If you’re an agency wondering whether your own pricing system is effective, you’re likely to have the following set of questions:
– Is it better to bill by the hour, or charge a flat-rate fee?
– How to bill for project management?
– How to deal with evasive clients, and make sure you get paid for your work?
– What general advice on pricing should I follow?
The answers vary wildly. Here’s how some famous design agencies approach project pricing.
“The biggest variable in pricing is the trouble factor: How much indecisive, demanding, and troublesome is this client going to be?”
“From years of experience I have found the best advice in pricing projects is transparency and a proven track record. We may not be the cheapest around, but we can point to past clients and their success, so that new clients know that they’re getting their money’s worth.
We always clearly state exactly what the estimated costs are for a project, and, if during the design process we’re approaching the high estimate of budgeted time, we let the client know, before we go over.
When asked about whether they have a project fee, or is the fee included in the hourly price of the agency, Giant Squid Creative replied that they prefer to charge their clients based on specific hourly rates:
Personally, Giant Squid Creative does not charge any project fees other than the hourly rates associated with the work.
We do have title specific rates and if clients want to save a little bit of money, they have in the past requested the work be done by “associates and freelance AD”, which is a cheaper rate.
Project management is included in our “research and strategy” billing.
Every design agency has a number of variables that influence their pricing. For Giant Squid Creative, the crucial variable is the estimated “trouble factor” of the client:
The biggest variable in pricing, (or estimating) is actually an intangible. It’s the trouble factor – how much trouble is this client going to be? You generally get a good idea from the initial meetings with a prospective client. If they seem like they are going to be demanding, trouble, or worst of all, clueless, and therefore indecisive as to what they actually want, the estimate goes up at least 20%. It’s not that we’re charging more, or charging them for “being trouble”, it’s that we know from experience some clients require more hands on work than others.”
Standout advice from Giant Squid Creative’s pricing system:
“We use a production fee that marks up the total project cost to cover our overhead”
“We have a very diverse group of clients, which is evident in the projects we produce. One day we are shooting an athlete on the side of a mountain and the next week we are in a studio executing a traditional product spot.”
In terms of variables that influence their pricing, Stept Studios highlights the elements that are unique to every project:
We typically start with size and scale of the project, carefully examine the creative goals, look for the best possible setting – often a highly cinematic one – and then tap a nimble, global crew or a more robust team depending on the need. We also diligently plan the post production effort to maximize timelines and output.
We calculate our pricing by billing our team members by day according to industry standard rates. Other cost considerations include equipment, location fees, talent, and licensing. Every project has unique elements and challenges that must be assessed per project, so we avoid flat rate pricing on any of our productions, to take these unique variables into account.
We use a production fee that marks up the total project cost to cover our overhead. This fee percentage is typically consistent across all projects unless the client requests a different approach.
When it comes to the dilemma between hourly billing and charging flat project rates, Stept Studios opts for specific hourly rates which are in accordance with the industry’s standards, but also determined by their team’s skill sets:
We do have specific rates per role based on industry standards. That said, some team members bill at a higher rate if they have a skill set that is valued higher by our clients such as underwater cinematography or high alpine aerials. We hand pick experts to execute in a variety of creative spaces, be it running footage, doc-style filming, product photography, or even full campaigns, so the rates can slim down or expand to meet the creative goals and deliverables, as well as the budgetary guidelines.
When it comes to billing project management, Stept Studios differentiates between an overhead expenses for overseeing projects and project specific management:
We really rely on our senior staff members to oversee projects from conception through to delivery, which keeps quality high. This efficient and focused management style is an overhead expense that is not included in our project budgets; however, project specific management such as a hand picked producer is itemized within our bid.”
Standout advice from from Stept Studios’ pricing system:
3. Go Media
“If someone asks for a flat-rate, don’t turn them down. Just talk about their project and get all the details before giving them a rate”
When Go Media first started, Beachy was charging flat-rates – for example, $100 for flyer design. In the end, that would amount to 2 days (or 20+ hours of work), leading to the real hourly rate of just $5/hr.
Eventually, Beachy’s $100 flayers gained in popularity, and after a number of such projects, he gradually raised prices:
“I think this is a really good strategy for the designer that is just starting out: start with really low rates and when you get busy enough increase the amount you charge”
This move will make you lose some clients, but, Beachy states that you won’t last long in the business if you continue charging $5/hr – since then, he has moved to $100/hr for print design, and $125/hr for web and multimedia work.
In the beginning, Beachy would charge $300 for a logo, which was a popular price – the problem was that some of those logos took a long time to design, with additional concepts, revisions and discussions requested by large companies.
As time went by, and prices went up, he was soon charging 900$ for a logo – which was OK by large company standards, but too much for individuals:
“They would say: “900 DOLLARS??!! All I want is a little logo – it will only take you an hour!” And they were right. I COULD design them a logo in about an hour.”
Depending on the job, he’d spend 1 to 50 hours on one logo, which made the flat-rate impractical and unrealistic. So, his next step was to decide between offering a palette of various logo services with their own flat rates, or moving on to billing by the hour:
“In the end we decided to switch to hourly billing. This IS how most service industry firms work. If someone asks for a flat-rate we don’t turn them down, we just talk about their project and get all the details before we give them a rate.”
According to Beachy, some potential clients can be evasive, so it’s vital to ask for a deposit before you star working on a project. For example, for a $300 project, ask for half of the price in advance – the clients who are planning to avoid paying you will most likely protest, and it’s for the best if they don’t move on with their project with you:
“I will usually try to get a 50% deposit before I start, then they make the final payment when I’m done. If the project is really big then I will reduce the deposit to 33% or 25%. If someone wants to take advantage of you, they don’t want to make any payment at all.”
However, he says that you can probably skip the deposit with large, well-known corporations that say they will pay you in full in, say, a month. In any case, if they don’t pay you, you can hire an eager lawyer and sue them – the lawyer will get his or her cut, and you’ll be able to collect.
In line with that, Beachy states that you should make contracts for large, renomed corporations for projects worth at least $50,000 – to help your case at court, if anything goes wrong.
But, with smaller projects and clients, contracts can be a waste of time, as they will do little to help you collect:
So, now you’ve spent all the time writing the contract, going to court, hiring a collection agency and sleepless nights worrying about this bum, and for what? You still probably get stiffed.
Evasive clients may be overly enthusiastic about their projects when you first meet, but have no money for deposit. Instead, they may offer partnership in their idea – but this will mean little, if you do all the work anyway.
He proposes that, if you’re made such an offer, you should ask to work on a couple of projects and be paid for them first, before figuring out whether you and the client would be complementary partners. Such a suggestion is also likely to help you identify half-hearted proposals:
“Anyone that is serious about having you as a business partner will think this is a good idea.”
In the end, Beachy concludes that finding a good accountant is key – unless you want to be in danger of sharing the fate of Enron, a large American company established in 1985 that completely disintegrated overnight in 2001.
Standout advice from Go Media’s pricing system:
You can read Beachy’s original, detailed graphic designer’s guide to pricing here.
“Don’t just present multiple figure numbers and hourly rates to clients without context. Show them how you got there”
According to Karlie, the first action Ueno performs, as soon as they receive an inquiry from a potential client is to disclose the project-minimum, in terms of the client’s budget:
“For some folks this may seem a bit forward, but for those who have significantly less than that minimum — they typically appreciate our honesty and are happy to not waste their time talking to us. For those who have the money — it just means we can swiftly move to talking about next steps.”
It is vital to consider employee salaries, overhead and similar factors, before setting rates. But, it’s also vital to reconsider these hourly rates based on increases in salary and costs of living, as well as account inflation. Currently, this amounts to at least $200/hr per person:
– 250/hr for senior executives
– $350/hr for people in leadership positions
– $1,500/hr for CEO – the CEO has less billable hours to begin with, but his services are still sought after
When it comes to project management, as a difficult aspect of a project, it has to be included in the price – in Ueno’s case, this amounts to $250/hr.
The dilemma whether to work by hourly rates or charge a flat project fee is no dilemma at all at Ueno – DeFilippo states that they ask for specific hourly rates for all team members, though non-billable staff members, such as herself, are an exception to this rule.
She concludes the story of Ueno’s pricing system by revealing that expenses are usually billed without markup, as pass-throughs – everything associated with pricing is made transparent to the client, including hours, hourly rates and other variables:
“We don’t just present multiple figure numbers to our clients without context, we show them how we got there.”
Standout advice from Ueno’s pricing system:
You can read DeFilippo’s original, detailed answer on how Ueno prices their projects here.
“Charge at set milestones: 30% before starting, 30% at a major milestone, and 40% at the end”
According to Leverenz, many clients are reluctant to disclose their planned budgets – which makes crafting a proposal to the client more challenging. As he states, the most important matter when determining your pricing is figuring out how much you need to make, in order to break even, but, also make a profit, in relation to your monthly expenditures.
Of the listed 5 design agencies, Couple of Creatives is the only one that prefers project-based pricing over hourly rates – they decide on a specific set of deliverables that defines the rate for a project beforehand, and anything they later wish to add is treated as a new deliverable. However, they have a way of parsing project-based pricing and making it more manageable:
“To help the client out and get paid more often, we charge at set milestones. Payments are typically made in a 30%/30%/40% fashion – where 30% is a down deposit, another 30% is a larger milestone, and the 40% is the final project fee.”
Leverenz explains why he prefers project-based pricing over hourly rates by saying that it is the ideal option when the project deliverables aren’t clear, but less so if you’re efficient with your time. So, according to him, the better and faster you work, the less you earn.
However, Leverenz admits that setting hourly rates may be the easier option – although setting project-based flat prices gets easier with practice:
“If you under quote for a project-based pricing model, you get stuck with working for free sometimes. The longer you do it the better you get.”
Standout advice from Couple of Creatives’ pricing system:
You can read Leverenz’ full explanation on how his agency prices projects here.
Advice on how to calculate the price of your projects
When calculating the price of their projects, design agencies take a number of different elements in account – scale and size of projects, shooting locations, the team’s skills and expertise, the client’s potential “trouble factor”, overhead expenses and costs, minimum budgets, sets of deliverables, as well as elements and challenges unique to every projects, among other factors.
Setting flat rates or pricing by the hour?
The dilemma between pricing by the hour or setting project-based flat rates is a persistent one among designers – with hourly rates taking precedence.
One option is to charge only the hourly rates associated with the accomplished work – with no project fee. Title specific rates are a great way to further clarify the billing process – if the client wants to save money, he or she may want the option to request associates and Freelance AD, a personnel who typically goes by a cheaper rate.
Another option is to bill team members by day according to the current standard rates in the industry – the rates can rise or fall in order to meet deliverables, creative goals, increases in salary, costs of living, account inflations, designated budget, and other similar factors. Some team members may be billed by a higher rate if they have a skill set that is seen as more valued by clients, such as highly specific photography.
One possible drawback to going by hourly rates is that, if you’re time efficient and good at what you do – you’ll finish faster and be paid less. However, project-based pricing is the more challenging and less practical pricing approach, as each project has its own unique elements and challenges that should ideally be taken into account.
With project-based pricing, you have to determine sets of deliverables you’ll charge fixed amounts for – which gets easier only with practice. The way to make project-based pricing more tangible you can parse the total numbers and charge at milestones – for example, 30% for the down deposit, 30% for a large milestone, and 40% for the wrap-up, final fee.
One other possible solution to project-based pricing is raising prices for a certain service once demands for it are also on the rise. Yet, when project-based numbers stack up high enough to become too pricey for individuals who only require simple work, and are still not enough to cover more demanding projects – it’s time to reconsider setting hourly rates. Such an approach allows more variables that classical flat pricing, considering that the price is determined after discussing the project details with the clients.
But, in the end, you may need to adhere to the client’s opinion on the pricing matter – so keeping both project-based and pricing-by-the-hour as a viable, and possible option may be the best way to go.
What are the variables that influence pricing?
Clients that need more hands on work, the size of the project, as well as accompanying elements such as creative goals, overhead costs and expenses, as well as choosing the setting and team, are among variables that may influence pricing.
One of the more prominent variables is the the “trouble factor” of the client. If a client is likely to be demanding, clueless or indecisive on what he or she wants, the price estimates should perhaps go up – because such clients are likely to require more hands on work.
The road to pricing variables leads through a number of other factors as well – determining the size and scale of the project, scrutinizing creative goals, considering unique project components and project-specific challenges, finding the optimal shooting location, and gathering the team and crew who possess the required skills and expertise. In order to minimize timelines and output, it’s also advised you carefully plan the post-production process.
Overhead expenses and costs that ensure an agency remains up and running are an important element that needs to be reflected in agency prices. The first thing you may want to do is consider your overhead – figure out how much you need to make to break even every month and make a profit. You can calculate it into the price by using a production fee for total project markup – and this particular fee percentage can be consistent, unless the client asks for a different approach.
How to bill for project management?
Project managers and supervisors are an important element in successful completion of any project – and the way project management mostly involves itemizing it in an invoice, in one way or another.
One option is to include it in the “research and strategy” item of billing, and decide on a decides on a specific, separate price for it.
Another option is to bill management and overseeing project progress separately, as an overhead expense, and not as a part of the project budget. You can treat other project specific management, such as picking a specific producer to be in charge as a part of the initial bid made to the client.
How to make sure you get paid for your work?
Once you’ve made an agreement with your client regarding the pricing system, and finished your work – how do you ensure you really do get paid?
You can treat precaution for getting due compensation for your work as one of their most important variables. The previously mentioned variable of determining the client’s potential “trouble factor” and decide on the price accordingly may be the way to go – if a client proves demanding, unsure what he or she wants, as well as troubling in general, simply rise your project estimates, as such clients may require more hands on work than others.
Asking for a deposit before you even start working on a project is another great practice – this deposit can fall anywhere between 50% of the agreed final price for regular-sized projects to one third (33%) or one quarter (25%) for projects larger in scale.
Deposits help identify people who may be planning to avoid paying in the end – if a client complains about paying a deposit, chances are he or she was planning to stiff you all along. However, you may want to reconsider asking a deposit from a large corporation who promised to pay in full, only at a later date – you can be almost certain that they’ll pay you, and if they don’t, you can always find a lawyer willing to sue them, in exchange for a cut.
General advice on pricing
Many other factors make pricing more convenient for both the agency and the clients – transparency, testimonials, stating estimates and minimum budgets upfront, all make matters run more smoothly
Transparency is one important factor – you’re advised to consider making your invoices transparent to the clients, with listed hours, hourly rates, billable hours, and everything else.
One other important matter is maintaining a proven track record of satisfied clients and successful projects, in order to showcase your skills and expertise. Stating estimated costs, and informing the client upfront when you’re close to reaching the high end of the estimate is another welcome practice.
Going by a cheaper rate than the competitors may help you maintain your business – but you won’t last long if you always charge lower rates. Although raising prices may lose you some clients, you should consider it.
Another great advice is to make contracts for large corporations and projects worth at least $50,000, to have something to go on in court, if something halts payment. However, bear in mind that contracts are an exercise in futility with smaller clients – they won’t lose their reputation if you sue them, and they likely won’t feel obligated to pay you even if you do win in court.
Watch out for overly eager clients – they might be masking their intention to stiff you with their enthusiastic delivery of their ideas, and proposals you join in as a partner in their endeavour, instead of getting paid in the traditional sense. To test out the intentions of your proposed partner, ask to cooperate with them on other projects (with compensation) first, to see whether you’re a good fit for partnership – whoever genuinely wants to cooperate with you, won’t have objections to this.
A great way to differentiate clients is to state your agency’s minimum budget for new projects immediately in the first email you send as a response to inquiries. Those who cannot afford the minimum will appreciate a clean response that allows them to quickly move on to a solution more suitable for them. And those who can afford at least the minimum will be encouraged to quickly move on to further negotiations and agreements with your agency.