Putting a price on creativity is no easy task. It takes great care to please your clients and build a sustainable livelihood at the same time. Without the benefit of pricing a product based on reselling tangible products, graphic designers and marketing specialists are often left to their own devices when it comes to establishing rates. Many times this results in varied and unrealistic charges and a general lack of best practices in the field.
From a professional perspective, there are several factors that should influence your decision making process and help you, as a creative, to valuate your services.
Rate Formulation Equation
Your first step to take in establishing an hourly rate is to calculate your overhead costs by creating a budget. If the idea of budgeting bothers you, this is an unfortunate problem to have. Many designers experience these same sentiments which is one of the main contributing factors in unreasonable and wildly fluctuating pricing models. If you can’t create a budget or do not want to create one, you run the risk of running an unsuccessful venture.
If you have been doing business for a few years, and have managed to keep these records, look back on your invoices and receipts, itemize both into several streams of revenue on the income side, and categorize your expenses in the same manner. If you are starting from scratch, there are several types of expenses that you can typically account for on a month to month basis. Here is a sample of what this may look like:
- Utilities: $300
- Rent: $1,500
- Phone/Internet: $75
- Recordable Media: $25
- Travel expenses: $150
- Online subscriptions: $100
- Payroll (your salary): $3,000
- Tax Remittance: $250
Total Monthly Expenses: $5,400
Total Yearly Expenses: $64,800
Once you have an idea of your annual expenses, it’s time to turn your attention to your income. Keep in mind that it’s very doubtful that you will have the opportunity to bill your clients for 40 hours per week as you would as normal employee. Managing your own business is wrought with numerous interruptions and many small tasks that require your attention and are simply not costs you can bill to anyone. Realistically, your opportunity for billing time directly to a client may be limited to 25-30 hours per week or 1400 hours per year. Your time may also be affected by your network of clients and their requirements. Estimate your billable hours carefully and responsibly.
Once you come up with a practical weekly estimate, extrapolate these numbers out to create an annual figure. When you have this number calculated, divide your expenses ($64,800) by your billable hours (1400 hrs.) to come up with an hourly figure ($45.71/ hr). Once this figure is arrived at, you must consider the cost of growing your business and retaining income for savings. Perhaps, 10% is a good rate of savings (for an annual total of $6,300), and 20% would be a suitable mark-up for investment back into your business ($12,600 annually).
When taking these figures into account, your hourly rate of $59.21 seems like a figure that will ensure you cover your costs, pay yourself, save for the future, and encourage spending on growth initiatives like advertising or hardware upgrades.
Streamlining Your Business
Once you have created a financial blueprint for your business, you are well on your way to making yourself a successful entrepreneur. Your task now is to discover ways to lower your expenses in an effort to gain a competitive edge over your competition. If you can create opportunities to save on overhead costs such as utilities, rent or phone costs, you can choose to pass these savings onto your clients.
In the process of looking for creative ways to cut costs you may discover that these are also ways to reduce your carbon footprint. If this is something that saves you money every month, apart from the obvious benefits to the environment, it may be also be an opportunity to market your organization from a green perspective.
The more you can reduce your overhead expenses, all things being equal, the bigger the advantage you hold over your competitors.
Supply and Demand
Supply and demand is popular term in economics and may be the most practical way of deciding how to price yourself hourly. If demand is high, meaning your phone is ringing off the hook, your inbox is full, and you have more work than you can handle, your hourly rate is ready for a increase.
It’s also worth mentioning that if you have very little work, this is not justification to increase your hourly rate, rather it’s time to find a part time job to help make ends meet. Increasing your rates in this situation, although a short term solution, will not sustain you over the long term as you may end up pricing yourself out of work before you even begin.
Supply and demand should be the only factor that influences your hourly rate. By establishing yourself and succeeding on the premise of excellent design, fiscal responsibility, and great customer service, you are creating a fair economic environment that will grow proportionally with your success and the satisfaction of your clients. These are easily measurable metrics.
Although ethical decision making seems to be an out-dated principle in our capitalistic society, it’s an important factor to consider in pricing your services appropriately. Here are some potential situations where you may need to rely on ethics to make a decision:
It’s come to your attention that your client has secured a sizable new contract. This is not a reason to charge more.
Your client drives an expensive automobile to meetings. This is not a reason to charge more.
You feel annoyed. This is not a reason to charge more.
You are faced with a tight project time-line. This could be a reason to charge more.
You are working with technology you are unfamiliar with. This is not a reason to charge more.
The scope of the project increases. This is could be a reason to charge more.
Use your best judgment, or ask a trusted source, when you are faced with the temptation to charge more than your typical hourly rate or more than what was originally quoted. Remember that supply and demand is the main driver of your services.
Consistent Value vs. Potential Value
There is a school of thought in the design industry that believes you should bill on a sliding scale where cost is determined by the size or earnings of a client. For example, larger more established organizations should pay more for creative services than a smaller, lesser known client due to the fact that they have the potential to make more money from your work. As an responsible and respected designer, it should be noted that this ideal is ethically irresponsible and fundamentally flawed.
Unless a larger organization approaches you with work while demand for your product is high, or negotiations are dictated by a set budget that is higher than you would normally expect to charge, you should not be inclined to charge larger companies any differently than you do your regular clients.
Be aware of this slippery slope as it can cause serious creative difficulties if you do take liberties with your cost structure. The product you provide should always be of a consistent caliber, not one that fluctuates with the quality of your clientele.
Your suppliers are a key element in your cost structure. Choose the people you work with carefully and ensure you can trust them to deliver a quality product in a timely fashion. Whether you outsource printing, web development, or hosting, your clients will be affected by your supply chain decisions. Be sure that you establish a specific percentage mark-up on all outsourced services and do not deviate from this pattern as it is important to create pricing that your clients can count on and budget for.
Responsibility in Graphic Design is an important aspect of our industry that is often disregarded in the passionate pursuit of creative solutions. As a designer, remember that your choices affect everyone and if you run your business with professionalism – everyone wins!