There is an old rule of thumb when negotiating hourly rate for salaried jobs, that it's best for the candidate to let the employer be the first to throw out the salary number and to negotiate from there.
Does this suggestion apply to contractors negotiating hourly rate for a new per-hour project with a new client? Should the contractor ask what the expected rate is, or just state their ideal hourly rate when asked inevitably?
Peter MV's got some good points. State your rate. But bump it up a little higher than what you're really looking for. If the client doesn't complain, GREAT! If the client does complain, knock your price down - a little at a time - until the client is satisfied, but of course don't go lower than what you were really looking for in the first place.
This approach lets the client feel as if he/she had some "power" to control what gets spent. It's a silly game, but not so silly after it works for you!
Never ever bill by the hour. It's inherently unethical, and you're leaving money on the table. I've written extensively on the rationale, which I won't post here, but you can read it here.
Summary:
I’ve found the biggest problem a consultant will encounter is a client who is unable to articulate value. You have to help the client understand the difference it will make to them and their business if their problem is solved/removed. Only then can they explain it to you so you can understand it.
Hourly billing isn’t transparent, it’s unethical. The longer the client waits, the richer the consultant gets (if you consider a couple of hundred bucks “riches”). If you want to be a commodity, bill by the hour and suffer price competition. If you want to be a consultant, bill according to the value of the results you help generate. Helping a client in five minutes is far more valuable than five weeks, so why not believe in yourself and charge for your talent not your time? I’m outta here!
In my case, this works rarely and only with fixed-price jobs. But even then, very few clients are clear about how much they are ready to pay, and those clients will usual underpay you. Other will simply come saying "can you do this for XY dollars" and it's up to you to get more or to refuse.
When we talk about hourly price, I had no chance so far that the client proposes hourly rate. I usually set my hourly rate for new clients. If he accepts immediately, then I knew I could have asked more :). If he negotiates, then I knew I may have to lower the usual rate.
I would like to hear what other have to say.
