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Information on this page was gleaned from:

The Business of Graphic Design

A Professional's Handbook

Hilary Ashworth, Supervising Editor, 2001, The Association of Registered Graphic Designers of Ontario

ISBN: 0-9688734-2-1

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The Graphic Designer’s Guide to Pricing, Estimating & Budgeting, Theo Stephan Williams, ISBN: 1-58115-098-9

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Annual Fixed Costs List

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IN CLASS TODAY:

We will figure out how much to charge for graphic design services.

You will also calculate how much you will actually charge for your services.

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Pricing Your Services

Hourly Rate Structure

To determine an hourly rate, assume that the revenues will be divided this way.

One third goes to salaries
One third goes to overhead
and the final third goes to profits.

So if a designer works 1, 300 billable hours per year, and commands a $60 000 salary, that means

$60 000 / 1, 300 hours = $46.

This represents the first third of your cost of doing business. So your hourly rates should be three times $46. or $138. Industry standards dictate using a factor ranging between thirds and 3.5. You would need to adjust the factor depending on your cost of operation.

The best idea is to plan for the worst case scenario and keep operating costs low. You’ll find that in your first few years, that you’ll barely break even.

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Fee Grid for Estimates

Now that we can establish an hourly rate for a designer, we need to establish hourly rates for each person and task in the studio. This way, we can charge the client for each billable hour of each task.

People in the studio have different responsibilities and skills. Their hourly fees need to be billed at different rates.

Yearly Revenue Potential

Before you can determine how much you will charge for a specific project, you should know how much your annual sales need to be to become profitable.

I tend to agree with this. Keep in mind that working to generate such sales is very arduous. The scenario just may push the limits of the Ottawa market; especially for a sole proprietorship. Just think about it for a moment. Consider this calculation:

If the owner of a sole proprietorship works 50 hours per week, he tends to bill about 75% of that time. The rest is spent on maintaining the company. Everything from management tasks, to vacuuming the office and taking out the trash. That leaves 37.5 hours. If you multiply this by $75. per hour, that makes a total of $2, 812.50 per week. Let us suppose that we work 48 of 52 weeks. 48 weeks times $2, 812.50 per week amounts to $135, 000

The problem with this scenario is that it does not provide enough sales/marketing time to generate the projects. It’s the curse of the sole proprietor.

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“Someone selling time will never become a millionaire, because there are only twenty four hours in a day.”

Bill Gates [Paraphrase]

Task	Type	Hourly Rate	Time	Estimate	Hours	Total ($)
Design	Senior Designer	$140/hr.
	Intermediate Designer	$100/hr.
	Junior Designer	$75/hr.
Meetings	Senior Designer	$140/hr.
	Intermediate Designer	$100/hr.
	Junior Designer	$75/hr.
Photo Direction	Etc…	Etc…

You should build a spread sheet like the above table. I suggest building a database inFileMaker Pro. You’ll want to include every conceivable billable item. You can use this list of tasks as a check list for things that can’t be overlooked, so that you don’t miss a billing opportunity.

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Industry Pricing Standards

After you have established these rates and projections, you need to step back. Compare them to what people are charging in your market. What are your customers willing to pay?

No matter how many fancy calculations you make, you’ll only be able to sell what the market can bare.

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Pricing Options

Brokering

You, as the designer are responsible for the quality of your work. So you want to make sure that the right printer is chosen for a given job. You also want to make sure that proofs are properly examined and press checks are done by a pro. Some designers chose to take all the financial responsibility by having the printer invoice them. This makes them responsible for the entirety of the job,including the money.

Brokering is a great way to avoid taking on too many unnecessary costs and responsibilities. Here’s how it works. You, the designer still perform all the same tasks. You check the proofs with the client; you do the press check. But with brokering,the printer invoices your customer. The printer must include a markup or broker fee in the invoice to the customer, which is sent to you once the printer is paid.

The advantages of this method are many:

• The printer will do a credit check on the client to ensure they have the ability to pay.
• The printer is responsible for collecting.
• The printer is sure to give you your money if they ever want business from you again.
• You don’t have to take on the financial responsibility for multi-thousand-dollar printing contracts
• The broker fee in the printer’s quote is flexible.
• You look good to the client, because it looks like he is getting all this service for one printing/design price.

One disadvantage is that your customer must sign two checks (to you and to the printer), rather than only one to you.

A note on fairness must be added to this method. It is imperative that you be fair with the printing companies. When you receive three or four quotes from various printers, you must mark them all up equally. To favour one is not fair to all the others.

Markups

In a graphic design studio, costs can be incurred very quickly for items which may not be specifically listed on a quote. These can include the costs of proofs, couriers and other outside costs. It is common to charge a markup on these items. The average or most common markup is fifteen percent. This makes it easier to cover the costs of office managers or other unanticipated expenses.

Management Fees

You will soon discover that different clients will want different levels of involvement in their design projects. Some want you, the designer, to take care of hiring writers, photographers, illustrators and printers. Other will want to take on those responsibilities themselves. This can sometimes give rise to conflicts, if you do not agree with their choices.

Either way, it is important that you are given a word in the decisions. The client needs your expertise for which a management fee is necessary. You should be ready to have the client sign a waiver if they wish to take on a part of the project which could put the final product’s quality in jeopardy.

Page Rates

Page rates are exactly what you would guess. The designer, in this scenario, is paid a flat fee for a printed page of design. It doesn’t happen that often, but it would be good for you to have an idea of what you would charge if you were hired as one of many freelancers on a project designing a catalogue together.

You could always ask the customer what they are willing to pay. If you agree, go with it. To figure out what is reasonable and profitable for you, estimate how long the job will take and multiply that by your hourly rate.

There are many more variables to consider here:

• There is the size of the page
• The repetitiveness of the designs
• The complexity of the page
• How busy you are
• The distribution of the project
• etc...

Retainers

I have never worked on a retainer. It is the rare circumstance when a client gives you a flat monthly fee for a portion of your total yearly work. The customer can basically “own” a quarter of your financial year. You commit to a certain amount of work for this customer and they commit to giving you ongoing work.

You can see that this is a significant commitment. You’re stuck with each other for the duration of the contract. And the contract can be significant from a legal point of view. Lawyers need to be involved to protect each side. Complicated...

Quick Billing

When you do fairly constant work for a client, you can make an agreement with the client to be paid at regular intervals: weekly, bi-weekly or monthly. You can invoice them at whatever frequency. They should agree to pay within a set amount of time. Maybe a week or so. You can even offer a 2-5% discount for fast or immediate payment.

The benefit of this arrangement is that you don’t get in too deep with your client. Your receivables remain manageable.

Leasing Your Work

Leasing can be an ideal solution when a client is starting a new business. Maybe they have never worked with a designer. They have no idea what things cost. They may be shocked by the price of a corporate identity.

Here’s the way it works. You both agree on a price for a logo. Let’s say $8000. The client can agree to give you $2000 up front. They’ll then give you $2500 every six months until the total bill is paid.

This demonstrates to the client that you have confidence in their venture. It also eases the financial blow.

Per-Project Pricing

This is my favourite. Prospective customers often ask “How much do you charge for a three-panel flyer?” After you have done a few, you show have a pretty good idea how much time they take. If you can’t answer right away, tell them you need more specifics and that you’ll get thema quote later that day, or the next. Don’t be pressured to spit out a number which you may regret.

Bartering for Profit

Bartering simply means to trade products or services. It can be a fun alternative. Sometimes, a client doesn’t have enough money to pay, but they have something interesting to give you instead. Sometimes, you’re the one who wants the product, rather than money.

The danger of bartering too much is that no money comes in for those jobs. If you can’t honour your operating costs, you’re done for.

Ask me about tax implications...

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