It’s decidedly un-British to talk about how much we get paid. But creativity is an industry like any other, and it’s vital designers know the value of their work. Digit investigated the going rate.

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Designers like nothing better than talking about the “value” of design. Design solutions that turn around a company’s fortunes and make millionaires of all involved (except, of course, the design company), are always celebrated, and agencies love to trumpet success that can be measured financially. 
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However, mention price – how much design costs, and how much it should cost – and everyone gets very tight-lipped. 
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The Design Council simply says: “We don’t have information like that.” Design Week, the design industry’s weekly trade bible couldn’t tell us either, pointing instead to its salary survey (down this year for the top guns, up a bit for middleweight designers). 
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The Design Business Association (DBA) was distinctly cagey about it, although they did admit they carried out an annual survey of price, available to members only. Membership costs £1,000, but we twisted some arms and obtained some of the DBA’s key findings for 2005, which are quite alarming. 
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Across the design sector, salaries are up between 7 and 12 per cent, but the average charge-out rate has fallen by 5 per cent. A DBA spokesman said: “It doesn’t take a mastermind to work out that if the charge-out rates continue to fall, and salaries continue to rise, this equates to an unprofitable business.” 
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To understand why price and pricing have become such major issues for design companies, you have to look at how the industry is structured. 
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Since the boom and bust days of 2000/2001, the design world has changed shape: it’s become bottom heavy. Seventy per cent of the industry is now made up of design companies that employ less than ten people. Many of those people are very experienced, and set up on their own following redundancy from large companies. 
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At the same time, technology has turned the world upside down: broadband, faster computers, and better design tools mean small creative teams can out-idea and under-cut a major studio. 
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There is less money for design budgets – industry turnover has dropped from £6.5bn in 2000 to £4.5bn in 2005. And then there’s the fact that the whole world has tightened its belt: Productivity and cost-saving initiatives have spread in waves across the corporate world, according to <i>HowDesign.com</i> writer Pat Matson Knapp. 
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“Companies are streamlining and centralizing their purchasing practices in an attempt to be more efficient,” she says. “From a designer’s perspective however, these more ‘efficient’ procurement systems are better suited for buying toilet paper than creative services.” 
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<h2>Design on the cheap</h2> 
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The result is that design has become a commodity buy, bought in a job-lot like baked beans or reams of paper. Things like online bidding wars, where the designer who bids the lowest gets the job, are now commonplace, as are flat day-rates and free pitching (87 per cent of design companies engage in free pitching, and it costs them an average £38,000 a year). 
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Against this background of doom and gloom, it’s amazing anyone makes any money, but they do. The secret, the experts say, is all in how you price your work. 
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The key question then, is how do you price design work? And how do you price it so you make a profit? 
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“One of the most frequent questions I get is ‘how do I price my work?’,” says Maxine Horn, CEO of the British Design Initiative. “The answer to that is there is no clear answer.” 
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It’s simple if you’re a freelancer: “They work out what they need and set their rate,” says Horn. Rent, food, bills, holidays, salary, and the rest are added up and divided by the number of days a freelancer will work in a year. That’s the day rate and that’s what you charge. 
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“But it’s much more difficult for companies,” says Horn. They have to work out how many days the job will take, factor in more overheads and set their price accordingly. “If a client wants to negotiate down, the day rate drops.” 
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Other factors come into play too, says Horn. Do you want to get a “foot in the door” with a big company in the hope of more, better-paying work down the line? Will it be professionally satisfying? Or bring plaudits and awards? Do you want to do it because it will lead you into a wider field? If any of these apply, you might accept less money for a pay-off later on. 
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“There are no fixed fees because of all the variables,” says Horn. There may well be no fixed fees in design, but there are ways of approaching pricing in a business-like manner. But for these to work you have to think like a businessman and accountant, not a designer. And while the UK design world is not open about these “secrets”, our colleagues in the US have got it sussed.
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San Francisco-based Shel Perkins is a graphic designer and management consultant with 19 years experience of managing design firms in the US and UK. 
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He has written a book, Talent is Not Enough: Business Secrets for Designers, which is due to be published in April.
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“My approach to pricing is to base it on process, which is what the leading design consultancies do,” he says. The opposing philosophy is to develop a menu of unit prices – how much per page, per box, and so on. That really only works for service bureaus and desktop publishing. 
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This is why the only pricing guidelines you can find from any of the design organizations are issued by the National Union of Journalists. That body recommends a rate of £150 a day for page layout, or £80 a page for laying out a corporate magazine. 
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Perkins’ advice for freelancers is straightforward. Add up all your office expenses for the year: rent, telephone, Internet, liability insurance, travel, software, hardware, and so on. Add your home expenses such as mortgage, food, nursery fees, holidays, and income tax. Divide this total by the number of days you expect to bill, say 200. Remember to take into account weekends (104 days) and holidays, say 25 days. 
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Assume you can bill between 80-90 per cent of the rest. Do the maths: if you need to earn £30,000 you need to bill £150 for 200 days.
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Fine so far, but it’s only half the story. “This is your breakeven rate,” says Perkins. “You have to charge this much just to keep the doors open.” To make a profit, he says, add 10-20 per cent to your breakeven rate. This is your day rate. 
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<h2>Highly rated</h2> 
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Once you know your day rate you can compare yourself to others. “Ask around and check the recent surveys,” says Perkins. “Most design firms use lots of different freelancers. This means they know the typical rates.” 
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Don’t take them entirely at face value though: “They may be tempted to understate them as a negotiating strategy,” warns Perkins. And be careful how much you ask for: “If you are asking to be paid more than the going rate, you will have to be able to explain why.”
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Things start to get a bit more complicated when there is more than one of you, says Perkins. “However, the essential business challenge is the same. You need a rate that will cover your costs and produce a profit.”
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The main difference for firms is that while freelancers work for day-rates, companies work on a fixed-fee basis. 
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“To calculate a fixed fee you must first estimate the number of hours that will be involved, then apply a standard hourly rate to get a potential price for the project,” says Perkins. This is known as the default or base rate.
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Once you know your base rate, you estimate how long the job will take you, add up all the figures, and that’s your rate for the fixed-fee job. 
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“However,” says Perkins, “before you tell the client, you need to make a judgement. Is this price too high to be competitive? If so, how can it be brought down? Conversely, is the price too low to accurately reflect the project’s importance?” 
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He advises: “Always adjust your final price to reflect current market conditions and the value of the work to the client, as measured by the impact it will have on their business.”
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This last point is crucial when considering how to price a job – while cost is important to clients, it is hardly ever the only factor. Honesty, delivery, and communication are more important to most clients than getting design services on the cheap. Unfortunately, in their effort to appear cheaper, many agencies cut corners on the honesty.
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“Agencies are not transparent about costs,” argues the BDI’s Maxine Horn. Many design agencies hide their costs, she says, because they are scared of not winning the job. 
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They do this by putting budgets for photography, illustration, or other external costs under the sneaky “extras” column. 
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“From an agency point of view it’s a fear factor,” she says. “They want the job. But pricing needs complete transparency.” 
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She cites a personal example: “I got an extra £4,000 bill for illustration on a leaflet-design job that had an £8,000 budget,” she says. She was furious she says because she felt cheated. 
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“OK, I hadn’t asked, but they should have advised me.” Handing a quote to a client is always daunting. You have worked out your price, pitched and presented. They might say yes, but they might say no. 
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On this point, both Perkins and Horn agree. “If a client baulks at the true cost of a job, say £20,000,” Horn says, “you have to say ‘sorry, we can’t do it for £15k.’ And be prepared to walk away.” 
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It is one of the reasons why the design industry is seeing its fees fall year-on-year says Horn: “Agencies are not walking away and that is a problem.” 
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If that sounds too bold for you, it probably is. Not everyone can turn work away. However, the advice here is that there is a right and a wrong way to lower your price. 
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“Keep the emphasis on the quality of your work,” says Pat Matson Knapp. “Never aggressively market yourself on price or do anything that compromises your firm’s reputation for high-quality creative output.” 
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Perkins agrees: “Discuss the scope of the work. Focus on the main objectives. Can it be scaled back? Are there components that can be broken out as later projects? Reducing the scope of the work will reduce the overall price.” 
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If you can’t negotiate on price, says Knapp, negotiate on other factors – win some favourable concessions. Extra work at a later time, quicker payment, use of the client’s resources (such as staff or computers), credits on Web sites, referrals, or ownership of digital files all go some way to compensating you for a reduced paycheck. 
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And finally, says Knapp, if you have to give in and drop your price for a client: “Don’t even consider an across-the-board reduction. Do it only on an as-needed, case-by-case basis.” In that way, your design business will stay exactly that: a business. 
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<p><h2>Vox pop</h2>
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We invited design professionals from some of the uk’s top design agencies to share their thoughts on the current state of pricing design work. We asked each of them the following questions:
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<p><ul><li>How do you ensure your agency remains competitive in terms of pricing?</li><li>What do you think of underpricing a job in the hope of gaining more work from a client at a later date?</li><li>How important is transparency of costs for the agency and client relationship?</li></ul>
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Jay Armitage, <BR>
Director, Ralph (formerly ds.emotion)<BR>
<a rel="nofollow" href="http://www.ralphandco.com" rel="nofollow" target="_blank">www.ralphandco.com</a>
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