every penny. It can get way out of hand. (Been there, done that.)

Unfortunately, the real issue is: What's the fair market price for those services, when there is a capacity of freelance developers available (often at a lower rate than yours?)

Answer 4

You shouldn't be offering a warranty with work billed hourly. That makes no sense.

The whole point of working on an hourly basis is to allow the customer to make changes in scope without you ending up working for nothing. If the customer wants changes, the customer just pays for more time.

In your warranty scenario, you are giving the customer the option to tell you to do "A", have you do the work (using YOUR time) and then later say that it's incorrect and that you should have done "B" -- so your time spent doing "A" is not billable!

What if you get to the end of the project, and your customer decides it's ALL wrong? If you've put this warranty language in the contract, you're going to make a real idiot out of yourself in the process.