Some time back, I wrote an article on setting web desgin rates and it continues to get a fair amount of traffic, so evidently this is an issue people are interested in. For all you aspiring web designers/consultants out there, here is how I set rates for web design and development during my freelance web consulting years–including plenty of the mistakes I made–maybe you can avoid some of ‘em! 
For most web design/development projects, I used a flat rate fee structure. This has a number of advantages:
- Client knows the costs are up-front
- Less stress over tracking time or overages
- Deposits are easy to figure (half upfront, nonrefundable, half upon completion worked well)
- Feature creep is easier to manage with clear deliverables attached to a specific price–additions to agreed-upon functionality meant negotiating additional fees
- Maintenance contracts for site updates allow clients an average, predetermined block of time each month and allow me an ongoing, dependable source of income
For minor site updates, as-needed work or very limited scope tasks, I charged hourly.
- Giving ranged estimate at the outset to help clients anticipate costs
- Higher hourly rate for as-needed work other than “contract” (i.e. flat fee projects or ongoing maintenance contracts)
- Works well for small tasks
Mistakes Setting Design/Development Fees
Undercharging
Early in my career, I frequently made the most common pricing mistake of green web designers–undercharging! This was a result both of underestimating the work/time involved, and of having limited confidence in my own ability to command higher rates.
I mistakenly believed the only way I could get new clients with a limited portfolio was to beat competitor’s prices. Starting out in online job boards like eLance and competing with a mixed group of professionals, hobbyists, and folks overseas who will sometimes work for pennies on the dollar compared to US prices, this was not easy. Some of these people were pitching $25 websites and $15 logos! Some were barely worth the $15, mind you. But even though I didn’t go that low, those super low prices still influenced my own rates.
While it’s both understandable and appropriate that those less experienced will charge less, many web design noobs absolutely error too far on the side of lower prices. I did–and some of my early clients got some screaming deals to prove it!
This didn’t work out so well. Two big problems from undercharging:
- To work for ultra-low fees, I could either cut corners, or work for free. I simply wasn’t willing to do shoddy work, so I ended up putting in many more hours than appropriate for what I was charging. I shudder to think of what I earned hourly during that time.
- I got the wrong clients for me. One rather counter-intuitive lesson that emerged was a client significantly undercharged tended not to respect my time or efforts. The less clients paid, the more demanding they were overall and the less likely they were to be satisfied with the finished project. I also had the most trouble getting paid by the folks who were undercharged by far–on time or even at all in some cases. Much of this group was, quite literally, more trouble than they were worth.
I resolved this by abandoning the idea I needed to provide “cheap service”–instead, I decided I would NOT be the cheapest, but work hard to make sure my clients got a good value for the money they spent. This approach was much more confortable. When clients complained about my prices (and some will, no matter what the prices are), I shared this philosophy and they could decide whether they wanted to work with me or not.
Nonprofit discounts
I love to give back, and knew from working in the social services before my consultant career that most nonprofits are chronically underfunded. I responded by charging nonprofits a LOT less than for-profit clients. My background meant I had a good understanding of nonprofit needs, so I ended up with a fair percentage of nonprofit clients. As the number grew, my business began to suffer. I didn’t have the time or energy to take on new clients who paid full rates with the bulk of discounted work, and it simply didn’t feel fair to to have two different price structures for the same tasks. Nonprofit work takes the same amount of time and resources as any other work. Eventually, I started charging the same for everyone and looked for other ways to contribute to causes I support that didn’t threaten my ability to stay in business.
Over-identification with Clients
As a very small business myself with a limited cashflow, I very much identified with many of my clients. On one level, this was great; I understood their needs and concerns because I was one of them. But sometimes identifying with clients got in the way–especially when they wanted a site that I wouldn’t have been able to afford to hire someone else to do for me. So guess what softy often ended up undercharging because they felt sorry for the clients budgeting concerns, hmmm? Yeah. I often gave them the site I couldn’t have afforded myself until I woke up and realized that, as a small business person, I buy the services I can afford–that’s reasonable. I still tried to give them tips to save money on their web projects. I just stopped making “Dixie working on the cheap” one of the money-saving tips.
Misjudging Time Demands
Another mistake I made early one was not estimating the time required to do the work accurately. For a long time, I eyeballed the requirements, thought about it a while, took whatever cues I could glean from the client, and came up with a number out of the ether somewhere. While some projects worked out better than others in terms of profitability, eventually I realized I still was not charging enough for the work. I needed a system.
Setting Rates for Projects
Eventually, I found a system that worked well for me. When faced with a new project or request for quote, I started breaking it down.
- Outline the deliverables. Sometimes I had to do this for the client (getting their agreement), whereas other times it was provided. But each time, I’d break the project down into specific components writing each out.
- For each component, do a time estimate. For the initial design, each section of the site, and each addon I’d estimate how much time that particular task would require.
- After adding up the time, add padding to the estimate. Padding could be anywhere from 10% to 25% of the total time estimate. This part is art more than science, but things like client’s communication style, difficulty of the project, and my overall intuitive radar for what the project will entail all came into play.
- Multiply by my hourly rate and send the quote. (And man, when I first started doing this, I was amazed as how much more I would quote as opposed to my old-school, “Eh. I guess I’ll charge this much” method.)
I got fewer projects this way, but they were better-paid projects. Pricing was much more fair this way–fewer subjective considerations mean my pricing was much more consistent between projects. I also ended up charging enough that I could always feel confortable taking the time I needed to do my best work and still remain profitable. I was working smarter.
Determining Hourly Rates
I can’t tell someone else what to charge. I would recommend, however, reviewing jobs in your area and rates of other designers you can find who seem to be in the same skill range as you. Many articles will recommend you figure out h0w much you want to make a year, add in expenses, and divide by working hours. This always seemed a little artificial to me, as I didn’t think that just because I might want to make a certain amount that I’d find people willing to pay me that amount. However, you can use it to get a starting idea.
Let’s say you’re looking to make $35,000 a year–a rather modest wage for skilled technical work. Figuring roughly 25% for taxes/expenses, that adds $8750 to the total you need to make, bringing the total to $43,750. Dividing by 52 weeks a year ($841.35), by 40 work hours per week, it comes to at least $21 hour. Doesn’t sound so bad, huh?
Except, of course, you won’t be able to bill each and every minute you spend working. If you manage to bill (an extremely optimistic) 25 hours a week, you’re looking at more like $33/hour. If you are like me and tend to do lots of nonbillable work and/or do tasks that you can complete quickly without billing your clients, you’ll need to go higher. As you gain more experience, you’ll also reasonably expect to charge more and should up your rates accordingly.
At this point, I charge $60/hour for contract work (ongoing or by project) and $80 for on-call work when I do it. This is consistent with other similarly experienced designers and developers in my geographical area, which was my goal. In general, if someone is charging less than about $25/hour, I probably wouldn’t take them seriously as a professional and if they were charging much more than $100/hour, I’d wonder what they were on and if I could have some. But that’s just me…
Rush Fees
I have always been very customer-service oriented, and it served me well. But once I got a certain number of clients, the last-minute emergency requests and night/weekend/holiday requests started getting unmanageable. I was working every evening, all weekend and getting update requests on holidays as well. While I didn’t mind helping my clients out, I was quickly losing the ability to have a life outside of work and in danger of burning out. So I instituted Rush Fees: work that had to be done with less than 2 business days turnaround time, or during evenings, weekends or holidays, I charged a $25 rush surcharge. Clients did not like this, by the way, but I explained why, and most did accept it. Without the freedom to have some time off consistently, my work was suffering and I probably would not have been able to maintain my business as my client base grew.
When to Raise Rates
Many people worry about raising rates, and I know firsthand it’s a scary experience. But done right–contacting your clients and letting them know what you’re doing and why–it doesn’t have to cost you clients. Matter of fact, I’ve raised rates several times over my career, and have never lost a client from raising rates. (I have lost a couple clients over changing policies, but not enough that I regretted the move when necessary.)
- When no potential client complains about your rates, you’re not charging enough.
- When you have more work to do than time to do it, raising rates helps.
- When you’ve found a particular client is commanding increasingly large amounts of your time and attention, it’s time to raise that clients rates.
- When you’ve become very frustrated working with a particular client, but are not ready or willing to fire them, raising rates is one alternative–hit a point where you’re not feeling resentful of the demands. (Don’t try this unless you’re okay with the client dropping you, however, either now or later. Most times, they eventually will move on.)
What Not to Charge For
While most of this info is focused on making sure you are charging enough–that’s the mistake most newbie designers make–there are certain situations when I made a point not to charge my clients.
- My mistakes. If I miscacluated the time needed or made a mistake in the work that had to be corrected, I never considered the additional time billable. Didn’t matter when the mistake was discovered. I stand behind my work.
- Learning Curves. If I took on a project requiring software or skills new to me or requiring additional study, I did not bill my clients for my learning time. That’s my responsibility.
- Unhappy Clients. If a client was unhappy with a design or some aspect of what I’ve done for them, I always did my best to work with them until they were happy. This meant some unpaid time or occassionally a discount was offered. The loss in income was a reasonable tradeoff for having the client satisified with the final outcome. While you can’t please everybody, if you’ve screened your projects properly, you should seldom come across a situation where you cannot work out a reasonable compromise.
- Surprises. I don’t do work that would require extra billing without clearing it first. Most clients will accept the charges if you discuss it with them beforehand, but if it’s on their dime, they need a say.
The Bottom Line
People work differently and each independent professional will have to find the right mix for their business. Review your rates regularly to make sure you both feel good about what you’re charging and that you’re making a reasonable wage for the effort. Remember, ALL sustainable business ventures have to be win-win. Your clients need to get a good value for the money they spend, and you need to get good value for the effort you put out. Having a system for determining rates and charging fees that are comfortable for you and consistent with your expertise is the best way to accomplish this. Good luck!
photo credits: Medmoiselle T & EricGjerde
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Posted on July 27, 2009 at 11:29 am in: Freelancers
{ 5 comments… read them below or add one }
THANK YOU! This is exactly what I needed right now, and by the way most of these tips can be applied to any skilled freelance work.
I’m glad it was helpful to you.
Very informative article, in the past I’ve struggled with setting appropriate prices for development work, and found out that you definitely get higher quality clients that are easier to please with higher hourly rates, however you do have to have the necessary skills required to command the higher rate.
Thanks for this. It’s a question I’ve been struggling in my own business, and I keep looking around for perspectives to support the rate increases I know I need to make. This is one the best posts I’ve read on the subject.
Thank you so much for your comments, Jeff and Marco. It means a lot to me you’ve found this info helpful.