Which is a better design pricing model?

Question

I'm curious which pricing model other feel best fits freelance design, in what situations, and why.

I am not seeking dollar values.

There are a few basic pricing models a freelancer can use:

• Time-based pricing. This is where you calculate every minute you work on a project and break that down to your hourly rate and charge whatever the formula states you should. There are several questions here at GD.SE which refer to time-pricing models, with some excellent answers, such as: Graphic Design Pricing / What price should I charge for design services? / Pricing for Website Design (Graphics Only) This model can be accurate provided a client is aware each and every minute you work costs more. Therefore each revision will increase fees. Some clients are fine with this, some freak out because they didn't understand the pricing structure.

• Per-service or fixed fee pricing. Sometimes known as project-based pricing. This is where you calculate a price for each and every service you offer and essentially work off of a price sheet. This way you know a brochure costs $XXX every time, a 3-page web site costs $XXX every time, etc. This model does not allow for alterations should project scope become an issue. So it can result in those difficult conversations with clients telling them to stop with revisions or pay more.

• Value-based pricing. This model doesn't adhere to any set pricing or per hour structure. Value based pricing prices services according to their perceived value or importance to the client. This one is a bit tricky. Essentially it's the old "If you charge more, clients think you are worth it." model. You can often use this model to increase revenue without increasing workload. This is why "Name Brand" items cost more than generic items - a perceived value when in reality the items or workload are / is the same.

There are others such as licensing, use-based, royalties, etc. but I feel those are special circumstances which don't generally apply to most work. If you feel they do, please explain why.

It is also possible to use a combination of price models or hybrid model. For example, you may figure a job cost using time-based pricing but then add additional fees for value-based pricing.

It is also feasible that different services or projects are priced differently. For example:

• sales piece creation fees are a hybrid calculation using time-based and value-based figures to arrive at final fees. Then, additional edits to that sales piece at a later date are strictly time-based priced. Poor Practice? After all , if it's a sales piece each and every copy seen by end users has potential to generate revenue for the client. So, is it more appropriate to use some value-based pricing for the edits?
• Web site creation fees are calculated using hybrid fees from time-based, per-service, and value-based figures. When an additional page is requested a year later, fees are based solely upon fixed fee rates for an additional page. Is this adequate? What if the additional page requires different services? Still a fixed fee then?

Obviously, all price models must cover your overhead at a minimum.

I am not seeking dollar values.

Which pricing model do you feel best fits freelance design services?

When do you feel it's appropriate to use the different price models, if you do?

Edit: I realize that in the end, most deliver what could be seen at fixed-fee pricing to their clients. This is just naturally what any hard quote appears to be. I'm not really thinking in terms of what a designer delivers to the client as the pricing. What I'm curious about is how you get to that figure the client sees.

I do realize this is a complex matter and few scenarios fit nicely into a specific category. Just looking for some general input from others in the industry.

Answer 1

Basic time estimate

I always sit down and estimate my time (and any subcontractors I plan to use) based on three points.

1. Project type. Brochures aren't that tough, but an identity program can be.
2. Brand / industry / competition. A local restaurant doesn't need the same level of creative development as a national eComm site.
3. Client expectations. Some clients don't care about the competition, they want exceptional quality... or down and dirty.

Reality check

Then I factor in two important things before submitting a quote. Either point can move the fee up or down.

1. My desire to do the job.
2. How easy the client is to work with.

As others have said, fixed fees for fixed project types means you aren't taking the client's specific needs into account. This isn't a commodity, every project is slightly different. If you aren't pricing it that way, someone is probably losing money.

Of course, after you've been doing this a while you'll be able to estimate off the cuff with surprising accuracy. Especially with clients you know well.

An outside opinion

The co-founder of FreshBooks and former design agency guy Mike McDerment wrote up a great little piece for Six Revisions aptly named How I Earned A Lot More on Projects by Changing My Pricing Strategy.

His basic approach to the pricing model seems to be similar to what I've outlined. The article itself focuses on the client relations aspect of the proposal. Here are his high points.

1. Don’t Present Price Up Front
2. Find Out What the Client Really Wants
3. Position the Price as an Investment, Not an Expense
4. Present Several Options (this is an interesting approach, sort of pre-negotiating)

Why it works

The upside to this model is that you get to know your business very well. If you put dollars against your time and track the actual outcome you'll find yourself working smarter. Either that, or you have to be really awesome so you can charge an obscene amount to cover you inefficiency.

The client also knows up front exactly what to expect. To that end, you have to be very explicit about the process and what will be provided when. If something deviates from the plan because the client changes the spec, you send an amendment for the additional cost. If the deviation is the designer's fault, you eat it.

Funny story

I once got a quote request for a project I could execute better and faster than my competition. The client knew I was the right guy for the job and was in a crunch to get me. Trouble was that I knew the client was difficult and untrustworthy and I was too busy for the project.

Following my Reality Check calculation I padded my quote by 30% and subcontracted most of the work. The client unsurprisingly tried to pull a fast one on me to squeeze out a little more for their money. I feigned compromise and still walked away with an extra 15% in my pocket for the irritation.

Answer 2

Option #2 doesn't make any sense unless you are using templates for everything. A '3 page web site' isn't very specific and the effort that would go into a web site for client a vs. client b may vary wildly. It treats design more as a commodity and likely not the best path to take unless you are subsidizing the effort via other means (such as a print shop which may charge a flat fee for the 'design' in exchange for you spending money there to get it printed).

That said, many designers use a form of #2, where they estimate a project via method #1, and then provide the client with a fixed price estimate. This tends to be the best of both worlds for both parties, but does require some extensive up-front work to create a detailed estimate and outline what is specifically included vs. not included in that price.

Option #3 isn't really exclusive of the other two, but rather just a part of it. If the going hourly rate in your region is $50, but you are able to provide a much higher value, then maybe you charge $75 an hour.

Answer 3

I am a big supporter of Fixed Pricing in the delivery to client. I figure that price based on both #1 and #3 as well as myself as a commodity (ie: I've charged significantly more when a client has called me up in the middle of the night for a rush job)

I prefer it because it rewards timely delivery. The client can trust that I'm not inflating my hours to get more money, while I can attempt to get it done as quickly and efficiently as possible without losing money. Its simply a better system then an hourly rate in my opinion.

The negative of this system is a lot of people looking for a freelancer want a quote and I generally don't provide one until I know more about the project (if the initial description doesn't specify if they're looking for a brochure, a flyer, a trifold, web banners, so-on) and explain I work on fixed rate and the reason behind it see comments though because I'm going to change this method now. I don't really mind though since if they're not interested after the explanation it probably means they just want the cheapest hourly rate.

I also generally stipulate how many revisions are included in the flat rate so that if it becomes an obsessive back and forth I will start charging additional and again that's up front.

The only thing I can think of that might cause me to charge by the hour is if it were wireframing and sketching out ideas. The solution might not be a finished product that is obvious. In that case since the work might go on for extended periods of time to be brainstorming with the client. This I could see hourly being the better system more like a consultant. For anything else though a flat rate is my preferred method.

As far as how I determine my pricing its based on time, cost of tool and learning that tool, and work experience. Off the top of my head the main points are something like this in order from cheapest to most expensive:

• Single Page work along with digital still ads that can be done almost exclusively in Photoshop/Illustrator is cheapest
• Trifolds and Pamphlets are next
• Anything above that in page count is by the page
• InDesign Templates, covers, indexes and table of contents
• Copywriting is most expensive

I use to do 3D modeling and rendering but don't really do that anymore. It would be more than templates but less than copywriting. Copywriting is my expertise at this point and I charge more for it as I've spent years honing that skill and it takes a lot of work to write effective copy that the client will also be happy with. I'm no illustrator so I never do any illustration or logo work but if I were I would put it up there with copywriting as a specialized skillset that takes a long time to perfect. Ive yet to get contracted for any sort of data visualization but if I ever do it would probably be the most expensive as it involves understanding the data, copywriting to communicate it and code it / visualize it in a way that is clear and concise.

Answer 4

Without a doubt, clients prefer fixed pricing. It's in your advantage to know ahead of time just how much you'll make from the project, and know how much time you can and should spend on any given step of the project.

The trade off is the risk of clients requiring many or large iterations, cooperation in terms of getting transmittals back and forth quickly, and the client possibly not having everything scoped out entirely, though the later is something you should make sure is complete before beginning the project.

I've done per hour freelance work with web design, and from my experience, it doesn't work out so well. It can hinder the project outcome if the client things they're paying you every time you need to type out an email or speak to them. However, if you're not charging for advising them and answering questions, but charging them by the minute if you have their files open in the CS, they may go way overboard on questions and discussion, to the point where you're spending more time explaining things to the client, than you are working and getting paid. Often, my clients would seem to over discuss everything, email after email, seemingly to minimize the time spent actually doing the paid work. The largest benefit to per hour work, is covering yourself in terms of iterations. However, this is a double edged sword. Sometimes clients aren't happy with what three or four hours of work got them on a given step of the project, and decide to cut things short. Other times you'll have the opposite. You complete an easier part of the project that shows more visible progress to the client, or at least as they percieve it, and suddenly they want to add a dozen features to the website that weren't in the brief, not understanding that X may seem small, but actually takes four hours, while Y seems like it would be a lot of work, but actually takes one and a half.

All in all, per hour work, at least the way I handled it, seemed to make things way too tempting for the client to micromanage everything, likely making the end product worse, wasting large portions of your time for which you aren't clocking by over discussing every detail, and cutting corners at every turn that you're actually on the clock to minimize the bill. Much of it may have been the way I documented work, but per hour kind of implies a much more detailed documentation, and the more detailed documentation I found, the more the client wanted to control everything. There's a point where you want to communicate with the client, understand what they want, tell them they're in good hands, and go off and do it. Rather than have them micromanage everything.

As for value based pricing, this is no different from fixed pricing, but with the idea that you're upping your rates based on the quality of your work, rather than time spent doing it.

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Since it looks like this question's been adjusted to further explain the differences between fixed and value based pricing, what I've described above as fixed prixing is actually value based pricing.

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Regarding the definition of fixed pricing we're going by, this may at times work for individuals or small firms doing smaller design projects. eg. Set prices for different types of brochures with different page limits, or business card and stationary packaged, maybe with a logo design included. However, it likely wouldn't work for an indepth branding project.

In terms of web design, my field, it could work for CMS based micro sites with a limited number of custom pages. That's about it. With the existence of things like wix and weebly, a lot of clients looking for something of this scale would rather dive in and try to do it theirselves.

Anything larger, which is most of the web these days, will likely be a much more unique site. Even if you have two restaurant clients, it's highly unlikely that both would want similar websites. The web simply varies too much to do fixed pricing for a website project, unless you're doing jobs that a client could likely do theirselves with a little bit of tech savvy and a little bit of googling.

Answer 5

Generally as a freelancer I think you must be prepared to use a hybrid quoting system. Some kind of a 1+3=2+1 situation.

For clients you already know well, you already have a working system in place. The issue is more important when quoting to a new client for the first time, since that defines the job at hand and a possible ongoing relationship. Some new clients need an hourly rate fee, others a flat project-based fee. Others need both. Some just don't know and are open to anything you will propose.

I have a rate card which I update yearly and use it to construct my quotes for new clients. I don't always present the rate card to the client explicitly, but it helps me evaluate a job when quoting. The rate card includes:

• hourly rates: When using hourly rates, I make sure the client understands the rate applies to weekdays and day time hours. When I feel there is a potentially urgent situation, I mention special bonus rates for urgent, late hours or weekend work, so the client is aware an urgent delivery will cost more.
• per project rates: Starting prices for the usual items, logos, brochures, identity packs, etc.

Even when discussing a flat rate, you also need an hourly rate fee to maintain or update the work. For example a website where the initial development is much more consistent than further updating it, which could mean quick requests, like change some pictures, add some text, etc, quick and repeated revisions which I usually keep track of in an Excel sheet and invoice once a year (or 6 months) based on the hourly rate.

Hourly rates are also useful if a project changes scope while in production. For instance you quote a flat fee for a 12-page brochure, then suddenly while working they need to add 6 more pages. Since the design is probably already approved at that stage, you can either apply the hourly rate here, or per page fee, which I also use in some cases.

You also need to develop a nose for bad clients, and either turn them down directly if you feel they are not prepared for the job they need, or present them with an inflated quote that could cover any headaches along the way.

One client is always requesting project-based flat fees, but a buffer is also added since their jobs involve many other third parties and the job can easily exceed the original estimate. The client is aware of this and we always approve the extra buffer when quoting flat fees. For instance I quote X plus a potential 20% in case the job exceeds the original scope.

Another client requires we use an hourly rate, but they are always in a hurry so they always choose the urgent hourly rate, which is 25% more than my normal hourly rate. They need things updated asap and they accept the surcharge.