Not fond of time related pricing - what's a better way?

Question

I'm still struggling with pricing. How does one best calculate flat rates for commercial design or illustration work?

I don't like the hourly rate thing. I just can't seem to properly gauge the amount of time I put into a project. Especially if I'm working several projects at once. And even if I did actually clock myself while working solely on one project, this doesn't account for the amount of time I spend thinking about the project and continuing the design process in my head even while doing other unrelated tasks (like folding socks, cooking dinner) so I feel that it is not fully representative of the amount of thought and effort put into a project as well.

Hourly rates also don't account for the actual value of the project or its continued use over time as a representation of a brand or product. But it's impossible to truly determine the full scope of the art's value. It's not exactly easy to quiz a business on their numbers nor is it always trustworthy as any numbers they provide could be inaccurate.

I've done some googling on pricing and price models but nothing feels especially helpful. I have a BFA and this subject was only slightly grazed upon in my classes leaving me feeling even less confident in my pricing. It feels too abstract. Is it really an arbitrary, anything goes kind of thing?

If you have any personal experiences that could be helpful or know of any good resources or online classes available for specifically this aspect of art marketing, please let me know.

Answer 1

I have bad news. Even if your pricing model does not work on hours spent. It has to account for hours ( or any other timespan) spent, at least in aggregate.

What do I mean by this? Ultimately it is all about covering your cost, cost of business and cost of living. So if you miscalculate this you will eventually lose out. Bad news here is that you may not notice for years, because you may be neglecting to calculate price of long term business cost (computers, software, education) and things like retirement and health insurance.

However, you may find that thinking in aggregate helps. As its often easier to answer the question: How much money do i need to live for a year / decade, with all my associated costs? So basically:

Cost of equipment (computers, studio space, car...) + Cost of consumables (paper, pens, ink, markers) + Cost of utilities (phone, internet, water, electricity...) + Cost of business services (Accountant, lawyer etc...) + Cost of your living expenses (rent/mortgage, food, drink, clothes...) + Cost of future costs (retirement, vacation, personal wealth growth...) + Costs of investments (new devices, training, sales collateral for your own business...) + Surprise expenses (car needs unexpected expensive repair, you are unable to work for a month) + some 10-15% extra for other uncertainties.

And then divide that by many days you plan to work over that time. This will give you a good estimate for your daily cost. Protip: its not 365 days per year.. more like 260-220 days (in Europe we work about 25 to 40 days less per year than in US). Also you won't necessarily have work for every day so reserve a few days for internal business management days like self marketing and tax filing...

Then just estimate what time each type of work would take overall from your historical record. (but don't double count, so if your doing two jobs and they take in total 7 days than other may be 4 and other 3) for a flat rate.

And yes this means where you live affects your price.

Anything above this calculation goes. If you haven't done this calculation there is HIGH risk that you are being underpaid.

Answer 2

Capitalism means I'm free to charge whatever I want.
No one has to pay it, but I am free to set my pricing however I wish.
There's nothing stating you can't merely pull a figure out of thin air and see who bites.
There's never any need to explain or rationalize pricing to anyone.
Thats what free market is all about.

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I charge what I think I should earn and the client may be willing to pay.

It's really that simple.

That does not mean clients are always willing to pay what I think they will.
But many will, some happily.

Admittedly, this is much easier when you've got some experience and a track record you can convey. Think of "designer" handbags.. they use the exact same materials as less expensive handbags. I mean Versace isn't creating anything that can't be created by someone else for much less. But they price in multiples above the norm merely because of the brand. I'm free to think my "brand" is more advantageous to a client and price it accordingly.

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To do this you first need to...

• Absolutely know your overhead.
• To this end figure a base minimum hourly rate.
• Be honest about your skills, abilities, and time necessary for many things.
• Understand at least some current market pricing

I won't go into details about how to factor overhead, there are other answers here which do that exceptionally well.

For market pricing you can use crowdsourcing sites to find similar projects and see what is being paid there... but realize those rates are very low most of the time. They are "basement rates" as I like to call them -- the minimum I should charge for anything.

With all the above you should be able to determine the cost of working hours (e.g. production time) for yourself, not the client. For an example, you should be able to estimate that a flier will take you 2 hours to complete, not the ideation, the production time. So you simply take 2 x the base hourly rate, which covers your overhead.

In many instances I find this base hourly rate woefully low. Randomly, let say my estimated overhead for this flier production amounts to $20 - overhead is very low and the base hourly rate is only $10/hr. I know on many crowdsourcing sites, similar flier projects are going for $35-$50. Now, am I going to charge the client $20 for a flier promoting an event? $35? $50?
Heck no!

The client has contacted me directly, seeking my skills and abilities. My skills and abilities are a commodity since there's only one of me (that I know of).

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As an example of this....

I am aware that few if any clients are going to pay $500 for a flier... but many will go as high as $250. So... I have some room.. I quote between $50 and $250 depending on the impression the client has made on me. All of this is well above my overhead and most of it sheer profit. This allows me, based on my base hourly rate, several hours for ideation before I'm no longer profiting from the project.

I am horrible at tracking ideation time. Just horrible at it. Why? Because often ideation isn't a faucet that can be turned on and off. We all know that there are times where you can struggle to come up with the simplest solution. While other times you get an epiphany while doing something completely unrelated to work such as grocery shopping. Tracking when you got that spark of inspiration and then how long it takes to think through the idea is a difficult thing. At least for me.

• If I quoted merely $100, and I know I need 2 hrs for production, that leaves me roughly 8 hours for ideation until I "break even" on the project. If ideation can be completed in an hour, then I've profited $70 from that $100 quote (3 total hours for the project completion).

With this, the longer it takes me for ideation, the smaller my profit margin. I put myself in a position where I am the one penalized if I struggle with ideation. The client never pays more because I can't find a solution fast enough. And I don't have to track how long it takes me for ideation with any real accuracy. The onus is on me where ideation is concerned in order to retain my profit margin. For me, this helps to drive motivation. Sitting and staring at a blank screen or piece of paper while trying to force an idea is often less fruitful for me than doing other things and merely thinking of the project in the process.

So, ultimately I price based on value-based pricing (1). I price according to the percieved value a project has for a client, how enthusiastic I am to work on the project, and current relative market trends. Not any direct math formula.

• If I feel it'll be worthwhile to work with the client, and the client seems easy to deal with, and I want to work on the project I'll price lower.. in the $100-$150 range (remember anything above my $20 in overhead is profit).

• If I think the client will be difficult or more demanding I'll price higher.. $200-$250 range.

• If I don't really want the work or don't really want to ever work with the client, I'll price very high.. $400-$500 range. Problem here is some clients will pay this, meaning you may have to work on something you'd rather not. However, the profit factor is much, much greater.

• If I'm adamant about not working with someone I merely refuse the work.

• One also needs to figure the number to clients they may need. When starting out, you may need to find more clients quicker. So pricing lower will garner more clients. Not necessarily good clients all the time, but more clients. Pricing higher will tend to weed out much of the "just want it done cheap" clients and garner more stable, repeat, clients.

There's an old adage -- "If you get every project you bid on, your pricing is too low."

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One thing is clear to me though, sticking to strictly hourly rates only ensures you penalize yourself as you get faster and more proficient.

When starting out, it may take you 4 hours to complete something. However after working for 6 months it may only take you 2 hours. If you stick to hourly rates, you've just cut your rates by 50% in 6 months unwittingly.

• Let's say I'm just starting out and I quote 4 hrs for a flier at $20/hr.
  So the total quote for the first flier is $80.
  My overhead demands $15/hr. ($60)
  So, I make a profit of $20 after overhead.
• 6 months later, I can complete the flier in 2 hours...
  If I stick to an established hourly rate of $20/hr,
  I'd now have to quote the same amount of work for $40.
  My overhead is still $15/hr ($30).
  I have now profited only $10 after overhead, for the same work.

So, I'm doing just as much work for half the price merely because I'm better at my job.
I want pay raises as I get better, not pay cuts.

It's not a simple thing to increase hourly rates by 50% in 6 months for a repeat client. But with value-based pricing I can easily charge the same amount for the same project even though it now only takes me half the time, and merely profit more and more as I gain proficiency. So, in 6 months I would have increased my profits by 50%, rather than cutting them.

If I charged the same amount, $100, for both fliers, I would have profited $40 from the first, and $60 from the second. Rewarding me for being more proficient. And clients remain happy because there's been no price increase.

_{(Above is merely an example. I would hope everyone is profiting more than a paltry $5-$10/hr for their work.)}

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That all being posted, I do have some standard go-to pricing as a start. For example...

• a one-sheet design for print starts at $xxx
• a single responsive web page/email design starts at $xxx
• a 24-page booklet design starts at $xxx
• a postcard design starts at $xxx
• etc.

These are merely what I see as "minimums" and are used as qualifying figures for clients --- i.e. when asked, I'll tell clients "Postcard design starts at $xxx and then prices can go up depending upon demands." This allows the client to judge pricing and helps me to avoid the "what's your per hour rate" question. And all the minimums are well above any overhead with allotment for some additional ideation time.

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So in the end.. price however you want... just always be certain to cover your overhead.

When I price I look at a project's scope, estimate how long it's going to take me, multiply that time by my base hourly rate - this gives me my absolutely minimum fee without any profit. After that... I honestly pull a number out of my hat which is above my base fee, reasonably within the market for similar projects, and what I feel is appropriate for the client to pay. I'm not always correct in estimating how much a client will pay... but I have plenty of room for negotiations should they be necessary.

I know that if I worked based solely upon the formula of (overhead x time) + %profit = cost my clients would be thrilled by my low rates. Even if that profit% were something like 200%, 300%, 400%. However, I would still be broke and barely earning minimum wage (my overhead is low).

I see value-based pricing as really the only viable pricing model, primarily because there's little or no "cost of goods" to consider.

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Related:

• Which is a better design pricing model?

• What should I do if a potential client claims my pricing is too high?

Answer 3

I've been freelancing for a few years now, I've worked at some small studios wearing many hats. My two cents from what I've learned over the years:

You should get a timer like Toggl to track your time regardless of the project. After doing this for a while, it will help you gauge future projects because you'll be able to compare time, and realize what areas and jobs take the longest.

You'll probably notice you estimate way too low, so double it haha. You should be accounting for if something goes wrong, so that if it does, you are still making money. If everything goes perfectly, you made more money on that job. Congrats, there's nothing wrong with being good and not needing 3 full rounds of X if the client loves round 1. And you can spend more time polishing up something you may usually have to rush through. Or, provide your client a bonus asset as a thank you. That usually goes a long way.

Time thinking about the project, time writing emails or any client communication, time spent writing SOWs and contracts, should all be accounted for. Even if you aren't timing every second, add that into your tracker after the fact. E.g. if you couldn't fall asleep and instead were thinking about a job, and came up with some discovery, add an hour to the timer the next day for that.

I like hourly because I'm not committing to a price if the scope creeps, or the client wants extra rounds/revisions. I usually balance several numbers when considering a job/prospect:

1. how much I think the job is worth
2. how much time I think it will take me
3. how much I want to make on the job

These don't usually equate to the same magic number for total cost of business, so I aim for the highest I think I can get based on the client. That's the fourth thing, weigh your client, not just your job. 4) how much the client can afford.

If I'm branding a mom and pop, and I'm branding a law firm: I might offer them similar packages, but the law firm is going to pay more for it. I'll prioritize their needs, and be more flexible with scope changes. If the mom and pop are getting a deal, I usually use that job as experience, and a chance to push for something more creative. I don't mind charging less for a fun job that helps someone local, and charging more for a larger business that can afford it.

Some jobs are valuable, but don't take much time. I'm happy to pad my hours to make the price work for my cost of living/overhead.

I use time estimates and hourly rates as a means of communication, not as a definition of my value or skill. I'm clear about the scope of the project, how many phases or rounds there are, and how I plan to spend my time on each phase. If the budget looks like it's getting wrecked early in the project because of scope creep or revisions, I let my client know that sooner than later. This will often make them realize they should be practical and consistent with feedback. You want to prevent that awkward email, or invoice that is higher than agreed on because you waited too long. Good communication is always going to help, and don't blindsight clients with any cost changes.

If the project is complex, estimate things in phases and get paid by the phase. That way, if anything changes you can re-estimate a later phase once it's closer. Or if the client is difficult, you can finish a phase, and then choose not to continue working together for the remaining phases. You both hold that right.

Hope something in there helps.

Answer 4

Think of it this way.

There are people in this world charging 300$, 500$, 1000$ or more, per hour. Not all designers, but certainly doctors, lawyers and executives. And guess what, they also have to deal with cooking, kids and other personal stuff, thinking at their clients/work at the same time.

When you're not full-time employed, hourly rates are good and pretty much a necessity, because you are essentially selling pieces of your day, not just bulk-selling months and years, like an employee does.

Flat rates however can sometimes be a trap, because a job can spiral out of control and you'll be working for 3 weeks instead of 3 days. So..

The only way to account for extra time is to actually track time!

And when you do start tracking time, this becomes your unit of measure.

With the hourly rate, you can also charge each client a different rate, and leverage the rate to your advantage: higher rate for urgent work, higher rate for weekend work, for late hours work, then, discount rate for high-volume work, etc.

I'd say instead focus on raising your overall hourly rates.

Another thing you can do is introduce weekly, daily or half-day rates. Some clients know what to ask for, are very organized, and they know from the start they need a good designer for 2 days.