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2Jul/072

Dollars & Sense: Setting the Perfect Rates


How much do I charge? How much is too much? How much is too little? I wonder if they will they pay that? Is my time worth that little? Oh my, if only I had a dollar for every time I read someone asking what the appropriate amount to charge for their services. You see it so often because there isn't a simple guide on what rates are appropriate. Although I can not choose your pricing for you, by the end of this article you should have a good idea of where to look to set your rates.

Setting the perfect rates is an important part of starting a web design company.
If you charge too much you will likely not get much work, however if you charge to little you'll likely be worked to death. So how do you find the right balance? It is my belief that you do so by an understanding of the main types of charging available and the factors that go into positioning yourself. There are many different ways to charge your clients and we don't have enough time to adequately cover all of them so we are going to focus on the major three:

  • hourly
  • by project
  • residual/payment plan


Hourly

Hourly pricing is probably the simplest way to bill clients. Just as you'd expect: this is where you bill you client per hour. What you may not know is there are different ways to handle hourly billing and those differences are all behind the scenes. How you keep track of your time and round will make all the difference. If you log your time in increments (10 minutes, 30 minutes, etc.) it'll affect your billable amount. At one time I had a client where I logged work done in 10 minute increments and if the task took me less than 10 minutes there was no charge for the work. So if I worked on two things and it took me 10 minutes and that was all I did for the month - then an invoice was created for 1 hour. While this is by no means the smartest thing to do for every client, when starting out we tend to improvise.

In most cases hourly billing is used more for the maintenance tasks than for full website development jobs. It is vitally important to have a good grasp of the time it takes you to do various tasks. This will have a direct correlation with the amount you will be quoting to your clients. If you do not have a good time tracker or your are tired of trying to remember to jot down tick marks, then try some of my recommendations below. You'll surely find one that is appropriate to your web design business.

Recommendations: Slim Timer, Time Tracker, Side Job Track, Click Time, Tick Spot, Toggl

By Project

I have found that pricing by project is not only the most common but what works the best for me. As I have progressed in growing my company and fine tuning my procedures (workflow), having a handle for how long it takes for various tasks has helped me in this category. If you know roughly how long it'll take to do a design, slice it, code it and then add copy to it. You'll be able to quote more accurately. You get this understanding by tracking time over many projects. In the beginning you WILL be off in quoting for the first several projects, but in time and with practice you'll become a better project quoter.

Therefore the heart of this pricing method is behind the scenes. You evaluate the time it'll take to complete the requested project and determine a price from there.

Residual/Payment Plan

Residual pricing is the fancy term for payment plans. This is where you determine your project price (as you do in the previous method), but then arrange to have your client payout a certain % per month (or timeframe) based on that price. So if you quoted a project for $10,000 and arrange to have them pay you 10% each month until the balance due is paid. You would have a $1,000 income for the next 10 months. This method is great for those really large projects. Sometimes quoting a project with this method can make the difference in you getting the job versus a competitor. While in the short-term the incoming cash flow won't be as nice as other projects paying in lump sums, it is often nice to have a steady flow of cash coming in at regular intervals. As a former accountant, I like having a steady cash flow because is great for budgeting purposes.

Be flexible, if you have a smaller client who wants a full website but can't afford to pay it all now, don't just turn down the project. See if you can arrange a 'feature' roll-out plan over the next few months, quarters, or seasons. Or if you have a client who wants to pay you in increments, give it a close look and you might find it works well for you. Just remember to specify, depending on your contract, when the transfer of ownership of the site/project happens.

Determining Factor - Your Skill Level

Now that we have a basic understanding of the main and popular methods of pricing projects, which method is right and how do you determine your rates?

Choosing the right method is ultimately going to be up to you, however I recommend the following:

  • For normal website design/development projects use project pricing.
  • For large website design/development projects use project pricing, unless the project totals $10,000 or more in which case I'd use some form of residual pricing.
  • For mini-development projects use project pricing.
  • For website maintenance/updates use hourly.

Determining your rates is a tricky animal because there is not slide ruler that'll give you the perfect number. I have changed/updated my hourly rates 3 times in the last three years and will likely be updating them again in the near future. The reason for this: rates should be based on skill. So how do you determine what rate corresponds to your skill? The only way I know how to is to compare yourself to others in the industry. Ask some of your acquaintances what they charge and base your pricing on what you think your skill level is compared to theirs. Don't just ask one either, some will opt not to tell you and that is ok, but the more you ask the better your grasp of what rates are appropriate with different skill levels. A new web designer isn't going to be able to bill $300/hr, just as a seasoned web designer isn't going to bill $5/hr.

As your skill and 'product' improves so will your ability to charge a better rate. I'll never forget a friend of mine sharing a bit of advice with me which i am now going to share with you: "don't prostitute your talent or abilities". He was right, my time is valuable even if my skill isn't where it should be. If you don't feel you can charge more than $20/hr and you feel your time is not worth that little, then don't take work just yet. I would recommend reading up and improving your skill so you can charge what your time is worth. In the long run it is better for you to spend your valuable time learning then it is to spend your time doing work for peanuts.

There is a really neat rate calculator provided by Freelance Switch. In my opinion, although that tool isn't going to give you the perfect or most applicable rate, it sure is neat!

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Next in this series
: The 2-Hour Business Plan
Previously in this series: Choosing a Super Identity for Your Web Business

Filed under: Misc, Web Leave a comment
Comments (2) Trackbacks (11)
  1. This is good info. It helps me confirm the project vs. hourly billing decisions. I definitely need to check out the time trackers you suggested. That would be a great help for me simply in determining how long it really takes me to do certain tasks.

  2. I would like to suggest Fanurio which does both time tracking and invoicing.
    Fanurio is a desktop application designed to help freelancers manage their work and be paid for it. It can do basic project management, time tracking and invoicing in order to have all the functionality in one place.


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