Pricing your work is one of the hardest aspects of running a studio or being freelance – but it’s crucial to your success. Creative experts tell us how they do it.
“How do you put a price on the Nike swoosh, the Asda pat, the Jolly Green Giant, and the effortless interaction on a Mercedes- Benz website?” asks Steven Hess, CEO of creative agency Weapon 7 (www.weapon7.com).
“There’s no doubt that this is really difficult to do. Why? Because the value of what agencies do is not really priced on the ink, the paper, and the screen, but more on the effect that their ideas have on people.”
Pricing creative work certainly isn’t easy. Unlike traditional businesses, creativity isn’t measured in typical business metrics. Design isn’t about the number of items rolling off a production line, or utilities consumed by customers.
Instead, design is intangible – it’s all about ideas and execution, and it can be difficult to both price these up and convince clients of their worth. Clients don’t make pricing creative work easy, either.
More used to dealing with suppliers who deliver tactile products, clients often have a tough time grasping the value of design output. This is compounded further by a desire to drive creative budgets downwards, especially in the face of an economic downturn.
In a tough economy, clients will be equally demanding on creative fees – and that can lead to some tough decisions for a design studio.
“Clients have become savvy shoppers,” says Clifford Boobyer of Firedog Design (www.firedog-design.co.uk).
“They tend to isolate exactly who they want to work with, then they bring the budget into the equation. They know times are hard, but it suits procurement, because now they have access to anyone on the roster.
"In boom times, clients quite often have to settle on a decision based on budget – they simply can’t afford the best of the breed. In these times, it’s a different story, as all suppliers scramble for the income.”
Stephen Simmonds, creative director at Rare Design Associates www.wearerare.com), agrees: “In the current climate we’ve found that many clients are using the situation to really squeeze the maximum from their budget.
Being a smaller agency allows us a little bit of extra flexibility than that of a larger corporation with bigger overheads, but we’re always conscious that a fair price compromise can be met rather than run the risk of it becoming a budget job.”
Even if you’re offering a unique service and can hold steady on pricing, clients are still keen to understand how their money is being spent, according to Felix Velarde, managing director of Underwired www.underwired.com).
“[The state of the economy] hasn’t changed pricing really – our staff costs remain the same, so design work pricing can’t change per se,” he says.
“However, we do try to ensure that we can show the value in what we do. In other words, as we’re a premium agency we must be able to justify a perfectionist approach – and the costs that go with that – in reference to the increase in brand engagement, commercial results and return on investment.”
So how do you actually even start to understand how to price work that’s going to win jobs, but not be so close to the bone that it could harm your studio in the long run?
From the off – regardless of if you’re a fledgling studio or a freelancer – it’s crucial to establish a billable hourly rate that takes into consideration all costs.
A good starting point is to decide on a reasonable annual salary (or studio income that would cover staff costs), and then add this to your expenses.
Be realistic here – you’ll need an accurate figure based on overheads, utility bills such as broadband and phone, rent, computer and software costs, insurance and banking charges, and so on.
Even if you’re freelance, it’s important that elements such as tax, pensions and national insurance are also considered. Next, decide on the numbers of hours each year that you (or each staff member in your studio) will work.
Make sure this is an accurate amount, and only include billable hours, allowing for bank holidays, sickness, time taken out with client visits, travel, annual leave and so on.
As an example, a typical freelance designer might settle on an annual salary of around £37,000, with around £7,000 of expenses per year. If he plans to bill for around 1,020 hours per year (allowing for holidays), then you can use the formula (salary + expenses) / hours worked each year = hourly rate. So, in this case, the freelancer would use (£37,000 salary + £7,000 expenses) / 1,020 hours = £43.14 per hour.
Of course, your own comfort level will vary, but it’s a good starting point for determining what you charge and pricing your work. It may seem at odds with being competitive, but communicating with other designers and studios can ensure that you’re not way off the mark when it comes to pricing.
“Talking to others within the industry, and sharing topline information helps to give an idea of where the agency stands in pricing,” reveals Weapon 7’s Hess.
“We have a target profit margin and we review all projects weekly to ensure that we are hitting our targets. The key is to know what you want to make, and then make sure that you’re making it.”
But it isn’t simply case of creating a formula, chatting to other designers and settling on a price. In today’s tepid market, clients have the upper hand when it comes to pricing poker.
Getting clients to let on their budget can be tough, mainly because clients are wary that if a budget is revealed, the design studio will – coincidentally, of course – come in with a costed proposal that’s pegged just below the client’s budgeted spend.
Other times, clients like to play studios off against each other in the pitching process, or cite slower economic conditions are a reason for slashing budgets.
The superior bargaining position that clients currently occupy can mean some tough decisions for studios, according to Firedog Design’s Boobyer.
“When it comes to pricing design jobs, we keep it keen – yet we find that these days clients are more vocal, upfront and transparent about the budgets.
Typically, it’s ‘we really want to work with you, but this outfit will do it for X – how do you feel about matching it?’ From there, it’s about looking at the margins and taking it on or dropping it.”
This ‘take it or leave it’ approach is echoed by Hess: “We have a standard approach to pricing work with clients and we’re sticking to it. We have seen some clients negotiating on price but if that’s the case then the work of the agency is not valued correctly either by the agency itself or the client.”
Simply walking away from work, or sticking to your guns when it comes to pricing, is a tough topic for design studios – and for every studio that maintains a line in the sand when it comes to pricing, there are other studios that are willing to consider being flexible.
“It all boils down to how much you want the work,” says Will Pyne, of Holler www.hollerdesign.com). “If you find yourself or your company feeling the pinch, often doing the work for a discounted fee is better than not doing the work at all.
"However, be wary of setting a precedent. Make the client very aware that you’re giving them a discount, so they know not to expect it all the time. You have to make them aware you’re doing them a favour and reducing your fees.
“If it’s a pitch situation or the first piece of work for a new client, you might want to discount the fee as an incentive for using you, but make it very clear that it’s a one-off discount, not a permanent fee reduction. Have the balls to walk away from a client that’s trying to squeeze too hard,” Pyne adds.
STAND YOUR GROUND
Rare Design Associates’ Stephen Simmonds agrees: “Don’t be afraid to stand your ground. If you’re confident you are supplying a quality product, be firm without being demanding.
"There will always be companies and other designers out there that will be able to undercut you, but this does not mean the client will get the same level of service or quality for their work.
“Offer to meet budgets, but if it is way off your original costing then don’t be afraid to ask the client or suggest ways to the client how the brief can perhaps be simplified to meet the budget.
"There will be times when you may lose the job, but in past experience these clients often re-emerge when the product they have been supplied is of lesser quality. Be flexible and be fair, but be respected,” he adds.
Firedog Design’s Clifford Boobyer also reckons that in order to ensure you extract the most from any client budgets you need to look internally, making sure all the numbers are crunched.
“We have a solid job-management system and we’ve done heaps of work on analyzing job profitability, time and resulting margins,” says Boobyer.
Firedog has looked closely at factors such as matrices of job types versus margins, and has even geared the output of the studio. “All this leads us to a point where we have an integral understanding of what it takes to take on client work,” says Boobyer.
“My advice to agencies is to do their homework. Creatives might baulk at all this number-crunching but it really pays dividends – in the studio and in your bank account.”
Boobyer says that this is what gives Firedog a clear idea of what to charge, adding that a good rule is to decide on your margin first, and price accordingly.
However, if you’ve decided on a 25 per cent profit, be aware that in the current market other agencies may be seeking only a 10 per cent margin.
“Sadly, another way to look at it is gearing,” Boobyer reveals. “Financial studio gearing is basically working out how much your assets cost and how much you sell them for. What this means is if your clients are paying you less, you need to pay out less.”
He concludes that this can be unpleasant, but is sometimes necessary: “Unfortunately, this results in you having to adjust your gearing – looking at your senior top-end staff and making some difficult decisions.
"In order to survive, you may have to remove the more pricey overheads and look at taking on more junior designers. It’s not easy, but it’s reality.”
Charge by the hour – or the project?
How you charge for work is vital to your cashflow – and helps define how your studio looks to the world. Whether to price work by the project or by the hour is a key choice for studios – and the knee-jerk approach of pricing by the project isn’t always best.
Pricing by the hour is transparent to clients, though you will need a firm grasp of how long a job will take to set what your hourly rate should be.
The upside is that if a project changes – if four logo designs become six, for example, or the pagination of a catalogue is increased by 50 per cent, then you earn more.
It’s also easier to invoice regularly when you’re on an hourly rate. Hourly billing does present an image of your studio as more like a decorator than a creative hothouse.
A good halfway house to keep cashflow smooth is to agree to bill portions of the fee at certain project milestones, with the final payment on delivery.
It’s vital to grasp the scope of a project at the pitching and commissioning stages, so that you know the time and resources you’ll need. If a project runs over because you got your sums wrong at this stage, then that’s your problem.
Be cut price, not cut rate
Top tips for reducing your fees without selling out
Lower your fees – carefully
If you absolutely have to lower your rates, then only do so on a case-by-case basis, and only when absolutely necessary. Once you’ve lowered your fees for a client, be warned that essentially they’re burned as a client – it’s next to impossible to up your fees once the economy is back on track.
The best bet is to introduce limited-time-only price discounts as a reward for regular, long-standing clients to further cement their loyalty, rather than offering discounted prices to new clients.
Stick to your fees – but add value
You can keep your fees viable by building in added benefits and services that you can offer the client for free. Examples include advising them on another project, speeding up project delivery, or giving them credits to redeem on a later project.
“We believe it is about finding a way to produce the work the client wants without compromising the end result due to the budget,” says Stephen Simmonds, creative director at Rare Design Associates.
“Ways to do this could include a discounted rate for a higher supply of work, limiting the amends included within the quote, allowing the client to help the job into the budget by supplying information in as watertight a fashion as possible, and generally being extremely clear at the start of the project about exactly what is included in the budget and what is not.
"It is amazing the amount of times, once a project has begun and client is pleased with the progress, that extra budget can be found.”
Get paid in kind
While it isn’t recommended for studios to start accepting livestock over hard cash, occasional creative thinking in terms of payment can pay off.
If you have to lower your fees, then claw back some lost income through concessions. Things to ask for include a faster payment schedule, in-kind payments (such as legal services for free, if your client is a solicitor for example), credit on the work, or use of their facilities, such as office space or even a little help from their support staff.
A decent proposal
A major route that leads straight to pricing problems starts at the beginning of the project, with the creation of the cost proposal.
Take care when collating all the facts behind the proposal, paying particular attention to what a client says to you, and then produce a cost proposal that is exactly what the client asks for, and without any non-requested ‘extras’ that you think the client might like.
“In summary, do some fiscal homework,” says Firedog Design’s Clifford Boobyer. “Grab the spreadsheets, look at your last six months of work and tear the financials apart.
"Only once you have a true perspective of where you’ve been, can you afford to calculate what to sell for. Run very solid timesheet systems, and gear all your staff based on what they earn, so don’t allow senior staff to do simple work, for example.
“Most important of all, just don’t take on work because you need the money if it’s going to cost you money in the long run. It sounds logical, but I find a lot of people are shortsighted when money is on the table in front of them,” he adds.
Money tools for designers
After stocking up on creative software, stock media, typefaces and hardware to power everything, many creative studios leap straight into the action without a pause.
But while financial bookkeeping using a combination of sticky notes, envelopes and a sound memory is definitely creative – exciting, even – it doesn’t make for a firm financial footing.
Some project, time-management and financial tools are a wise investment for any studio – here are some to consider.
Mac and Windows
£95 (single-user) £300 (multi-user)
Youmehub is a central workflow software system that allows you to track clients and suppliers, create and manage marketing campaigns and consolidate project schedules, correspondence, estimates, timesheets, expenses, and invoices. A Lite version is available for free that is limited to 30 records, as well as a free iPhone web application.
Creative Pro Office
Mac and Windows
Billed as ‘the most complete set of online office management tools you’re likely to find at any price’, CreativePro Office is completely free.
You can manage your team, clients, projects, invoices, and events – with quotes listed as ‘coming soon’ – from one web-based application.
CreativePro Office is well suited for both freelancers and small teams of graphic designers, programmers and web developers.
Traffic Mac and Windows
Traffic from Sohnar is a creative-specific agency and studio tool that combines an agency management system, job-tracking software, and an electronic job jacket all into a single package.
It features CRM (customer relationship management) tools, estimating tools for jobs, project management, management reporting such as profitability, and cash flow forecasting.
Mac and Windows
£22 per user per month
This project management tool combines CRM tools along with resource planning, timesheet tools, and quoting features with direct email of quotes, as well as calendars for events and tasks with links to iCal and Outlook. Streamtime also features over 30 built-in business reports.
Light Blue: Photo
Mac and Windows
Designed specifically for digital photographers, Light Blue: Photo lets you keep track of clients, shoots, images, and orders. It’s very much aimed at the individual user, but makes tracking enquiries, bookings and shoots easier.
Felix Velarde of Underwired emphasizes the importance of showing clients the value of a studio’s design work.
Studios such as Holler and Rare Design both report that today’s tough economic climate is seeing client budgets become increasingly squeezed.
Firedog Design’s recent projects include a website for Icould, a charity that aims to give youngsters career aspirations.
Underwired’s website for consultancy the AAR Group.
Holler’s Modern Toss campaign for Kickers.