G rab a coffee, get comfortable and make sure you read this post in full. It’s dawned on me in the last couple of days that I’ve screwed up my pricing big time. I’ve made a really obvious mistake that’s meant I’ve been losing 80% of all my money.
The Phases of Pricing
There are some fairly consistent phases that freelancers (or small web design businesses) go through when it comes to pricing, it’s basically a learning experience moving from one to the next. Assume about a 6 month gap between each one:
When you start freelancing you generally charge project rates, £500 and you’ll do absolutely everything. Generally you do this for a while until you realise that clients like to add stuff on mid-way through on a regular basis, so you end up doing more work than you quoted for.
The next phase is to try to implement some god-awful complicated contract that ties the client in to only the specific work that you quoted for in the first place and nothing else. This doesn’t work either. The second you start having arguments with a client about what is and isn’t in the contract, the project is pretty much dead.
After a while you decide that the best way to go is with an hourly rate. You give the client an estimate of the number of hours that it will take to complete a certain amount of work, then you charge them for the actual number of completed hours. This kind of works but, as I’ve discovered, only on small projects.
The Issue With Hourly Rates
I recently quoted a client 110 hours of work to redesign their site and build the new version of it on WordPress. It’s a pretty big project, so it has a detailed list of milestones to hit. After the quote had been approved I mapped out these milestones, as I do for all larger projects, but a couple of days ago I realised a rather drastic error with this.
While 110 hours was an accurate quote for the work, it was assuming that I would do all the work back-to-back, with no breaks. It didn’t take into account time spent waiting for feedback, or anything else really. The milestones which I’d mapped out spread over 8 weeks… assuming that I work 35 hours a week this means that the project would actually be taking up 280 hours of my time.
Re-calculating the project quote with 280 hours instead of 110 brought my hourly rate down to about 1/5th of what it should’ve been.
Big fail, and it’s not the first time I’ve done it.
Of course, some people would say “but of course that’s correct, you take on other projects at the same time to make up for the down-time” – but that doesn’t really work for me. For larger projects I don’t really like to take on more than one thing at a time; I find it hard to spread my focus that thinly. I still take on smaller writing commitments and so on but I don’t like to juggle big clients.
So in a nutshell, this is why I have a high hourly rate but I’m only just getting by in terms of finances.
The Next Phase of Pricing: Daily & Weekly Rates
Hourly rates still work for small projects. For a 1-page design, charging for “10 hours” of work makes perfect sense. For bigger projects I think it’s going to be a lot more efficient to charge daily or even weekly rates. Having a daily or weekly rate ensures that you’re getting paid for down-time. It’s also a far more realistic metric to track. How many hours have you spent on your current project in total? Not only do you probably not know, but you probably wouldn’t even be able to work it out. Days and weeks on the other hand are a little more tangible. There’s still the issue of how many hours are in a day, which may fluctuate, but overall it’s a lot more stable.
There might still be a better way of doing it – but I’m fairly sure that this will be an improvement.
What About You?
I’d love to hear which of the phases of pricing you’ve been through and what you’ve found to be most effective in not letting that down-time go to waste!
Photo by Jessica Rabbit’s Flickr
I settled on an hourly and daily rate pretty much straight away, probably more by luck than anything else. After a few years now, this still seems to be the easiest way. I try and allow for non-productive time (emails, research, business costs etc) to an extent but I probably don’t get this quite right (it is underestimated usually).
However, I don’t add ‘downtime’ into the equation because I work on several projects in parallel so this is different to you. I am not sure I could make freelancing work if I only did one main project at a time. I guess it depends how much you charge and the size of the projects. Most of mine are small to medium sized so that may be different to you as well (?)
Hm, I’m not sure I can follow the weekly and daily thing. What if you do take on another project? That would mean you’ll all of a sudden double your income per day/week? And what if you’re only spending 1 hour on a day for 1 project, do you charge a full day?
I can’t think of any scenario where I’d only spend 1 hour a day on a project…
You’ve sent off a mockup for a site to the client, client wants to see 1 thing changed, which takes you about an hour and you send it back to confirm..
It seems as though the changes made within that hour would already be counted for that day.
Then I do something else on the project that doesn’t need client feedback… configure the server, install the CMS, create the next wireframe, create the next mockup, start developing the other mockup which already has been approved. If you send something to the client and you have literally nothing else to do – then you’re doing something wrong!
That being said – if (for some reason) there was literally nothing I could do until they got back to me, then yes, they’d pay for the whole day. If you hire a car for a day and only use it for an hour, you still pay for the whole day. Same concept really!
@John, this blog post raises an interesting discussion (my response is mostly covered by others’ comments here) but I just have to add to this point…
I completely disagree that it is the same concept as hiring a car for a day! That would only work if a client hired you to come into their offices for the day then only used you for an hour.
If you have nothing left to do, then this is the time you could be spending on another project, because you will be free of the distracting thoughts about what needs doing on this project.
If, however, you have nothing left to do because the client has not provided feedback or other deliverables, and if you don’t work on that project that day the project will start to run behind schedule, then we’re looking at a different issue – project lapse penalities – like Aaron Russell mentions below (subject for another blog post I think).
“If, however, you have nothing left to do because the client has not provided feedback or other deliverables, and if you don’t work on that project that day the project will start to run behind schedule, then we’re looking at a different issue”
That’s the only thing I’ve ever mentioned charging for
I have fallen into a habit of charging for milestones and hourly rates for meetings. It doesn’t scare clients away with high high hourly rates, but it also lets me say “OK, we can finish this in 8 weeks, at ~ 25 hours a week” or whatever the case, and choose an appropriate price.
It will normally be based on an hourly rate though
Pricing presents a challenge because, as you point out, there are a number of things to be factored in. I now have a daily, weekly and longer term rate. The reason being that the shorter projects usually come with a high percentage of non-billable time – meetings, travel, invoicing, proposal submission, follow up adjustments and so on.
For longer projects I wouldn’t add in ‘down time’ unless a client’s actions are causing time to be lost which can’t be spent on other projects.
One advantage of having higher rates for short duration projects is it helps weed out those who don’t want to pay realistic rates for those seemingly short and simple jobs which *always* take far longer than people realise. I’ve learned from experience that it’s nigh on impossible to make money from the ‘it’s just a simple alteration…’ or ‘I have the design I just need…’ type situations, when the client want’s to pay a tiny sum. This is invariably because it’s not as simple as the client expects and, more often than not, they make changes which you’re expected to carry out within the original price.
I have a good client who’s happily paid a high rate for ‘some small adjustments’ to an exsting WordPress site (which took 2 days), but I’m pitching a much lower rate for a new project of his which will be several week’s work.
In my experience I’ve seen two ‘sides’ to freelancing.
There’s the freelancing sitting at your kitchen table or in a coffee shop doing work that comes to you as ‘you’ (i.e. the client wants John O’Nolan to design them a website), and there’s the freelancing where a studio will have you on their roster and call you in for x amount of days.
In the latter case daily or weekly rates definitely make more sense, and as you’ve pointed out for something as (superlative) as web design we can’t rely on hourly rates. We’re not hard labourers, and an hour of sketching is not the same as an hour of paperwork or an hour of coding; things like quickly exporting a PDF in the evening shouldn’t really add another hour to your client’s bill whilst other times we include ‘thinking time’ in to a bill.
Clearly we need a new model, and charging daily rates seems like a plan. I’d still keep a tab on average hours I spend in a day though (to work out a rough hourly rate).
I’d be interested to hear how it works out for you, it seems like you’re on the right track.
The best way of billing for time that I’ve heard to date was at the DIBI Conference and it came from Tim Van Damme. Giving a rough guestimate of how long things should take, working from a day rate. i.e. The minimum cost will likely be X and the maximum should be X, but if there is run-over then the worst it can come to is X.
Tim is probably one of the VERY few people who has the kind of clients that will accept this as a norm and it takes time to built up a client list where you can be so blase over billing.
I would like to see it implemented by a lot of other people though to see how it works out.
I’m glad you’ve realised this for your business. As i am only new to the game myself, i’ll keep your message in mind!
I think taking on 1 project at a time is a really dangerous way to play, mate. I hear what you’re saying about spreading your attention too thinly and would totally empathise if you were trying to juggle 4, 5 or more projects simultaneously, but having a couple of projects on at a time isn’t really a problem, and the benefits it gives you in terms of how you juggle your time, keeping yourself from getting bored of one project, and the security it gives you (in terms of when one job finishes you’ll still have another to keep you busy) surely outweigh any problems?
I personally always try to have two active projects on at any time and I schedule in 4 days of work a week – allowing two days per project and one day to play around with (it’s impossible to do five 5 days of client work in a week). I charge my clients a daily rate, but in reality the two ‘days’ I try to work per client per week normally consist of a few hours here, a few hours there, spread over the entire week.
I think as freelancers it’s inevitable that we will have downtime and periods of waiting for all sorts of reasons. If I just sat there with the clock ticking and charged my clients for every email I was waiting for a response on (rather than getting on with something else) then I would become seriously uncompetitive and expensive. Do you think your client would have gone with you if you’d have estimated 280 hours instead of 110?
That said, if a client keeps me waiting so long that I’m literally left twiddling my thumbs rather than doing work, then that’s a different matter and needs addressing.
I was using extremes to point out the drastic difference – clearly I wouldn’t quote 280 hours of work for something which I originall thought would take 110. I would quote 8 weeks of work at a rate which would be lower than my rate per hour.
Taking on multiple projects at a time has only ever resulted in one thing for me: missed deadlines.
I know I’m a copywriter but our work follows similar processes – research, mock-ups (drafts), production, revision (editing), bug-fixing (proofreading), implementation (publishing)… and we face the same issues when it comes to pricing. Which is my way of saying this is relevant!
I get a wide variety of work/ customers. So I use different costing methods depending on the job.
For larger projects that span weeks I also don’t like to spread myself thin either; so, as you suggest, I charge a daily rate – like you say, with good project planning there’s always something that can be worked on even when waiting on the client.
For smaller projects I charge per page and this varies depending on factors such as complexity and how much research is needed. This is worked out from an hourly rate and time estimate based on experience.
Finally, having just emigrated to New Zealand I’m building-up a portfolio here with a third and infinitely more interesting approach! I simply ask customers to pay ‘what they think it’s worth’ when the work’s completed. I’m careful to only offer this to folks serious about their business and those I’ve built a rapport with… it’s early days but so far no one has ‘screwed me over’ and one client has paid significantly more than I would’ve quoted.
In short, I don’t think there’s ever a perfect pricing plan that will fit all cases so I say be adaptable and, whatever you chose, make sure with each job you do work out what the hourly rate was and adjust in future – you don’t want to be earning 20% of what you should be! :)
Very very interesting mate – I’m really tempted to give that a try! :)
Thanks for taking the time to write about it!
i’ve been using a system based on an idea posted in Smashing a while back (http://www.smashingmagazine.com/2009/07/14/quality-price-ratio-in-web-design-pricing-design-work/) — basically i took their theory and created a spreadsheet based on it. (shameless plug: you can download a copy and customize it to your hearts’ desire here: http://www.arcanepalette.com/tips-and-tricks/web-design-cost-calculator/ ) i set up the spreadsheet so you can generate quotes based on a variety of different variables and time frames (e.g. hours, days, etc) and it will generate different quotes which i use to get a sort of base cost.
we typically take multiple projects at a time, but i often fail to take into account time spent on the phone, writing email, doing support, etc, etc, etc because i typically only think of the amount of time it will take to do the actual work. (plus, it’s hard, at the beginning, to be able to anticipate how needy/hand-hold-y a client is going to end up being…well, sometimes it isn’t, but often it is…) but i’m working on that. so that’s what i use for projects.
anything outside the scope of the project (e.g. stuff they made up in the middle or decided they wanted later, or stuff they wanted done after the site was complete or mostly complete) we bill for hourly. and updates, revisions, and anything that happens after the project is complete is hourly (unless they want to do a retainer contract with us, in which case they get a block of time per month and then hourly after that for a monthly fee).
i’m not sure if that’s necessarily the most efficient way, but it’s been working for us.
Thanks for sharing Chris, very interesting :)
I stick with setting prices for specific things. Design mockups cost this much. PSD > HTML is this much. HTML > WordPress is this much. Extra complications affect the quote from there.
I also charge extra if the client asks for a faster delivery than what I quoted – that is, if I’m available for a “rush” job.
I never quote hours or day/week rates for large projects. I believe this is the wrong way to do it because as you improve your skills, you’re able to produce work faster and faster. But that doesn’t make it any less valuable to the client (probably makes more valuable!).
My recent article on FSW covers this exact topic – pricing work based on value: http://freelanceswitch.com/the-business-of-freelancing/why-i-believe-in-pricing-work-based-on-value/
I’m going to have to disagree with you there Brian, as Elliot Jay Stocks also said recently: Getting better at web design doesn’t mean you do anything quicker, it means you do it better. The skill in web design isn’t in the speed at which it’s produced, it’s in the quality of the end product.
And on that basis, as the quality of my work goes up – so does the hourly/daily/weekly rate.
I agree. (sorry, I realize this is a month-old thread, but I’m just seeing this comment now…) I did freelance work for an agency when I first started out and that’s exactly what they did. The result was that the customers always felt like they were being “nickel and dime’d” (sorry, I don’t know if there’s a British equivalent for that phrase) for what they saw to be arbitrary distinctions. Someone who knows nothing about how you do your job isn’t going to know the difference between HTML or WordPress. They don’t know how a Flash slideshow is different than a jQuery one. They just want it done, done well, and to be able to update it when they need to. It wasn’t very good for customer service, especially when they said “oh, and I want this…” and you come back with “well, that’s gonna be $XXX extra.” The alternative, to me, sounds better: “Well, that will take x amount of time to design and develop, so it will be around $YYY.”
I also agree that better != faster, better == better. While I admit that I can probably crank out a WordPress theme now in half the time it would have taken me to do one 2 or 3 years ago, I also have to acknowledge that I probably spend at least some of that time doing stuff I had no clue about 2 or 3 years ago — coding custom page templates, adding functionality, etc, etc, etc. In the end, I probably am faster but mostly the end result is higher quality.
Thanks so much for this post (and everyone who has commented) it’s really helped me out a lot as a new freelance (1 year full-time) designer. I know that no one has commented here in a few weeks, so hopefully someone will still see this.
The problem that I face is that I’m still developing my portfolio and the level that I’m at is a lot of personal referrals… which is great, except for that it means that most everyone that I’m working with is a business that is just starting up and needs a logo/business card/website… whatever, and even the absolute lowest hourly rate that I can work for still is intimidating for them and I usually end up doing a lot more work than they can realistically afford. Do do I turn their business away for the high-paying clients (that I don’t have), or just bite the bullet, do a great job and hope it’s a good portfolio building piece?
My other fear is that if I raise my rates, that I will scare off my existing clientele without knowing how to reach the level of client that would be willing to pay.
Any advice?
I think I speak for everyone when I say we’ve all been there. It’s something that all freelancers have to fight with when you are first trying to get established. Until you are really set and getting direct inquiries, you end up doing a lot of freebies (be that extras that weren’t contracted/documented or actual sites for no pay — hopefully not too many of the latter). The best advice I can give is don’t cheat yourself. Always know that you are worth more, and possibly calculate what you *should* be making so you have something to look at that you can be working towards. Then inch your rates higher until they start to get closer to where they ought to be. One thing that helped us keep the faith when we were raising our rates was all these articles (on Smashing and elsewhere) that said that the more you raised your rates, the more sought-after you actually can become (because you value your work, that causes others to value your work more highly as well). It’s actually something I use in the cost calculator I link to above: I have a cell that is basically what we should be making (which, for the most part, is what we go off of these days) that I could compare to what the budget of the project was vs. estimated time vs. complexity, etc, etc, etc…If we’re going to take a hit on cost of a project, I can at least sort of anticipate how much of a hit it is.
A client of mine and me were once discussing the problems of professionals like us being able to charge reasonable fees and this was his advise:
Look at it like this. Work out the numbers of hours or days the project require, multiply that with the hourly/day rate you would like to achieve and you will will have a sum of money that you would like get for the work. Lets for arguments sake say that that is £5,000 and your target rate is £50/hr so that leaves 100 hours for the project. When you quote the client say that you hourly rate is £85 and you will finish it in 60 hours. The client will probably think your rate is high but also you are very fast as you will complete the project in only 60 hours. Any variations that will happens as the project goes along, lets say 2 hours extra work you can afford to only ask for 1 hour and they will probably think it is reasonable.
You can not sell cheap perfume in large bottles, but expensive in small.