Pricing

My Formula To Price Design Services

Pricing design services is trickier than what it looks like. There are many factors that need to be taken into consideration to properly price a design project.

Design rates vary a lot depending on the designer’s physical location, experience, specialisation and demand. As Steven Snell, editor-in-chief of Vandelay Design, says in this other post on 12 Realities of Pricing Design Services:

The variety of prices is as wide as the variety of talent levels

Price has a big impact on your client’s perceptions and your business success. If you low-price your services, clients may think you must not be very skilled or experienced. On the other hand, with high prices also come high client expectations, that when they aren’t met lead to huge client disappointments and negative public reviews.
 
Putting price to my time and skills has been one of the most difficult parts of my job. However, this is an essential exercise for any designer. As just not only clients but also other designers usually ask about how I price my services and why I do it that way, today I’m sharing my pricing formula.

 

How do I charge my clients

There are typically two billing methods for design services:

  1. Hourly rate
  2. Fixed Price

Clients usually prefer the fixed price method, as they know up front the entire cost of the project, while charging per hour is favoured by many designers.

While an hourly rate method is usually easier for small projects, for large ones this pricing system could scare clients off. You never know how many hours it will take to complete a project, so the final invoice can be a nasty surprise for the client.

For that reason, my preference is to charge a set price for any project over 4-5 hours of work.

You can find out more about pricing creative services in this other post by The Design Trust with 15 different ways to price a create job.


How do I set fixed project prices

Not every project is the same. For example, there are simple websites and others with a lot of information and complex functionalities. So it would be unfair to charge the same for any website project. The same thing happens with any other piece of marketing material or design in general.

On the other hand, large projects usually involve many different tasks; each task requires different levels of specialisation or expertise, from design, art direction, coding or project management. Depending on the specialisation and complexity, every task usually has a different average hourly rate in the market.

To know how much I should charge for each task, I determine the market rate first. To do this, I check other competitors’ rates through freelance marketplaces. Some useful tools are:

When a potential client requests a quote, to ensure I have a clear understanding of the project requirements, I ask them to fill a project brief questionnaire. Once I get the information I need from them, I can calculate the project price with the help of own price calculator, which is basically an Excel file with a long list of project tasks and a separate price for each of them. The formula is:


{ Hourly rate (Expenses + Average Market Salary) x Estimated Time To Complete } x ComplexityLevel = Base Price

There are also some add-ons that will impact on the final cost of any project, like hosting services, SSL certificates, stock photos, photo editing and retouching, customised illustrations, customised coding and CSS, etc. Most of these added costs don’t usually go to the designer but to thirds party companies or subcontractors.

If you are a designer, below you can download my quote template in Excel for your reference and customise it with your own prices and creative services.



Minimising fixed price risks

The main risk of fixed pricing methods is that if the client ends up being a bit picker than expected, the designer will need a lot more extra hours to complete the project. If you bill all those hours, the client will receive an invoice ridiculously above your initial quote, if you don’t, you will end up working for free.

To make the flat rate billing system fair for everyone, it’s extremely important to clarify what is included in the price and what’s not, and therefore, it will be charged separately. For example, I include 3 rounds of revisions and every additional round of revisions and changes has a cost of AUD$75.

If you do this in a simple conversation, the client may forget quickly about it. If you put it in writing, they may never read it. So I do both, just to be safe. In our first face-to-face meeting I discuss the project budget, possible costs and what’s included on the price, and then I send them a contract to sign-up, that specifies:

  • How many rounds of revisions are included and cost of additional revisions
  • Payment methods and conditions
  • Cancellation policies
  • Additional fees if the project requires more work than expected
  • After sale support
  • Fees for payment delays
  • Etc



Structuring my payments

When I was a young designer I learned this the hard way. Some clients didn’t pay. So I always ask for payments upfront. It’s just a security that the client won’t easily go to another designer; change his/her mind in the middle of the process or will be just simply unwilling to pay.

My payment structure varies depending on the total cost of the project:

  • On small projects under $500 I require full payment upfront
  • On mid-size projects between $500 and $2,000 I ask for a $500 deposit and the balance prior to the release of production-ready files or to go live.
  • On larger projects with several stages of deliverables, I require 40% deposit prior to starting any work but break up the fee schedule based on deliverables.



Covering indirect costs

The total amount of phone calls, Internet bills, software, licenses, bank and PayPal fees and, of course, taxes, was an unpleasant surprise after my first year in business. These indirect costs are very difficult to charge to the client, and have too be part of your hourly rate. But at the end of the year, they are just too much to pay them out of your own pocket.

So I quickly learned that a freelance designer also needs a second source of revenue, in the form of passive income. In my case, selling pre-made design and digital products online has been a great way to generate extra cash flow, not just to increase my monthly revenue but also to cover all those indirect costs.


Packaging services

Most of my new businesses are referred by existing client’s. For that reason, great project outcome and excellent client service during and after their project is key to ensure the continuity of my business.

Rather than giving discounts to new clients I prefer to provide client value by creating service packages. The benefit of packaging my services is that I can offer some extra free-services or discounts to existing clients, aimed to build long-lasting relationships with them. As part of my service packages I include, for example:

  • Face-to-face meetings and free consultations for local clients
  • Free post-project technical support and trainings
  • Discounts for new business referrals
  • Free access to my small business resource library
  • Etc


Wrap Up

When it comes to price design services there is no right or wrong methods. Both hourly pricing and project-based fixed pricing have pros and cons. Every designer will have to identify the pricing method that works better for him/her.

Sometimes you will probably realise that you underestimated the amount of work that a project was involving, in which case, you will have to learn from the experience and calculate your price better next time.

Finally, do research the market, don't under-price or over-price yourself and make sure you always add value to your services to ensure repeated business and referrals.

If you are a designer or a client, your thoughts on this topic will be very appreciated.



Common Problems Of Marketing Design Services

Something I learned from working with designers and creative businesses is that many of them usually share similar challenges marketing their business. In this post today I’m bringing five common challenges shared by many clients and industry professionals.

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Challenge 1  /  Finding Your Uniqueness

One of the biggest problems in the design industry is the over-saturation. There are so many designers out there that makes it really hard to get noticed.

People always have the same question about your business: “why should I hire you over thousands of other businesses in your industry?” Having an answer to that question is vital to your business.

Solution: If you want to stand out, find a specialisation

There two simple ways to find what makes you unique and different to everyone else:

  • Find a niche – take a look at your clients and see if you can identify anything in common, at least in some of them. It could be the same age range, same interests, same lifestyle, etc. If you offer services to other businesses, see if some of them belong to the same industry. If you find a pattern you can claim a specialisation in a particular niche and focus your marketing efforts on it.

For example, I focus on designers and creative businesses, as many of my clients belong to that industry. Having experience on that particular niche offers an immediate competitive advantage to new clients: they can benefit from the lessons I learned working with other similar businesses.

  • Find an area of expertise – As you cannot be an expert for everything narrow your offer to only those services that you know best. This focus will bring clarity to your business, and help you identify the skills you need to develop and master that particular area of expertise.

When I talk about specialisation, many clients get concerned. They think by claiming a specialisation they may lose business opportunities. Specialising yourself doesn’t mean that you wont be able to provide other services or work with other industries, but it will help you stand out in this over-saturated market.

In this other post I explain how offering a wide range of services was one of my own first mistakes and specialisation was one of the lessons learnt from my first year in business.

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Challenge 2  / Finding New Clients

Another common struggle for many small businesses is finding new clients. Again the market oversaturation makes it difficult for many new businesses to build a portfolio of clients. Tight start-up budgets makes it hard to invest in marketing and advertising which also minimises the opportunities to gain new clients.

Solution 1: get new leads by word of mouth

Family and friends can help promote your business by word of mouth. Also target your local community, small businesses like supporting each other. And above all leverage your existing clients.

Finding a new client is the result of many hours of work, communication efforts and meetings with prospects. It’s easier to sell a new product/service to an existing client than find a new one. Focus on giving your clients the best possible service, as chances are that they will use your services again in future or even refer some new business to you.

In this other post I explain how building relationships can help grow your business.

Solution 2: Share information and help others

Many of those who use Internet everyday are looking for answers to resolve a problem. Sharing your knowhow through your website or blog can help others resolve problems and help you build relationships with potential clients, while positioning yourself as an expert in that particular area.

Having a blog, writing a free ebook, creating video tutorials or offering free e-courses are different ways to share your knowledge with others in the Internet.

In this other post I share some useful tips to treat your blog as a business and make it profitable.

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Challenge 3  /  Keeping the cash flowing

Many small businesses constantly go from very busy to very quiet times. Unfortunately money stops coming during those quiet times and you never know when it will start coming back again.

Relying on selling only customised services to clients can be a risky strategy for a small business. Situations like not being able to find enough clients to support your business, losing some clients or needing some time off could have a negative impact in your cash flow.

Solution: Diversify your offer

If you find a niche, explore every business opportunity within it. Find other needs that this niche may have and that can be complimented with products.

Sell products, not just services. Those products can be physical or digital goods (i.e. anything downloadable), courses or subscriptions.

For example, I support my business by selling different types of digital products in third party websites. In periods of low activity I focus on producing new designs to add my catalogue.

Challenge3-Having-Cash-Flow

 

Challenge 4  /  Publishing Your Pricing

When someone looks for a design professional the first question in their minds is “how much is it going to cost me?” If you don’t have pricing in your website, many people might assume your price range is above the average.

However, quoting design services is a complex exercise that needs to take many different things into consideration. Every project has different specifications that need to be discussed with the client before you can quote their jobs.

On the other hand, charging your clients on an hourly basis can end up being unfair for the client. Experienced designers can come up with ideas quicker and can complete a job faster than a junior designer. Even if the hourly rate of a junior designer is cheaper you could end up paying more for their services.

Solution: package your services

Packaging your services as if they were products will allow you to set a fixed price. You can always re-calculate the price of any project that requires some extras or add-ons but at least the client gets an idea of how much your services can cost. It will also save you time quoting jobs and replying enquiries about your rates.

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Challenge 5  /  Being Over Capacity

This might actually be something very positive for a small business. The problem is that if you don’t have a team to support you in busy periods, you may struggle to keep up with everything on your plate.

How to manage several projects at the same time, look after existing clients, promote your own business and find new clients without losing your sanity? The answer might be ‘outsourcing’, but before thinking of hiring some extra help you can try something else more cost-effective.

Solution: build production processes

Organise your job in steps that can be repeated in every project. To do this, you can use the quiet periods to create templates of proposals, emails, etc that you can customise quickly for every new client. This way when you are overcapacity, you can save time in managing clients and projects to spend some more in providing a good service.

This other post by Lauren Hooker of Elle and Co. explains how to use 17Hats to organise your process and client workflow.

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Here is also another interesting reading found in Mighty Deals blog with six ideas for increasing your customers to your design services.

Surely, these are not the only challenges that designers and creative business have to face, or the only solutions to the problems above, so feel free to contribute! Leave a comment and share any particular challenge that you face or/and any solution that you came up with for them.