It always happens when a designer approaches me to ask how do they make the leap to independent contractor the first question is, ”how much do I charge per hour?” I guess the answer to this depends on how far down the rabbit hole you are prepared to go. The short of it is you should be quoting your rate on a project basis but tracking, and thinking of it, as hourly.
First rule of pricing; don’t lowball yourself
The most important thing to first tackle in pricing your services is to understand the value of your work. Designers usually throw out, very timidly, a figure to gauge if it’s fair for them to charge. It’s disturbing to say I’ve never had someone shock me by throwing out a number too high. In fact, when you point out statistics from various salary surveys they tend to be shocked an independent contractor can make so much. What designers tend to not realize is when they work for a studio, it’s the employer picking up the tab for the office space, software and hardware, sales and marketing, benefits, taxes, etc. When you go it on your own you have to account for all these expenses coming out of the hourly rate, and what’s left over is what you get to pocket. If you don’t value your services how can you expect a client to?
As Designers we do this for several reasons. It starts in school when your quoted rates from professionals in the field. Your eyes glaze over with dollar signs quickly tempered by the assumption you must be worth dramatically less because you are green. Worth less? Maybe. Worthless? No. We also have to contend with clients who view design as a commodity and therefor place little-to-no value on creative services. And then there is the theory of setting a low price but making up for it with a high volume of clientele. While this might work for the Walmart’s of the world, it isn’t a sustainable long-term strategy for a designer. Walmart can get a way with it because they sell the products we all need on a daily basis—food, clothing, medicines. We don’t all need logos, websites, and brochures. So we start off handicapped by a dramatically smaller pool of prospects.
The second most important factor to understand is your worth as a creative professional is relative—geography, talent, market conditions, and experience are but a few of the factors. Look upon resources such as salary surveys, rates of colleagues, and rate calculators as pieces of a puzzle rather than hard and fast rules by which to live.
Why you should talk per project with clients
The big advantage to charging per project is it tends to negate the element of sticker shock when pitching to a client. As you get into theta thick of things, it can instill confidence in clients to know up-front how the project is going to affect their bottom line without fear you are trying to rack up unnecessary billable hours. This in turn can help speed, and open, the design process as clients become willing to explore options without the question of “how much is this going to cost” causing hesitation and prompting another round of discussion about budget. They can concentrate on achieving goals without the cost factor looming in the back of their minds.
The down side is you can crash and burn badly if you are not wise about how you spend your hours. Worse yet is if you have no idea how long it will take you to complete a project. If you lack experience try completing a project or two for yourself, all the time noting how long each task takes you to accomplish. It’s not perfect, and you will have to adjust your estimates over time, but at elate you’re not taking a stab in the darks hen you give clients a price. If your coming from an agency or studio environment take into account you no longer have a support staff to handle details such as Project Management, billing, client relations, asset management, copywriting, proofing, and the hundred other things it takes to move a project forward. In design, it really does take a village.
Why you should think hourly
Even when you charge per project you will still need to break down you cost per hour. Every job entails a different level of detail and how you work varies project-to-project; even day-to-day. By breaking down your work into a standard unit of time and money you can accurately judge if you are under charging for your services so you can better manage your bottom line. As your workload grows and you hire other professionals to help you complete projects you can apply the same formula of work produced to time so you can gauge the value you are receiving for the money you are paying out.
Where the hourly rate approach generally stumbles and falls is many clients become scared off by sticker shock when they receive an itemized bill. If the price does not outright scare them, a long line-item list might give the impression you are milking them for billable hours. Remember, just as you might not realize the work a support staff does for you when working at an agency or studio, clients often do not know the myriad of details and attention it takes to successful complete a project.
Now for some irony—it can become time consuming tracking hours, generating billing, explaining it to the client—and you don’t get to bill for hours tracking billable hours. So, you’ll need to decide how to account for this time when calculating prices.
There is a silver lining, though, to hourly rates. An hourly rate has the advantage of making sure you are always compensated for you time no matter how many changes a client requests. Increasing your hourly rate can be a backhanded way of tactfully dealing with the clients you don’t want to necessarily deal with. They will either find another designer or willingly pay the increased fees again making them a worth while prospect.
How do I figure out my cost-per-hour?
As mentioned previously, when figuring your cost per hour to decide which activities you will treat as billable hours and which you will write off as part of providing good customer service. As a general rule most contractors do not charge for activities which occur during the normal course of business. In other words, you shouldn’t charge your client for the time you spend drafting a quote or invoice, answering emails, or making phone calls. You do want to charge for those activities directly related to the project such as materials, research, production, and client requested travel. Again, these are not hard and fast rules but rather personal choices. Many contractors view emailing and phone calls as value-added services while others view them no differently than a consultation and therefor consider them billable hours.
You’ll also need to establish a minimum increment of time to track. Some agencies micromanage creative time down to quarter-hour increments. Others won’t bother with anything less than full hour blocks of time. Obviously, the smaller the increment of time the more accurate your estimates will be, but the more work it will take to track your time. At some point you will fall prey to the law of diminishing returns. Again, this is a personal choice about how you keep your books.
A couple excellent resources for evaluating the worth of your creative services are;
Once you have en established rate you find acceptable, don’t become complacent. If you find you’re not charging enough to cover your costs and pocket a little profit then start by reviewing your work process to see how you can become more efficient. Every now and then choose a project randomly and track your hours to see how well your estimates have stood the test of time. You may find things like aging equipment have slowed you down or new software has sped you up.
The goal—work smarter, not harder
The goal is to get payed the highest possible rate per hour for your services, right? Well, if you charge hourly you are stuck at the same rate indefinitely unless you increase your hourly rate and risk scaring off clients. However, if you charge by the project, as you learn to work more efficiently, your effective rate per hour goes up without you ever changing what the client is charged—it’s a win-win situation.
Remember, there is no absolute formula. It’s a lot of trail and error with a touch of voodoo thrown in as well as personal preferences as to how you will handle customer service which can come into play.
Do you know of any resources which could be helpful? Share them in the comments section along with any thoughts or experiences you may have when it comes to pricing creative work.
About the author
Jeff is an Art Director by trade in Dallas, TX. Having worked with many great clients throughout the years he enjoys sharing with other designers and design enthusiasts what he’s learned along the way. He became a designer as the split of web design from graphic design occurred and is now fascinated as the two disciplines are on the cusp of coming full circle, merging to create a new media savvy breed of designer.
It always happens when a designer approaches me to ask how do they make the leap to independent contractor the first question is, ”how much do I charge per hour?” I guess the answer to this depends on how far down the rabbit hole you are prepared to go. The short of it is you should be quoting your rate on a project basis but tracking, and thinking of it, as hourly.
First rule of pricing; don’t lowball yourself
The most important thing to first tackle in pricing your services is to understand the value of your work. Designers usually throw out, very timidly, a figure to gauge if it’s fair for them to charge. It’s disturbing to say I’ve never had someone shock me by throwing out a number too high. In fact, when you point out statistics from various salary surveys they tend to be shocked an independent contractor can make so much. What designers tend to not realize is when they work for a studio, it’s the employer picking up the tab for the office space, software and hardware, sales and marketing, benefits, taxes, etc. When you go it on your own you have to account for all these expenses coming out of the hourly rate, and what’s left over is what you get to pocket. If you don’t value your services how can you expect a client to?
As Designers we do this for several reasons. It starts in school when your quoted rates from professionals in the field. Your eyes glaze over with dollar signs quickly tempered by the assumption you must be worth dramatically less because you are green. Worth less? Maybe. Worthless? No. We also have to contend with clients who view design as a commodity and therefor place little-to-no value on creative services. And then there is the theory of setting a low price but making up for it with a high volume of clientele. While this might work for the Walmart’s of the world, it isn’t a sustainable long-term strategy for a designer. Walmart can get a way with it because they sell the products we all need on a daily basis—food, clothing, medicines. We don’t all need logos, websites, and brochures. So we start off handicapped by a dramatically smaller pool of prospects.
The second most important factor to understand is your worth as a creative professional is relative—geography, talent, market conditions, and experience are but a few of the factors. Look upon resources such as salary surveys, rates of colleagues, and rate calculators as pieces of a puzzle rather than hard and fast rules by which to live.
Why you should talk per project with clients
The big advantage to charging per project is it tends to negate the element of sticker shock when pitching to a client. As you get into theta thick of things, it can instill confidence in clients to know up-front how the project is going to affect their bottom line without fear you are trying to rack up unnecessary billable hours. This in turn can help speed, and open, the design process as clients become willing to explore options without the question of “how much is this going to cost” causing hesitation and prompting another round of discussion about budget. They can concentrate on achieving goals without the cost factor looming in the back of their minds.
The down side is you can crash and burn badly if you are not wise about how you spend your hours. Worse yet is if you have no idea how long it will take you to complete a project. If you lack experience try completing a project or two for yourself, all the time noting how long each task takes you to accomplish. It’s not perfect, and you will have to adjust your estimates over time, but at elate you’re not taking a stab in the darks hen you give clients a price. If your coming from an agency or studio environment take into account you no longer have a support staff to handle details such as Project Management, billing, client relations, asset management, copywriting, proofing, and the hundred other things it takes to move a project forward. In design, it really does take a village.
Why you should think hourly
Even when you charge per project you will still need to break down you cost per hour. Every job entails a different level of detail and how you work varies project-to-project; even day-to-day. By breaking down your work into a standard unit of time and money you can accurately judge if you are under charging for your services so you can better manage your bottom line. As your workload grows and you hire other professionals to help you complete projects you can apply the same formula of work produced to time so you can gauge the value you are receiving for the money you are paying out.
Where the hourly rate approach generally stumbles and falls is many clients become scared off by sticker shock when they receive an itemized bill. If the price does not outright scare them, a long line-item list might give the impression you are milking them for billable hours. Remember, just as you might not realize the work a support staff does for you when working at an agency or studio, clients often do not know the myriad of details and attention it takes to successful complete a project.
Now for some irony—it can become time consuming tracking hours, generating billing, explaining it to the client—and you don’t get to bill for hours tracking billable hours. So, you’ll need to decide how to account for this time when calculating prices.
There is a silver lining, though, to hourly rates. An hourly rate has the advantage of making sure you are always compensated for you time no matter how many changes a client requests. Increasing your hourly rate can be a backhanded way of tactfully dealing with the clients you don’t want to necessarily deal with. They will either find another designer or willingly pay the increased fees again making them a worth while prospect.
How do I figure out my cost-per-hour?
As mentioned previously, when figuring your cost per hour to decide which activities you will treat as billable hours and which you will write off as part of providing good customer service. As a general rule most contractors do not charge for activities which occur during the normal course of business. In other words, you shouldn’t charge your client for the time you spend drafting a quote or invoice, answering emails, or making phone calls. You do want to charge for those activities directly related to the project such as materials, research, production, and client requested travel. Again, these are not hard and fast rules but rather personal choices. Many contractors view emailing and phone calls as value-added services while others view them no differently than a consultation and therefor consider them billable hours.
You’ll also need to establish a minimum increment of time to track. Some agencies micromanage creative time down to quarter-hour increments. Others won’t bother with anything less than full hour blocks of time. Obviously, the smaller the increment of time the more accurate your estimates will be, but the more work it will take to track your time. At some point you will fall prey to the law of diminishing returns. Again, this is a personal choice about how you keep your books.
A couple excellent resources for evaluating the worth of your creative services are;
Graphic Artists Guild Pricing And Ethical Guidelines
FreelanceSwitch Hourly Rate Calculator
HOW Magazine 2008 Design Salary Report
AIGA|Aquent Survey of Design Salaries 2010
Once you have en established rate you find acceptable, don’t become complacent. If you find you’re not charging enough to cover your costs and pocket a little profit then start by reviewing your work process to see how you can become more efficient. Every now and then choose a project randomly and track your hours to see how well your estimates have stood the test of time. You may find things like aging equipment have slowed you down or new software has sped you up.
The goal—work smarter, not harder
The goal is to get payed the highest possible rate per hour for your services, right? Well, if you charge hourly you are stuck at the same rate indefinitely unless you increase your hourly rate and risk scaring off clients. However, if you charge by the project, as you learn to work more efficiently, your effective rate per hour goes up without you ever changing what the client is charged—it’s a win-win situation.
Remember, there is no absolute formula. It’s a lot of trail and error with a touch of voodoo thrown in as well as personal preferences as to how you will handle customer service which can come into play.
Do you know of any resources which could be helpful? Share them in the comments section along with any thoughts or experiences you may have when it comes to pricing creative work.
About the author
Jeff is an Art Director by trade in Dallas, TX. Having worked with many great clients throughout the years he enjoys sharing with other designers and design enthusiasts what he’s learned along the way. He became a designer as the split of web design from graphic design occurred and is now fascinated as the two disciplines are on the cusp of coming full circle, merging to create a new media savvy breed of designer.
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