How to price design projects
Something that tends to be a problem for most professionals in creative fields is finding a good method for pricing their services. Whether they are designers, developers, photographers, video producers, illustrators, or something else, it is always difficult to find a balance between charging as much as possible for a project and not scaring clients away with prices that are out of line with the market. That is why I want to share some of the ideas, methods, and experiences I have acquired over the past few years, which I believe may be useful both to those who are just starting out in this field and to veterans who are not 100% satisfied with the way they charge for their projects.
Some of these methods and techniques can be used together while others are mutually exclusive, but you will surely be able to find something suited to your profession, way of working, and clients. More than the technique itself, this text is about the idea behind all these techniques: that you need to charge an amount that is fair to you and your client.
1. The market
The market does not exist; it is an illusion. Price ranges in the creative field are so vast that it is impossible to base your quotes on the market. If some people charge $500 pesos to design a logo and others charge $50,000, how can you set your prices according to the market? What you need to do is think about your prices in terms of the value you will bring to your client. That is the next point.
2. Value proposition
If the work you are going to do brings value to your client's business or project, you should charge according to that value. For example, if new photographs for a catalog will greatly improve the products' appearance, those photos may help generate more sales, and you should price the photo shoot according to the value you estimate they will bring, not according to the time and effort it takes you to set up your tripod, camera, and lighting and take each photo. Some things require activities that seem simple but provide a great deal of value. If this imaginary client sells $20,000,000 a year and you estimate that sales could rise by at least 1% during the year this new catalog will be in use, would it not make sense to charge $200,000 for the shoot instead of the $40,000 you had in mind? That example may seem very extreme. It is true that there will always be someone who charges less, but that is precisely where the value you offer must be greater than what the person charging less offers. If a client argues that someone else charges half your price, you should be able to demonstrate that you are offering twice the value. In other words, you have to be very good at your job if you want to charge well; there is no other way. If you are not VERY GOOD at your job, do not even think about reading any further because the rest of this article will be of no use to you. Just charge as little as you can, and good luck with your miserable life. Goodbye.
If you are reading this line, it means you stayed because you are very good at your job, and now that we have gotten rid of the lowballers, we can move on to the next point.
3. Charge for your knowledge and talent
One mistake we can make when pricing something is to think that because it is very easy or quick for us to do, it should be cheap. Always remember that your knowledge and talent are valuable. You can do something easily and/or quickly because you acquired the knowledge and talent needed to do it. That knowledge cost you hours of study, time spent reading and practicing, and it surely also cost you mistakes in the past that you had to pay for, so consider the price of your knowledge and talent when preparing a quote. Have you ever seen someone start asking a doctor questions over lunch or at a party and receive a free consultation? I have not. Doctors do not give free consultations because they must charge for the price they paid in years of study to obtain their knowledge. In the same way, if someone wants your opinion or advice, you have to charge for it.
There is one of my favorite scenes in the series Mad Men that I always use as an example in talks. The owner of the Hilton hotels invites Don Drapper to talk (the protagonist, who is an advertising executive, for those who have not seen the series. Why have you not seen it?), shows him some artwork another agency presented for a campaign, and asks, “What do you think?” Drapper replies, “I am sure that a man like you did not get where he is by working for free.” In a few seconds, that scene sums up the attitude someone with knowledge and talent should have when pricing a project.
4. Hourly rate
This way of pricing and charging for services has been very helpful to me and consists of setting a price for an hour of your work. If you want to feel comfortable with that rate, simply calculate it this way: if you are doing an activity you enjoy, how much money would someone have to offer you to stop doing it and work for an hour? Even if we like our jobs, they are still jobs and they are how we make a living, so do not think about charging little just because you enjoy doing the work; remember that it is your livelihood. How much would someone have to offer you to stop drinking your coffee, stop spending time with your boyfriend or girlfriend, or stop watching your favorite series for the next hour? That amount is your hourly rate. Also consider what we saw in point 2: if you bring value to your clients' projects, factor that into your hourly rate. If you are proactive, have good ideas, advise clients, and look after their interests, factor that into your hourly rate.
The benefits I have discovered from charging by the hour are that (1) you can offer a fair price because you will quote according to the amount of work required—the hours—instead of improvising; (2) if you show a client how many hours it will take you to complete the project, seeing that your price comes from a work calculation rather than something you dreamed up while getting high will inspire confidence. Many clients think that making a logo means sitting in front of a computer for an hour and that is it, but if you show them that you need at least 10 hours of research, plus 10 hours of sketching, plus 10 hours of drawing and refining the vectors, they will understand why your price is 30 times what they thought; (3) it lets you prepare quotes quickly because you know roughly how many hours each activity takes, so you simply add them up and multiply them by your hourly rate; and (4) it lets you account for activities you might not otherwise have charged for. For example, if you estimate that a project will require 10 hours of meetings, those 10 hours of your time must be charged, whereas you might not have considered them if you were quoting some other way.
5. Base prices instead of fixed prices
I recommend setting base prices for the different services you offer. Not fixed prices, because every project and every client is different, but base prices representing the minimum for which you are willing to do a particular job—or, referring back to point 4, the minimum number of hours. A base price gives you a starting point, and you can charge extra for the additional things the client requests. For example, if you design websites and know that the least they take you is 30 hours of work, you can use that to calculate your base price, which will be the base price for designing a website in 30 hours. If the client wants extras you did not include in that quote, you can simply add them, and that is it.
Base prices are especially useful when you offer many services that tend to be similar, since the next time you need to prepare a quote, you will not have to estimate it from scratch; you can simply consult your list of base prices and quote from there.
6. By budget
Ideally, the best way to prepare a quote is according to the client's budget. It is simple: if a client asks you how much a particular job costs, just ask what their budget is. Well, it is not actually that simple, because in Mexico, at least, we have a culture of distrust. We think that if we reveal our budget, we will be charged more than we would have been without revealing it. As professionals in creative fields, we have allowed this mentality to spread, and professionals from other countries find it impossible to believe that we play this game of tossing out a price and hoping it lands on the client's budget, only to think “I priced it too high” when they reject us and “I could have charged more” when they accept.
I am sure many of you were not around for it, but back in those dark days of technology when you still entered DOS as you turned on a computer (you do not even know what DOS is, do you?), there was a little two-player game, all pixelated—genuinely, not as a fashion statement—called Gorillas. From one side of the screen, a gorilla tried to hit the other by throwing a banana; to throw it, you had to enter an angle and a speed and try to land the hit. You can watch a video by clicking here. Well, that is how I picture the designer and the client throwing bananas at each other whenever a project is quoted, to see whether one of them manages to hit the other. What I recommend is that, when you are at the meeting where the client will give you a brief explaining what the project needs—because ALL clients give you a detailed brief—you casually ask, “Have you set a budget for this project?”
If they give you their budget, great; if they say they do not have one, be careful, because the relationship has already begun with lies. Nobody goes to a car dealership to buy a car without knowing how much they want to spend. Likewise, nobody requests design quotes without having a vague idea of how much they can pay. If you have found a serious client who tells you their budget, you already know how much to charge: the same as their budget. This is how it should work and how you should explain it to your client: “If you tell me your budget is $10, I can offer you a $10 solution, but if you tell me your budget is $50, I can offer you a $50 solution that is much more complete than the $10 one.” If you were the client, would you not want to be offered the best possible solution for your budget? What good does keeping $40 in your pocket do if the solution you were sold was far less complete than the one you could afford?
7. Estimating the client's ability to pay
There is a saying in Mexico—and I do not know whether it exists elsewhere in the Spanish-speaking world—that I want to write here so that immediately after reading it you erase it from your mind: “dependiendo del sapo la pedrada.” In short, this saying means that you charge someone with more money a higher price. Erase that from your young, curious mind this very instant. Charging under that philosophy is unethical and unprofessional because it means you will charge more without offering more value—go back to point 2. This is very different from what we discussed in point 6, where I can offer you more value if your budget is larger. What is good practice is estimating a prospective client's ability to pay so that you know what size of solution to offer them. Suppose that, by some twist of fate, a large, well-known company asks you for a quote for job X. We are finally out of poverty! you will shout when you finish reading the email, tears in your eyes, and you will arrive at the company with your little sheet of toilet paper that says $5 pesos in tiny letters in one corner. With great fear and desperation not to let the opportunity slip away, you hand it over even though the price is not what you would have wanted, because you think a low price will win. And if you do not know what happens next, you have no imagination and are not all that creative: the big, fat agencies arrive with their sheet of bond paper that says $500 pesos in huge bold type in the middle of the page. And when the client sees all the quotes, what will they think of yours? By quoting a low price, you are signaling that the value you will provide is low—go back to point 2. You will be ruled out automatically because this supercompany is looking for someone who can provide value corresponding to $500, not $5.
No company is going to hand over its financial statements so that you can determine its ability to pay, but with a little research or observation it is easy to get an idea. If you went to the first meeting—where they gave you their brief, as ALL companies do—and saw that the plant has around 200 laborers and the offices have around 20 people, plus security, cleaning, reception staff, et cetera, you can get an idea that they might pay around one million pesos a month in payroll. So if you come in with a project for which you will charge $60,000 pesos as a one-time payment, do you think they will not be able to pay you? Perhaps $60,000 pesos is a lot of money to you and you are afraid you are pricing your work too high, but for a company that pays a monthly payroll of $1,000,000, your $60,000 is nothing. It is true that clients are willing to pay according to the value they believe your work has, not according to their ability to pay. For example, that company might believe, through lack of knowledge, that the work you are going to do should not be worth more than $20,000. It is a sad reality, but never base your quote on a client's lack of design literacy; base it on the size of the solution they need according to their size and ability to pay.
In short: always charge as much as you can and offer the client as much value as you can. Enough pricing with fear, enough giving the lowest possible price and giving in when the client demands a lower one. If you are very good at your job, you should be paid very well; you only need to show your client that the value you offer is greater than that of the lowballers who left 5 minutes ago.