Earn Your Worth!
Over the years, we’ve had so many designers come to us and ask, “What should I charge?” Back in 2007, Bill shared A Designer’s Guide to Pricing, one of our most popular posts to date, which shares many of his thoughts on this subject.
Determining your fees can be tricky. There’s a fine line between too much and too little. You want to be competitively priced while also ensuring profitability (we are in business to make money, right?).
Choose Flat or Hourly Billing.
The first step in determining your fee structure is deciding whether a flat rate or an hourly billing system is right for your business.
Here at Go Media, we work with hourly billing (although we used to work on flat rates). As Bill notes in Drawn to Business, “At its core, our system is hourly billing. I call it “hourly billing with caveats.” If a client asks us: “How do you derive your estimates?” we will tell them: “It’s based on hourly billing rates.” But we no longer give the client a line-by-line breakdown of how we’re adding up those hours. We also stopped showing them the hours we’ve actually worked, which we used to do. Sometimes we eat hours. Clients don’t like it when you go over budget. If a client stays “on scope” and we just go over budget because we misquoted, or the client was a little pickier than we expected, we will eat a number of hours to try and close out the project on budget. I think we would be willing to eat up to 20% of the project’s hours to try and come in on budget. This puts a little pressure back on us to work efficiently and to quote accurately. However, we make sure to let our client know the value they’re getting. We’ll trumpet the fact that they just got X hours of free design services so we could stay on budget. However, if the client is going WAY over budget, then we start billing them again, but at our hourly rate.”
In Drawn to Business, Bill stresses the importance of communicating policies before the project kicks off (even though most clients nod their head and tend to ignore the information). Putting things in writing always helps! At Go Media, that statement looks something like this:
Our quote is an estimate based on an hourly rate. If your project goes over budget we will be billing you at $XX dollars an hour. We are going to work very hard to stay on budget. Our quoting is typically very accurate, but you need to be aware of this policy.’
Now, this isn’t to say that Go Media wouldn’t work with a client who wants a flat rate. Should this be the case, we would be sure to discuss all of the project details and manage expectations at the onset.
Flat Rate Billing
Some of our designer friends who freelance prefer to bill based on a flat rate system.
Here’s a few words from Jennifer Cirpici on her billing system, “I don’t often work with hourly rates, I mostly work with fixed prices. I’ve worked with hourly rates in the past and it usually scares the clients off. They often ask for more hours to put into and in the end it’s a ridiculous amount of money I have to ask them to pay. The amount you know they won’t pay anyway. In my fixed prices I include the amount of rounds of feedback we would do, the copyright (will it be a year, two years, or a buy out? Will it be for a magazine, commercial or the web? Will they sell it to someone else? etc.), how long I think I’ll work on it and the deadline. It’s a different price when they want a project done within 24 hours or when they want me to have a lot of freedom and the deadline is in 3 months.”
Lenny Terenzi, also a freelancer, notes, “I always bill flat rate. It seems to make it easier for my clients to digest. If I go over, I go over and know to charge more next time. If I go under by a large amount I adjust the final bill to reflect that though by the time all phone calls, and email and project management and file prep and all the little things that so many people do not account for come into play, I rarely am under by much.”
On the other hand, Scott Fuller says his billing practices can ebb and flow based on the client. “I want to know, do they need X amount of options? What’s their budget? Will they still be around to pay me?”
He notes, “I’m not above charging a ‘Put Up With You’ fee. It’s important to know exactly what you’re getting into.”
Establish your rates.
At Go Media, we have different rates depending on the service. We design at $100/hour, develop at $125 and consult at $65/hour.
Queens based designer Sophia Chang structures her rates the same way, but also takes into account the type of client – “I have different pricing for graphic design, web design, illustration, consulting, project management, etc. It all varies on the client. If it’s a small start-up or big corporate gig. I can say the general hourly range is between $80-200.”
North Carolina based designer, Lenny Terenzi of Hey Monkey! Design, shares information on his fee breakdown, “Right now I calculate my project rates at $75 per hour. When I do proposals I give certain categories flat rate amounts. So for a $2,000 print / logo design project it may be:
- $300 Project Management
- $700 Creative Concepting (wireframe, sketches, etc.)
- $700 Graphic Design
- $300 File Prep and Delivery (small style guide, file formats etc.)”
Freelance designer Mike Jones, based out of Columbus, Georgia, charges between $88 and $107 per hour.
Know when to raise your rates.
Bill Beachy nailed it in his new book, Drawn to Business, “The easiest way to know when to raise your rates is when you’re slammed. If your design schedule is booked solid for three months and you have more requests coming in, then it’s probably time to raise your rates. This is a great way to discover your market value. Start with your rates low. Work hard until you’re slammed, raise your rates, repeat.”
Look for a payment upfront.
At Go Media, we like to collect a security deposit before we ‘kickoff’ any project. Our policy is 50% of the project total for those under $5,000 and 25% for those over $5,000.
Jennifer Cirpici operates close to the same, “If it is a paid commission, I’ll never work without getting paid upfront. It can be 30-50% (depends). It’s just a security that the client won’t easily go to another designer and that incase the client runs away, you haven’t begun working on something for nothing.”
Mike Jones, who asks for 50% upfront, notes that this is a non-refundable deposit. This, he finds, assures that his clients stick around through project completion. Another policy he holds to is a late fee; after 90 days, Mike adds 17% to the project cost.
Find what works for you.
Ah, negotiation – one of the most important business skills. There are countless books, seminars, webinars, etc. on the tips and techniques of negotiation. Straight from the Go Media sales team, here are a few things we’ve mastered through experience:
Play nice and stay calm. Remaining friendly while arguing for your side is critical for successful negotiation! Don’t insult a client (even if they have the most unrealistic or offensive demands). The last thing you want to do is damage a relationship or hinder repeat business.
Start high. Without being unreasonable, your first quote should be as high as possible. As Scott Fuller puts it, “Always start high. Always. You can always go down, but it’s very hard to negotiate your price up”.
Know your rock bottom. At Go Media, we know our break even price and keep that in mind while negotiating!
Know when to slow it down. As Bill learned in his Yale School of Management course and noted in a previous post, “If you’re caught unprepared for a negotiation or are feeling confused – then stop the negotiation, take some time and re-engage in the negotiation when you’ve had some time to gather your emotions and your thoughts.”
Take the emotion out of quoting – be objective!
This can be hard! It’s easy to make assumptions about a client’s budget and what they can, or can’t, afford and often times adjust numbers accordingly.
As Bill notes in Drawn to Business, “It’s easy to go either way on this one. Either you’re too empathetic, worrying about your client’s budget and artificially lowering your numbers to what you think they can afford, or, if you’re greedy, you’ll artificially raise the numbers to what you want to make.”
Over the years, we’ve found that breaking down projects into as many small pieces as possible, and quoting those independently, is the easiest and most accurate way to quote.
Being objective can be extremely difficult, but it ensures profitability in the long run!
Consider responsive pricing.
“It’s easy to discount projects to appease a client and hopefully get them to ‘bite’. But random discounting without any ‘method to the madness’ can be careless. Go Media utilizes what we call the ‘Responsive Pricing System’ which determines project minimums and the max percent discount we can offer a client based on how busy we are at any given time. The goal is to have price points that respond to the current workload,” notes Lauren Prebel, Account Services Manager at Go Media. Here’s a look into the Go Media Responsive Pricing System:
12 weeks or more, we offer no discounts and will only sell projects that are worth $5,000 or more.
Between 8–12 weeks then we’re willing to discount our rates by 20% and we’ll take any project worth $2,500 or more.
Between 4–8 weeks, we’re willing to discount our rates up to 40% and will take any project worth $1,000 or more.
Less than four weeks, we’re willing to discount our rates up to 50% and take any project worth $500 or more.
See Bill’s July 2013 post on the Responsive Pricing System for more insights!
Bust Bad Clients
Listen, no matter how savvy, in business, you’re going to ripped off. You have to learn how to recognize what we here at Go Media call busters, or bad clients. Once you recognize those bad clients, you must rid them from your life and business. They will only cause you headaches!
Here a few signs:
- They’re full of energy, pumping up your ego and offering you outlandish promises. They want you to do this one-small-thing before payment.
- They’ll sell you on being the business partner of your dreams. You guessed it: at the end of the day, you’re doing all of the work and they’re taking all of the money.
- They’ll play down the amount of work they need done, suggest it’s part of the current project. Sooner than later you’re in over your head. And out a whole lot of cash.
For more on identifying and avoiding bad clients head to Bill’s post on Beating Busters.
Stick to your guns.
Decide what your most important billing policies are and stick to them!
Other than the initial deposit required to ‘kickoff’ a project, Sarah Traxler, Go Media’s dedicated Project Manager, explains that our most important billing policy is the payment installment process we instituted in 2013. “At the beginning of every project, in addition to a detailed timeline, a client is given a payment schedule that identifies the dates and amount we will be billing along the course of the project. This method ensures there are no surprises regarding payment!”
Our installment documentation looks something like this:
12/15 – Payment Installment no. 1 of 4: $2,125
01/15 – Payment Installment no. 2 of 4: $2,125
02/14 – Payment Installment no. 3 of 4: $2,125
03/14 – Payment Installment no. 4 of 4: $2,125
Sarah says that this policy has really streamlined the billing process – “Whereas it previously took a long time to invoice and figure out what’s been paid, it hardly takes anytime at all now because everything has been calculated at the onset of the project. Of course, adjustments are needed here and there if a project is completed earlier or later than estimated, but that time is small in comparison to the time it used to take. It’s made things much clearer and more straightforward for the client, as well.”
Have confidence in your policies and stick to your guns!
Ultimately, remember to maintain fairness, stick to your billing policies and have the courage to let go of the clients waving red flags in your direction.
Sophia Chang’s last piece of advice? “Don’t undersell yourself. Know your worth, do the research. And be open to making mistakes and learning from them!”
Best of luck everyone!
Let’s keep the conversation going! What works for you? Where are you meeting challenges? What questions do you have?