Here’s to a new year in the wonderful world of design! To start it off right, maybe now’s the time to figure out one question once and for all: How the heck do you charge for your work?
It hurts to not have good pricing in place
Whether you’re an independent contractor or a new firm, setting your price can be filled with uncertainty. If you charge too much — even if you clarify that you’re open to negotiate — you could lose work that you need. If you don’t charge enough… well, lots of things make this terrible. For example:
You could set yourself up to be undervalued. This is an intangible side effect, but it could manifest itself in making your design process harder. Your input can be questioned more and your expertise valued less. A client who works with you at a low rate could refer you to other potential clients who expect the same rate. You’ll probably resent every snag that comes up because you aren’t getting paid enough.
I have experiences all over the spectrum when it comes to proposing estimates to potential clients. I’ve been a freelance writer and editor for years, and I generally charge hourly for those services. I’m also the creative coordinator for Oxide Design Co., where we typically charge our clients a flat-fee rate.
Whether you end up bidding out a flat fee or charging by the hour, landing on an hourly rate is the first major step in setting a price.
You’ve got to figure out your hourly rate
More goes into it than how much you think a client will pay — though this is admittedly something to consider, especially for beginners needing to build their portfolios.
One way to determine your hourly rate — a very logical and methodical way (and one I most certainly did not use when I stumbled into freelancing) — is to look at what your expenses will be. These include but are not limited to:
- Insurance (liability, health)
- Other employee benefits
- Employer taxes (freelancers, remember you pay more in taxes since you don’t have an employer covering these)
- Office rent
- Utilities, phone, Internet
- Office supplies
- Advertising and marketing expenses
- Business travel and entertaining clients
- Legal and accounting services
- Business taxes and licenses
It’s a long list, huh?
From there, you can estimate how many billable hours you can manage in a year. AIGA is a convenient reference for designers, and this is borrowed from their article “Calculating a Freelance Rate.”
This estimate of billable hours is low because it allows for a lot of time spent pursuing clients — admin stuff that a firm probably has one or a few people doing for the company.
Divide your annual expenses by your billable hours, and you know what you need to make hourly to stay afloat.
And then you’ll need to bump that number to an hourly rate that allows you to actually make a profit, not just break even. AIGA says this profit margin is between 10 and 20 percent.
Factor in what others are charging and how much experience you have
Realistically, the approach more freelancers (am I biased?) use to set their prices is to try to be competitive with other freelancers in their field are charging in their region. (It’s also a good idea to still check your prices against others’ if you did approach your number in the logical approach as described above.)
If you have friends in the industry, compare notes. I did say “friends,” not “acquaintances.” Not everyone is comfortable talking about money.
Explore online resources like AIGA’s annual survey of design salaries. For example, the 2014 national median salary for a designer was $46,000. You can plug that number into a formula to figure out a salaried hourly rate of about $25/hr. For freelance rates, you’ll double that, maybe even triple it. Keep in mind that’s a national number. Regional numbers may differ greatly.
Don’t forget to factor in your experience. You can’t be overly impressed with your work and expect people to pay exorbitant prices if you don’t have the experience to back it up. Are you two years out of school? Don’t expect much more than that average number I just mentioned. Understand that you’ve got to earn that.
Remember that you can adjust your rate if what you’re charging right now is no longer a fit for your business. If you get a referral after you’ve upped your price and you’re worried they’ll compare notes, just say, “My new price… ” or “My 2015 price is… ” You can also work that in with return clients.
Is it time to move on to a flat rate?
At Oxide, we try to flat-fee bid as many of our projects as possible. After 13 years in the industry, we have a pretty good idea of how many hours, say, a website will take, especially once we’ve had an in-depth conversation with a potential client to define the scope of the project. We simply multiply the number of projected hours by our studio rate.
There are a couple of benefits to setting a flat rate. For one, invoicing is a cinch. Another is that a potential client knows exactly what they’re signing up for. The only caveat with this is that you must must MUST clearly outline the scope of the project. For example, if outside costs, like stock photography or hosting, are not included, make that clear.
Of course, you could eat a lot of hours this way. If things go really badly, you could lose out on a flat fee. You have to keep a good reputation, and, hey, you’re a nice person. So if the client is super unhappy, you’ll do what you can to make things better. But this can occasionally take a bite out of your hours.
Track ALL of your time
I don’t care if it’s too depressing to figure out what you’re making per hour on this project that you underbid just so you could land it. And don’t undercut yourself by saying, “I’ll just throw this in for free.”
No. Write it down. Even if you decide to discount the amount later, track it now!
Why? Because you need to know how many hours you’ve got in on this thing. The next time you try to estimate how much time a project will take, you’ll have a better grasp of what you’ll actually need.
In the end, you’ll decide on a number you feel comfortable saying out loud. Say it with confidence. And adjust as necessary.