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Hourly rates, flat-rate bids, and overtime... ugh! A web designer's time is not free nor is the software, hardware and effort needed to build websites. When starting out, it can be tempting to offer free projects to build up a portfolio, but that's not a sustainable way of working. If you want work full time as a web designer, it's time to start generating some money!
Introduction: The Web Designer's Dilemma
Trying to establish your pricing and rates as a web designer can often feel like opening Pandora's Box. What do you need to consider? Do I charge by the hour, or by the project? Will my client accept my fees? What do I do if he rejects them? Price them too high and you might scare clients off; but price them too low and you might end up unable to pay the bills. Worse yet, by offering special deals to friends or cheap clients, you can find yourself with more work than you can finish (and a contractual obligation to do it anyways which can hinder the final result).
To further complicate things, pricing is a little different for web designers than for any other industry. Unlike a plumber or a painter where the variables for putting together an accurate budget are relatively limited, the amount of time that a web designer can spend on a project can range wildly. How many times have you expected to spend 4 hours on a project and ended up spending 12? We'll cover these questions to, hopefully, bring some clarity to your own approach to pricing.
Navigating Prices: Factors to Consider
If you're just starting out, setting your prices as a web designer can often feel a bit like throwing darts. Plucking a random figure out of the sky can't guarantee that you're pricing is both sustainable and profitable though. Let's go over some of the factors that you'll need to consider when coming up with your own pricing structure.
Identifying your costs is an important step in establishing your pricing model. As anyone with a business degree knows, you need to charge more than your overhead is in order to turn a profit. Therefore, it's time to audit your own costs and expenditures to consider some of the following points:
- Professional Expenditures - These costs include things like your office rent (or your house rent/mortgage), insurance, any subscription services (online, web hosting, internet, phone etc.), your computer's hardware and software plus any other accessories or equipment and any traveling.
- Personal Expenditures - This is the kind of stuff that everyone pays, regardless of occupation (ie, things like rent/mortgage, insurance, tax, utilities and your general spend on essentials like food.
- Rainy Day Fund - I'm not one to advise you on your financial management, but most freelancers class a rainy day fund as a cost, used in case when something goes wrong like a car breakdown or similar.
Your profit is anything above your costs to spend on anything that's non-essential. The amount of profit that you want to factor in should be calculated based on how much you spend on anything outside your costs in a month. You may find it hard to distinguish what is essential, especially if you're a technology lover as many web designers are, so my guidance is to seriously consider the question, "What do I 100% absolutely need to be able to work on this project?" Then add anything else that you think you want here.
By moving that second computer to your profit category, you'll have a little leeway to negotiate with a client over price, leaving out your primary equipment.
Ideally, you should have some idea for the timescale of the project. Obviously, longer projects requiring more effort will most likely lead to greater fees and you should reflect this in your quote if you're trying to calculate a fixed price for a contract. Don't ever sell yourself short by adding extra tasks to a project without raising the budget. Extra feature requests, edits, and anything else that a client can think up take time... and as the cliche goes, time is money.
Beyond the "time is money" cliche, your clients' money should always correspond with some sort of "value". You usually can't get away with billing for time spent "thinking about a project while you sit in traffic"... so you need to separate between billable hours and non-billable hours. The distinction should be pretty simple: Billable hours are hours where you can show actual value to the client for what you've done. Non-billable hours are usually everything else. Some designers draw the line differently though, so figure out how you'll approach this before you move on. Also keep in mind that your billable hours will need to pay for the non-billable ones... so if you only spend 4 "billable" hours a day, your rate may need to reflect this.
If you are working out an hourly rate, time is especially important as you come to calculate money over time. You should identify your workable hours over the same time span that you've worked out your costs out over and then divide the two. Workable hours are simply the number of hours in a day/week/month that you can realistically spend working. For example (and completely hypothetically speaking), if you could realistically work fifty hours a week and needed to earn $1000, your minimum hourly rate would be $20.
Once you've established some basic figures, you can get an even more accurate picture of what your rate should be by re-calculating everything on a yearly time scale. That way you can factor in public holidays, vacation time and other non billable days due to problems like sickness. Keep in mind that even in a productive year, you probably won't be able to spend 10 hours a day 6 days a week working for the entire year. Factor in some reasonable downtime, then set your final hourly rate.
It's not just your literal costs that determine your price. Demand is an important factor that can change on a project-by-project basis. If you have work flowing in with no signs of stopping, you can be safe to add a couple more bucks to your quote. However, if there's very little work you may have to lower your expectations in order to compete with other designers. Think: if I can't secure this project, can I fall back on a similar one?
Lowering your prices isn't always the answer though. If demand is low, pricing higher can secure a bit of a nest egg in case work dries up to a point where you're estimated work days become incorrect. Setting artificially low prices can also undercut your own business - bringing in cheap clients with inflated expectations. The moment you try to raise rates back to normal levels, those kinds of clients will run for the hills, potentially leaving you high and dry.
The surest ways to drive demand for your services high is to:
- Improve the quality of your work.
- Market yourself in the places you want to find clients.
- Set rates that are reasonable, affordable, but don't disrespect your hard work.
Some clients turn into regular business and it might become appropriate to lower some of your fees to encourage further business and say thanks to your clients for returning. However, it's important to not become too friendly with a client who might feel like he can get more and more, taking advantage of his repeat business.
And also don't excessively lower your prices to ensure repeat business. Don't knock $200 of a new quote in the hopes it will secure repeat business because it might not. Treat all first-time clients the same at the start and don't discriminate on potential loyalty.
Experience and Expertise
As you become more experienced in the field, you can expect to charge more. Collis started out at a rate of $25/hour but, by the end of his freelancing career, was charging $125/hour, according to one of his blog posts. There's several sub factors that influence your overall expertise, including the size of your portfolio and the skills you'll pick up over your career. The key is targeting the right audience. Higher-paying clients will likely look for a larger portfolio and wider set of skills in order to secure their [larger] investment.
Your client can also influence your quote. Businesses will generally pay more than individuals of a similar profession and your quote might fluctuate between markets. A local food merchant will pay less than if you were contracted for an Amazon design job.
Hourly or Fixed
The question remains though, do you charge your clients by the hour or by the project? Either way, any quote should incorporate the factors that we've covered above. Each method has it's own pros and cons so let's just dive in.
Hourly pricing is where you pay by the hour for a project, like a traditional job.
Clients, especially smaller ones, can have less confidence in paying by the hour. It's a matter of trust and new clients have some way to go with you before they reach that level. From a client's perspective, it can be quite tempting for a freelancer to add a few hours in order to garner some additional profit and can have less confidence that you're charging for actual working hours concentrate on the project.
However, hourly rates give some more security if your client needs additional work or if there are tasks ahead that you hadn't envisioned. It also means that a client can't try to exploit your work whilst maintaining the same rate. To an extent, you're in control.
Fixed pricing is where a client pays for the project as a project and not based on the time you spent working on it. Pricing in this way generally results in a quote upfront which the client agrees with, and therefore, can be a little risky.
Calculating a fixed price requires more estimation than calculation as you have to work out the time and effort of the project beforehand, and charge accordingly, even if you run into further difficulties down the line. If you quote a job for $1000, but if ends up taking double the time due to issues on your end, it's harder to up the price because you arranged it beforehand. Similarly, your client might feel he's well within his right to ask for countless modifications and additional work without paying your feed until it's done.
One method of fixed pricing is to quote for each part of the work. While you aren't working on an hourly rate, you have a little more leeway in charing and avoiding unbillable modifications later on.
A client's perspective on fixed pricing is that they pay you for their project and you have to work on it until it's done. If you do opt for fixed pricing, it's important to clearly state what work is included in your price so your client doesn't exploit you. A tip here is to always make sure your fixed pricing somewhat matches your hourly rate. Estimate how long it will take and work out a base rate from your hourly price. Fixed pricing is much more of a gamble: if you do it fast, you're paid more for less time; if you do it slow, you're paid less for more time.
Which One Should I Use?
If web design on a freelance basis is not your primary occupation, you're going to be more likely to swap towards fixed prices so you and your client have a very clear idea of how much this will cost. With some clients, there is some room to move about on your quote if new work arises that you hadn't anticipated.
On the other hand, hourly rates are more suited towards those who freelance full-time and want to have a more stable income that won't be hit by problems down the road. Some freelancers charge more for working at nights or weekends, which can be helpful if you are required to work later in order to hit deadlines.
One needs to hit a sweet spot. A freelancer may want to maximise their billing hours which is unethical and can offer less trust from a client. I personally like the idea of charing a time-based rate but on parts of the project. Why not estimate how long it will take and offer a quote upfront, but make it clear that you will resort to further hourly pricing if it exceeds a certain amount of time or if the client asks of additional work.
When Your Rates Are Too Low
How can you tell if your rates are too low? Firstly, it's when your factors change. Remember those points we covered at the start? Well if you're costs go up, you can expect to pay more, especially if it's because you've invested in better business overheads that will benefit the project itself. Also, if points like your experience change (which it naturally will, over time), you can expect a client to pay more for your time. You can't start out with a rate and keep it all your life. As your experience goes up, the demand for your services can also, and you will be forgiven for trying to exploit the situation a little.
If you pitch to a client, you can take hints from him too. For example, if they accept a rate without negotiation, you probably could of tried for more. Whenever you have a pitch, add a little more onto your rate than what you want and if they reject it, negotiate and reduce the price until you hit your previous rate. If they accept but offer you more for a faster turnaround then they probably had the finances to pay you more instead of making you work longer hours for the same price.
Remember to not feel guilty when raising your fees. To us, design a website is a simple task and it can feel terrible to charge a higher markup. However, to a dentist, his job is relatively easy yet he's still making a healthy profit. That's why we have so many different professions. If your client was to design his website, he'd have to pay more and wait longer in the long run.
The FreelanceSwitch Rate Calculator
If you do choose an hourly rate, our friends at FreelanceSwitch have a great calculator to generate an hourly rate for you. The calculator takes into account your costs, your profit and your time to generate a break even and an ideal hourly rate figure. The comprehensive web app can give you a great estimate of how much you should be charging but it's important to classify what exactly goes into each category. Be sure to give it a try.
Use this as a base figure and then build up as you become more experienced. Just because you're new, doesn't mean people are only willing to pay $10 an hour for your services. Be confident and negotiate, just make sure you aren't being exploited and are still making profit.