Pricing your design services
When you're stating you may believe that you must lower your prices to attract clients, but this is not the case. Lowering your prices and competing on the lowest bid hurt you, the client, and the economy.
Alright, this is too much, but smack it! I have nothing to lose.
Click, click. Sent.
They're not responding...
It was too much...
Damn.
2 hours later.
Bing, bing.
This is a bit over our budget, but we can work with this number.
Oh my goodness! Hell yeah! I can't believe my eyes!
In 2018 after breaking up with my business partner (we ran a freelance agency for some time) I got back to freelancing. I was upgrading my pricing model, trying to find my dream clients.
For months I had no success. Every single time I got "No," "We'll get back to you," and "It's too expensive" in responses. But I insisted and kept cold emailing companies. My goal was to land one contract. A single client with the new pricing model I just came up with.
After 4 months of hard work, messaging strangers, and almost giving up at times — I did it. I landed a $10k project for 6 weeks of work which I completed in 4 weeks.
It began a new chapter in my career as a freelancer. And I'm gonna share my pricing strategy with you.
Pricing your design services
Pricing your design services correctly is one of the most challenging tasks a freelancer faces. There is no one-size-fits-all approach here; each freelancer's skills and rates are unique.
When you're stating you may believe that you must lower your prices to attract clients, but this is not the case. Lowering your prices and competing on the lowest bid hurt you, the client, and the economy.
There is also no such thing as right or wrong way to price your services. Every designer must create their pricing method; even then, you won't be able to use the same formula on every project. Because each job is unique, creating a strategy that will work every time is almost impossible.
Starting with only an hourly rate
This isn't a bad way for freelancers to price themselves when they're first starting out. You are paid for the hours that you work. If the client's scope expands or the project takes longer than expected, you are compensated for the extra time.
However, hourly billing is ultimately limited. Here are a few downsides of charging by the hour:
Comparing hourly rates is risky
When potential clients compare rates, they see a price that is unrelated to the value your services will bring to their company. Your service is reduced to a commodity. Someone will always be willing to provide lower-cost services than you. You almost always lose this comparison, and you can't get away from it.
There are only so many hours in the day for deep work
When you run out of work hours, you can't make any more money unless you ruin your work/life balance by working excessively long hours or raising your rates. You eventually reach a potential earnings ceiling when your rates reach the upper limit of what is acceptable in your industry. Your lifestyle only allows for more work each day if you exhaust yourself.
Hourly rates discourage efficiency
Your client prefers completing things as soon as possible because it saves them money. Naturally, you want to provide the best value possible by working quickly. Still, the faster you work, the less money you make. Over time, as you master your craft, you will earn less and less for the same results unless you constantly raise your rates to compensate for your increased efficiency. Then you collide with the ceiling once more.
When I first started pricing myself hourly, I set a rate of $20 per hour. I gradually increased my rate from $20 to $30, $50, and higher. However, somewhere around the $50 per hour mark, I noticed a significant shift in my mindset.
At $50 per hour, I began working with higher-quality clients with reasonable budgets. Nonetheless, I was paid on an hourly basis. This culminated in one specific project that completely changed my pricing mindset.
Good clients don't care if you finish the project in 20 minutes or 20 hours. Clients care about whether or not the work is completed correctly.
Let me give you a real-life example here.
A client called me via Upwork at my $50 per hour rate. I was happy as it looked like a great client. He provided all the assets, the scope of work, the site map, and the content upfront. He gave everything to me, and then I plugged it into a new website design. I finished the website in less than 4 hours…
And worst of all, the website looked freaking good.
I had just completed a high-quality website for a fee of $175. The client was overjoyed that I had finished so quickly, and we parted ways at the end of the project.
That was the catalyst in my mind when I realized something wasn't right. I knew the site I had just finished for that client was far more valuable. I knew that people were charging thousands of dollars for websites of comparable scope. I knew I needed to adjust my pricing.
Project-Based Pricing
After the 4-hour web design project, I realized hourly billing was doing me a disservice. I was getting better at my craft and working faster. If I could start charging based on the project rather than the time I worked, I would have a tremendous opportunity to earn more money in less time. That is one of the most appealing aspects of project-based fees.
I eventually had a project that I sold for $2,200. It took me about 10 hours to design, resulting in a $220 per hour rate (cool, right?). And here's the thing: the client was pleased. They were overjoyed about their new website.
With project-based pricing, you estimate the cost of a job based on your experience and educated guesses. It is recommended that you overestimate your costs in case you run into unexpected problems along the way. You only make more money if you finish the project faster than expected.
Clients get absolute certainty with project pricing
But it comes at a cost. Including contingencies in your quote is the only way to provide that certainty. In the end, your client may have to pay more for the same outcome. Well-organized and helpful clients are penalized by having to pay for padding they do not use. Clients who are difficult and disorganized are rewarded by cramming more work into the same budget.
Scopes creep will be your ultimate downfall
If you can't nail down a specific scope and get the client to stick to it — forget it. Some projects, such as a startup app, require the ability to change and adapt as they go. If you price that on a fixed quote, you'll find yourself having to revise the quote at every slight change in direction. By the end of the project, everyone will be pulling their hair out.
Efficiency is rewarded in project pricing, but at a cost
You make more money if you finish the job faster. However, incentivizing speed can lead to cutting corners and lowering quality. I despise such pricing because I take pride in my work. I never want to feel cost-constrained, unable to explore and discover better design solutions without consuming my entire profit margin.
Value-based Pricing
Everything changed when I shifted the focus of my freelancing away from the amount of time I worked and toward the value I delivered. It completely altered my earning potential and earnings.
Time is not money.
The Holy Grail of pricing strategies is value-based pricing. Value-based pricing disregards the actual cost of the job in favor of determining a price based on the perceived value your client will receive from the project.
Some clients will be willing to pay a premium for that perceived value. Value-based pricing is the most advanced pricing strategy and should be used cautiously. However, value-based pricing will yield the highest profit when done correctly.
It's a pricing strategy that bases your services on the value your deliverables will provide to your client. It is a fixed fee, similar to project pricing. The distinction is in how you arrive at and justify your price.
As an overly simplistic example: the project you design for your client could generate $200K in new sales. You charge 10% of that ($20,000). Any wise client would be willing to invest $20K to earn $200K.
It makes no difference how long it takes you to finish the job. Your time and effort are no longer factored into the pricing equation.
Allow that to sink in for a moment.
When you use value-based pricing, your client's price has nothing to do with how long or hard you work.
Disconnecting your earnings from your time represents a significant paradigm shift. Selling time is so deeply embedded in nearly all service businesses that it can be challenging to comprehend the implications of how this strategy changes.
That artificial ceiling of hourly billing has vanished. Efficiency is now rewarded and not at the expense of your client. The goals, outcomes, and overall value of what you create now define, lead, price, and justify your services.
It sounds fantastic, in theory. But how do you go about doing that? It is more complex than it appears to apply this method correctly.
Your client must share their project goals and key performance indicators (KPIs) with you because you must tie your service proposal directly to these outcomes. This is important for any project, regardless of how it is priced. Still, for value-based pricing it becomes a critical requirement very early in the discussion.
Your client must be willing to reveal the monetary value of the work you are hired to create.
How much will your client earn if you design a new e-commerce experience that increases conversions by 1%?
What is the value of each new member if your goal is to increase sign-ups?
This type of value projection may take a lot of work to calculate.
Even if projections are available, will your client freely share that information with you? Will they be truthful if they share it? (They will be incentivized to make the value appear lower to lower your price.)
They must tell you the value voluntarily. You cannot value it yourself; otherwise, your price justification is meaningless to your client.
The project objectives must have measurable outcomes. What if the goals are more emotional, such as developing a brand identity that is more appealing to the younger generation? Some objectives are difficult to monetize. How can you price something if you can't convert it to dollars and cents?
Each proposal must be well-researched and one-of-a-kind. A project worth $10,000 to one client may be worth $1,000,000 to another, even if the effort and deliverables are nearly identical. This is a huge disadvantage and a massive benefit of value-based pricing (assuming you get higher-value clients).
How I price — a hybrid approach
Suppose your client is unwilling or unable to share the information needed to calculate a value-based price. In that case, you can conduct your own research and make educated guesses about what the project is worth to your client.
This cannot replace the necessary discovery process for accurate value-based pricing. Still, it is adequate for "faking it" for your internal pricing strategy.
I wanted pricing to be straightforward. So I have found a few things that work for me when I work with the client.
Turn discovery into a standalone project
Many clients are unclear about what they want. Or they grasp their financial goals but don't see how they relate to the interests of their customers.
As a first step in the design process, they hire a designer to help them scope out those requirements. This may include research, information architecture, and user flow diagrams. Don't incorporate that phase into your more significant design project, and then try to estimate the rest of the job. Sell it as a separate discovery "road mapping" service instead.
This step creates a clear scope of the design needs, which will inform the next phase of the assignment. Only once it is finished can you estimate the remaining design work. If your client does not trust you to complete the project, they can hand over the deliverables to someone else. (This nearly never happens, but it makes them feel safer knowing it could).
This stage eliminates any uncertainty and scope creep caused by an ill-defined brief. These are two critical questions I like to ask myself when I can't gather any information from the customer that will help me determine the project's worth to the client.
What is the size of the company? Generally, the larger and more successful they are, the more they'll be willing to pay. Would you charge a different price to Samsung than a local repair shop?
How critical is this project to the success of your client's business? An e-commerce company may invest resources and time in developing a fantastic website. It literally means everything to their company. A brick-and-mortar store may view a similar website as a secondary revenue stream. That client will be willing to invest less of their resources in it, whereas the first should do whatever it takes to make it a success.
When deciding on a quote for each client, you can use these assumed value clues to anchor your hourly or project price. Let's say your base hourly rate is $100. Nonetheless, you've determined the client is a large and successful company, and the project is significant to them. For this project, raise your rate to $125 or even $150.
Give them options to choose from, so they can choose from options that you provide rather than choose options between you and another service provider.
Break down the project into smaller chunks and price them individually
Sometimes you have to take this strategy of project breakdown even further. The greater the project, the more likely it will be required.
When asked to estimate the cost of a UI design project, I nearly always respond that I must first complete the UX side of the project. How can I scope and price a visual design project before I fully understand the functionality?
So I'll offer the UX design process as a separate prerequisite project, with the end result (typically wireframes) used to scope and price the UI design work. It is also helpful in estimating development costs.
Once again, the purpose is to eliminate unknowns before estimating the cost of a project phase dependent on the outcome of the preceding stage.
Keep your pricing structure flexible
When dealing with design unknowns, hourly pricing is the most flexible, notwithstanding its drawbacks. You are not penalized if a project requires extra design exploration to identify the optimal answer if you can quote your client a potential range of time/cost but then bill for the exact time spent. In contrast, a set project quotation will have you ripping your hair out whenever something deviates from the projected scope.
Yet, it makes no difference whether the price technique you employ. What matters is how you incorporate flexibility. If your client is price-sensitive, you can negotiate a time-frame extension. You want financial flexibility if the dates are set, but the scope is unknown. The more unknowns in a design project, the more flexibility must be built into the pricing strategy.
When your client's cost flexibility is linked with the level of uncertainty in the project, you eliminate pricing tension.
Set clear expectations about deliverables
Many clients have never been through a creative process like this before. They don't realize how much responsibility they have to keep a project on schedule and budget. It is our responsibility as designers to describe our processes and our expectations for what they must give at each stage of the journey.
Make it clear when the final materials are required. Declare what type of input you need at each project phase to ensure your client focuses on the appropriate items at the right time. Explain what kind of delays will occur if they fail to meet their obligations to this collaboration and how this would influence cost and timeline.
Uncertainties about creative feedback can be avoided if you and your client agree on the process and responsibilities.