Chapter 16. Pricing Your Work

“How much should I charge?” That’s probably the most common question I’m asked. Every few days another email arrives from a designer struggling to price his or her services.

I struggled too, and even today I’m sometimes left doubting my quotes. Did I undersell myself? Did I price myself out of a top project? I’m sure I’ve done both, lowballing my services until my confidence grew, then slapping a higher-than-usual price tag on what I offer, to the detriment of the deal. It’s a balancing act we all need to play, and one that we only learn the rules of through on-the-job experience.

This chapter does not present a mathematical formula that will help you settle, once and for all, and with complete peace of mind, your rate. Instead, I’ve assembled some hard-won advice from others who have proved themselves to be very nimble players of the game. Heed their guidance, and your confidence will grow.

Deciding your rate

Alina Wheeler, who shared advice in the previous chapter and who has many more years of design experience than I do, told me that pricing a job is quite simply a torturous and inefficient task for many design firms. “There are no magic formulas and there are no ultimate right numbers. What is a $25,000 US project for one client may actually be a $100,000 US project for another.”

Many years ago, Alina had a design office called Katz Wheeler. To decide on a price, she and her partner, Joel Katz, would sit at a table and each write on a separate piece of paper what they thought the job was worth. They’d fold their own piece of paper and slide it across the table to each other.

“We would always decide on a number that was between the two. It worked because we understood our overhead and we knew what profit margins we wanted. We tracked all jobs carefully, and knew at the end of a job how much time it took with a good client and how much time it took with a disorganized client. Our terms and conditions were clear, in terms of the scope of the engagement. The system worked.”

You might not have a partner to swap prices with, or the experience Alina had amassed at that stage of her career, but you will have peers you can ask for help, whether it’s designers you’ve subcontracted work to, previous employers, or people you’ve met through your blog. We all need help from time to time, so don’t be afraid to ask.

Artificially inflating or deflating your rate usually backfires. For instance, whenever Alina didn’t want to work on a particular project, she would put a really high price on it, thinking that it was a sure way to not get the job. “I always would get those jobs. I am certain that you have a similar story,” she says.

The opposite direction is equally as unwise, Alina notes, perhaps more so because you also drag down others. “When you lowball a job to ‘get it,’ you are doing a disservice to yourself, your profession, and your client. You never, ever want to be perceived as the low-cost alternative.”

Breaking down the proposal

Alina related to me how she creates a client proposal.

“I begin a proposal with the three major goals of the engagement. I use the same process diagram, and I add three deliverables for each of the five phases, along with a fee for each phase. A deliverable can be anything from a meeting to a design strategy. Since I have deconstructed each phase into a series of tasks, it is easy to estimate an isolated task. I end with three reasons why the client should work with me. For the contract, I use the same process with the deliverables and price, and I add terms and conditions. I make sure that I have clearly articulated what the client is responsible for. I know, for example, that when I have a single contact who is responsible for scheduling all meetings and gathering all information, that it will be an efficient process. I also know that when decision-makers are added later on, the process will be less successful.”

Alina’s system works because it is simple, logical, and streamlined. It respects the fact that most clients are overwhelmed with information and frequently receive voluminous proposals. “Clients rarely understand the differences and subtle nuances between design firms and their portfolios, or what it takes to create something really stellar, sustainable, and differentiated. But they understand process.”

Another tip: It will help your clients understand what they’re paying for if you separate your cost into categories. And if your proposal document is multiple pages, put the cost at the front. Anything you do to make it easier for the client to understand the way you will work together can only help you seal the deal and initiate a successful project. (We’ll take a closer look at terms and conditions in the next chapter.)

It’s not always about the money

When Ivan Chermayeff and Tom Geismar started their design practice in the late 1950s, one of the first things they did whenever possible was to trade design for some minor services they needed. Ivan cites the following example.

“When the time came to have an attorney to help with a simple contract agreement, we traded the legal fee for a letterhead design. We did such trades from time to time with landlords and other suppliers to whom we owed something—anyone who could use a little graphic design and didn’t have anything of any quality in place.”

Ivan isn’t the only professional who has traded design for something else of value. Vancouver-based Nancy Wu recounts an occasion when she traded her design skills with a man who specialized in custom woodwork and home renovations.

“He asked if I ever traded services, as he needed some design work done and wondered if I needed anything done around the house. In fact, I did. I live in an old house with splintered wood in one spot, so I traded for minor work redoing the floors in my son’s room, fixing some bathroom tile cracks, and creating a removable cover for one of the vents to keep the house warm during the winter months. In return, I designed a postcard, banner, and business card for an upcoming trade show. Our form of trade was less about monetary figures and more about value for value. He had one of his experienced men come in to put in new high quality laminate, taking advantage of the kind of discount rates they could obtain with their suppliers. Likewise, I had my own printing contacts and signage suppliers to help keep things affordable and on schedule to meet his deadline.

“In the end, it was a win-win situation and we ended up both being quite happy with the results. The key is that we kept it professional at the start, getting everything outlined in detail so that each of us knew what was needed and what the expected outcomes were.”

Enter Mr. Procurement

Seattle-based management consultant Ted Leonhardt is experienced in helping creative firms become more effective in business. He told me about a particular designer he coached in order to get him to feel as bold as he acted in the following story (for the sake of the story we’ll call the designer Ian). Ian led a team that designed the packaging for his client’s most successful brand (we’ll call the brand “Z”). The packaging resulted in sales of a billion dollars a year. But here Ian was, three years later, responding to a Request for Proposal (RFP) from the same company, the same team, even the same individuals.

“What’s with these people?” Ian asked. “Don’t they remember the success we had with the Z launch? We knocked it out of the park, and now they throw us into a competitive situation with an RFP.”

Ted explained that most companies’ procurement processes have an amped-up focus on negotiating every purchase, from machine tools to office supplies. Creative services are no exception. Ian’s client now requires bids from three qualified suppliers for any purchase over $100K. Ian was lucky that he wasn’t required to submit a Request for Qualification (RFQ) before submitting his RFP.

“Some call this the Walmart effect,” Ted continues, “because of the relentless pursuit of the lowest costs, but it was the burst of the housing bubble in 2008 that really accelerated it. Consumers stopped consuming, and corporations tightened their belts. Today, purchasing agents and procurement departments have more influence than ever before. And it works! Employment is still off, but corporate profits are high, largely due to cost control.”

According to Ted, Mr. Procurement exists for one reason only: to get the most while paying the least.

Recalling his meeting, Ian said, “There I was responding to Mr. Procurement’s challenge of every line in our proposal with my heart pounding and two competitors standing in the wings. I reminded them of the success of the Z launch and Mr. P said, ‘With all due respect I must remind you that there were many other factors in that success.’” Ted knows this is a classic intimidation technique meant to undermine Ian’s confidence—Mr. P is a trained negotiator, and has many such techniques ready to use.

But Ian wasn’t intimidated. “Of course, there were other factors,” he replied. “But, please tell me why you would choose anyone else for the most critical factor of all, the creation of your consumer face? And, why would you cut the budget? Don’t you know that those cuts will reduce the potential for success? Do you want us to do less discovery? Less strategy? Should we cut the research? Limit the creative time? Cut the rapid prototyping? On the shelf, on the site, and in the ads, your market will see only one thing: the package. Are you prepared to risk it all on someone who’s not a proven winner? You represent a multi-billion-dollar corporation. This new launch has the potential to drop hundreds of millions to your bottom line. Are you prepared to risk that for a few hundred thousand in fees?”

There was a long pause.

The client team asked for 15 minutes alone. When they reassembled, Mr. Procurement compromised, and Ian compromised. A little.

Later, Ian’s client said that Mr. Procurement was impressed with Ian, and that his comments had made sense—this was not a project to risk. Ian had asked for and received the respect he deserved. He did so by asking questions that reinforced his expertise and by explaining the consequences of cost cutting.

How to negotiate up

When you think of adjusting your fee during client discussions, chances are you’ll think of a downward movement. But that shouldn’t always be the case.

A prominent design company offered Krakow-based designer Andrea Austoni an ongoing collaboration. After the company accepted Andrea’s hourly rate, he received the contract. There was a catch: Andrea wouldn’t be able to mention this high-profile collaboration in his résumé and couldn’t include any of the work in his portfolio. This changed the value of the transaction downward for the designer, so he raised the previously agreed-upon hourly rate, and after some time, the design company agreed with the request.

Andrea learned a few lessons from the experience. “Know your value and adjust your rates according to how much you stand to gain from a job in terms of exposure, portfolio building, and personal marketing value. Stand your ground.”

Raising rates with existing clients

As I specialize in brand identity design, it means that most of my client projects are one-time jobs, with a high rate of client turnover, so I’ve not needed to raise my rates with an existing client. But if you’re responsible for website development or marketing promotions, for instance, then it’s almost inevitable that you will.

Karishma Kasabia, who shared a great marketing story in chapter 11, told me about how she handles the potentially difficult situation of raising her rates with existing clients.

“When we started the business, I was a freelancer working from home. Within two years, our expenses grew from home to office to studio, from freelancer to one designer, a second, a third, and then a manager.”

Needless to say, it was vital that Karishma steadily introduce new rates along the way.

“I spoke to a few close clients to get their thoughts on this. Making good clients my friends has been one of the wisest things I’ve ever done.”

The feedback she got covered two main points:

• Clients could allow for a 5 to 10 percent increase in the hourly rate when Karishma had moved from home to office.

• Clients thought it would be great if the increase was explained because they would feel included and be more receptive.

“So I spun the thought and designed an e-newsletter,” she says. “It told current clients that their rate would stay the same for the next three months and would then graduate to a slightly higher rate.”

The text read something like:

2008
No office.
No coffee.
Pixie cut.

2010
Office with air conditioning.
Coffee and sushi.
Bob cut.

“New clients would start at an even higher rate. I was giving the love to our existing clients and appreciating their loyalty,” she adds. Also, any existing estimates would be valid for a longer period of time as well.

“Giving them time to adjust and celebrate our growth meant I dealt with no complaints at all.”

“You should be charging more”

Surrey-based copywriter Mike Reed went freelance after previously founding a small agency called Other, where he worked as creative director. It didn’t take Mike long to get freelance work from long-standing contacts, and he knew what he wanted to do in the longer term: work with the best branding and graphic design consultancies around.

“I wrote, and, I confess, designed a mailshot, which was a set of postcards each bearing an obscure word from the Oxford English Dictionary. ‘Absquatuluate,’ ‘bathykolpian,’ ‘fanfaronade,’ that sort of thing. These were ‘free introductory words’ for my targets, with the promise of more exciting language in exchange for money.

“Anyway, it worked. I got in to see a few of my favorite design consultancies, Hat-trick and The Partners first, as I recall, and it went from there.

“But one of the real bugbears was how much I should charge. I’d never been freelance before. How do you decide what rate you should be charging?”

Mike set a rate that seemed about right compared to the freelance design rates he’d been charged at his previous company, and off he went.

“Everyone was happy to pay what I was asking. As I recall, it was £350 per day, in 2002. I bumbled along like that, without much idea of how my rates compared to others’, or of ways to find out. I can’t remember why, but at some point I decided I was probably undercharging. I’d been going for a couple of years, so that was probably part of it: one feels one’s income ought to go up a little each year, at least to account for inflation.”

The new rate was tested when Mike tentatively announced it to one of his original freelance clients. They got on well, so he felt reasonably confident that if she thought it was an outrageous demand it wouldn’t actually kill the relationship. Mike braced himself before explaining the new rate, but then couldn’t believe his client’s reply. “I’ve been meaning to say something,” she said, “because I feel bad about what we’re paying you. You should be charging more.”

Mike recovered his composure and boldly suggested a new new rate. “A little higher,” she suggested. Boggling at this, Mike followed her advice, and they agreed on a final figure.

“It was the most generous advice any client has ever given me, especially as it was her own business—and therefore her own money she was spending. Of course, the real issue was that I was undercharging considerably compared to the market, but she was under no obligation at all to reveal that.”

That conversation didn’t just transform Mike’s income, it made him more confident about his work and how he dealt with clients. And you can imagine how fiercely loyal he was to that particular client from then on.

“It’s still hard to make the jump to a new rate. You suddenly feel like maybe you’ll scare the horses and end up with no clients. In my experience, that doesn’t happen. The worst that can happen is that someone says, ‘No, that’s ridiculously high.’ I haven’t pushed hard enough for anyone to say that yet.

“My theory is that when you reach a point where people are consistently saying, ‘That’s a bit more than we’re used to, is there any flexibility?’ then I think you’ve got it about right.”

Regardless of how many people you ask for help setting your rates, a huge factor is the confidence you have in your talent. Remember, clients will be looking for designers who present themselves as solid, reputable, talented, experienced, trustworthy, and passionate about the profession—designers just like you. These traits take years to nurture and shouldn’t come cheap: good clients understand that. So when it comes to sending that quote, always ask yourself if you’ve set the bar high enough.