A Designer’s Guide to Pricing

A Designer's Guide to Pricing

Graphic Designer’s Guide to Pricing

A lot of designers ask us what they should charge for their services. I thought I would share with you some financial lessons I’ve learned while building Cleveland Graphic Design Firm Go Media over the last fifteen years.

And be sure to check out “How to Charge For Your Graphic Design Work (& Get What You Deserve)” – another post by Go Media, for more on this topic!

This article will cover:
What should I charge?
Flat rate or hourly billing?
How can I avoid being stiffed?
Should I have contracts?
Avoiding “Busters”
Do I need an accountant?
What’s a “Kill Fee”?
Pitching.
How do I send invoices and track sales?

What should I charge?

hi_fi_by_gomedia.jpgThis largely depends on how skilled you are and how many customers you have. Obviously, when you’re starting out you’ll be charging almost nothing. When Go Media started I was charging flat-rates. For example – I was charging $100 to design a flyer. I would spend two days (20+ hours) doing an elaborate illustration for the flyer. So, basically I was making about $5/hr. This sucks, but I was doing what I loved.

Now obviously, with me putting in so much work and charging so little, word got around fast. Soon I had all the $100 flyer jobs that I could handle. So, I raised my price… $150, $175, $200, $300. Every time I was slammed with work I would up my price. 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.

You will lose some customers when you raise your rates. But if you want to survive in the long-run you can’t make it charging $5/hr. Currently Go Media charges $100/hr for print design and $125/hr for web and multimedia work.

Flat Rate vs. Hourly Billing.

hindu_by_gomedia.jpgWhen we started I was really in love with the concept of Flat-Rate billing. It seemed very clear and simple to me. I know that when I am buying something – I like to know what I’m going to pay up-front. And, so long as my prices were really low it worked out fairly well. Let’s take a logo design for instance. When I started I charged $300 for a logo. Most people thought this was a fair rate and I got lots of work. Some of those logo projects, however, took a really long time. As I began working with larger and larger companies they wanted more concepts, more revisions, more discussion about their logo. Obviously – a company’s brand is VERY important. Cost is not a deterrent for these larger companies. So, of course, my price kept going up. Soon, I was charging $900 for a logo. This was a fair price for a big company that wanted lots of concepts and revisions. But for the little guy, I would practically knock them off their feet when I told them I was charging $900 for a logo. 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.

This is where the flaws in the flat-rate billing system begin to surface. What does a “logo” really mean? I could spend 1 hour on a logo and I could also spend 50 hours on a logo. So you either create a crazy scale of products like “simple logo design,” “Average logo design,” “Complex logo design” and “Ultimate logo design” OR you switch to hourly billing.

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.

How can I avoid Being Stiffed?

monster_music_by_gomedia.jpgOver the years, particularly in the early years, I got stiffed a lot. Eventually I found one little trick that prevented this from happening:

Require a deposit before you begin work.

It’s simple: if someone wants to hire you for a $300 project, tell them you require a $150 deposit before you start. That’s it.

This one little step will eliminate 95% of people that will eventually stiff you.

I usually will 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. By requiring a payment up-front you scare off the jerks. If someone balks at making a deposit, they probably never wanted to pay you a dime in the first place. Be happy they are leaving your life. You’re better off for it.

One exception to this is working with big corporations. If Pepsi says: “Bill us, we will pay you in 30 days.” I would tend to believe them. If they stiff you, go get a lawyer and sue them. They have lots of money and the lawyers would love to help you sue Pepsi (for the record: Pepsi has ALWAYS paid us.) Which brings me right to my next topic:

Should I have contracts?

negativeland_by_gomedia.jpgMy quick answer is: Skip the contracts for little fish and small projects, have contracts for big fish and huge clients.

A contract is only good if you can enforce what it says. Lets say, for instance, that you design a $300 flyer for a nightclub owner and you make him sign a contract. Then let’s say he stiffs you. What now? Do you wave the contract in his face and say: “Or Else!” No, you go to court – which I have done in exactly this scenario. And when you get to court, the very first thing the judge will say to you, as he did in my case is: “The court is not a collection agency. You have to collect this money on your own.” So, the club owner never shows up and you win the case. Now what? Well, you can go back to the club owner and say: “HA! I won the court case – now pay up!” And he’ll probably laugh at you. If you go to a professional collection agency they won’t touch anything for less than a few thousand dollars. And if they DO succeed at collecting any money they will keep at least 60% of it.

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.

This is what happens when you’re dealing with little fish. The scenario changes when you’re working with bigger companies and bigger projects. Obviously, if you’ve been hired to do a $200,000.00 project – you might want to get a contract written up. You’ll want this because 1. You probably have a lot more at risk. You may need to devote months of your time to the project, hire more staff and buy equipment. And 2. In the event that you are stiffed there will be lawyers willing to help you collect. In which case, they will be able to get good use out of a contract in a trial. Go Media will only mess with contracts for projects over 50k.

Other tips to avoiding Busters

joystick_by_gomedia.jpg“Busters” is the term I use for people that have no money and want you to do work for them. They will do everything in their power to convince you that their idea is the next big thing. They will promise you great riches, fame and success beyond your wildest dreams. If you’ll just do this first job for free they will pay you triple on the next job. Or, if you do the design – they’ll pay with royalties when their product starts flying off the shelves.

Guess what? It will never happen. 99.9% of the time you will be stiffed. On the off chance that one of these buster DOES make some money – you won’t see a dime. He will stop answering your calls, stop answering your e-mails and find himself some other sucker to work for free.

Be wary of clients that are hyper active with energy and try to get you pumped up about their business, but have no up-front money to pay you. If they offer you part ownership in their company – but YOU do all the work, that’s a bad deal. If they offer you a part ownership in exchange for your services I would say: “Why don’t you pay me for a few projects so we can see if we work well together?” Anyone that is serious about having you as a business partner will think this is a good idea.

Do I need an accountant?

white_rabbit_by_gomedia.jpgYes. I highly recommend getting a good accountant involved in your business as soon as possible. I know that starting out you probably can’t afford one. That’s fine. Make due by flying “under the radar.” But once you have enough money – get yourself a really good accountant. Their advice is priceless. You don’t want to end up the next Enron.

What’s a “Kill Fee”?

fat_tuesday_by_gomedia.jpgSometimes a client will pay you to create concepts that they may not use. That payment is called a kill fee. If they decide to use your concepts they will pay you more money. This often happens when a company needs to pitch your work to their customer. We run into this a lot with the t-shirts we design. A merchandising company will want to pitch a line of t-shirts to Metallica. They will pay us a kill fee for some designs, pitch them to Metallica, then pay us more for the designs Metallica likes.

Working for a kill fee is just a matter of preference. Go Media tries to avoid kill fees. We would rather be paid in full for our time. But if someone brings you a project that you’re really excited about, you may be ok accepting the risk that the kill fee is all you’ll get.

Pitching

free_times_by_gomedia.jpgPitching is when you create a design for free, show it to the client and hope they’ll pay you for it. In truth, Go Media does not pitch very much, but that is starting to change. I know that the large advertising companies work in this way. They create entire marketing campaigns then pitch them. These pitches are usually with large companies and winning a contract will result in MILLIONS of dollars of business. SO, obviously it’s worth it for them to invest the time and money to pitch.

Pitching is also a matter of preference. It’s a great way to introduce yourself to a company or to break into a new industry. Obviously there are risks (that you’ll not get paid for your efforts), so weigh those against the opportunity to land a savory job.

How do I send invoices and track sales?

frogmen_by_gomedia.jpgGo Media uses Quickbooks. This is a somewhat complex piece of financial software, but it’s great. It takes a while to learn, but it’s well worth it in the end. Don’t try to understand all of it at once… just learn as you go. Start by focusing on how to generate an invoice. Little by little you’ll learn more over time. Your accountant can help you too once you have one. Quickbooks even offers credit card processing for a small fee.

Well, that’s it for now. If you have other specific questions I’ll try to answer them in the comments section.

For more on what I learned about pricing and billing since opening my now million dollar company over a decade ago, pick up our Graphic Designer’s Pricing Guide Tool Kit, now available at arsenal.gomedia.us.

Our Graphic Designer's Pricing Guide Took Kit, available on arsenal.gomedia.us

Our Graphic Designer’s Pricing Guide Took Kit, available on arsenal.gomedia.us

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Also, make sure to check out our Arsenal Membership, which hooks you up with our huge product library for only $15 per month. Yes, seriously.

About the Author, William Beachy

I grew up in Cleveland Hts. Ohio and was drawing constantly. As a child I took art classes at the Cleveland Institute of Art and eventually became known as the "class artist." I graduated from The Ohio State University's department of Industrial Design. I have always tried to blend my passion for illustration with Graphic Design. Go Media was the culmination of my interests for both business and art. I'm trying to build a company that is equally considerate of our designers AND our clients.

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Discussion

We want to hear what you have to say. Do you agree? Do you have a better way to approach the topic? Let the community know by joining the discussion.

  • Jermon Richardson

    This is a very good article. I’ve been off my job for about two months now and have gotten back into freelancing. Customers have been coming out the wood work so, a lot of these tips will be very helpful for sorting through the craziness. I currently charging a flat fee but to know that I can change the prices is reassuring. You always feel weird to charge certain prices for your work until you get comfortable.

  • Nathan Lopez

    great! this article is very helpful! :) thumbs up!

  • Irshad Ahamed

    Very useful Article

  • Thanks for share with us it helpful for understand what is the pricing and how can we adjust our price in to the logo design.

  • Zack

    let me tell you; I gone through all of these humps and bumps, all of them! I am simply shocked to know these are global phenomena! Offering company share to my service happened 2 times to me, both occasions I escaped swiftly, but always had a pinch of regrets somewhere back in my mind, after reading this I am very happy!

  • jeff y

    Agreed, plus, it’s just good practice for an artist to help build the business acumen and thinking professionally.

  • jeff y

    what do you do about making a quote when you are approached with a unique project that you have no idea how long will take you?

  • PGR

    You lost me at “I could design a logo in an hour”. Obviously we are very different type of designer. I don’t even have an hour alloted for the research necessary before I start a logo.

  • dave_valler

    Really great article, thanks.

  • Michel

    Great article. Love the language used. Very smart, obviously. And very helpful. Thanks!

  • Edu

    I love most of it, but as an entrepreneur I strongly DISAGREE with the part about doing it for free when sb with a project that is short of cash approaches you. You are NOT doing it for free, unless you are stupid not to sign a contract… But you can put a price on it, like 30k, and agree to sign a contract where you get % of the company, or you will receive X amount later (if there is high uncertainty, you can ask for more, like 100k upwards or only accept % of the company) – It is your responsibility to make sure you understand the risks of that specific project, the team around it, the stage it is in… But to say NO to it upfront to me sounds really stupid… For example, if I expected to be in need of the design of several elements on an ongoing basis for my startup, when you start and are cash strapped (especially if you are not on an area like Silicon valley where investments and big money really flows) I would gladly give 5% of my company (of 0, that’s 0; of 1 billion, that’s 20 million you get) vested over some years (5 for example) with a ‘trial period’ at first (so if I don’t like it or we don’t seem to connect, we call it off and I can’t use your designs and that’s it – it takes very little time to see if you are on the same page – it shouldn’t take more than a few days), and with the obligation of paying back x3 to x4 times the estimate you agreed on as a price for the design + interest of money over time paid from your (the company’s) revenue minus cost at the rate of 20-40% of that amount per year, for example, but excluding marketing costs, and new additions to the team etc as cost – so you can grow your team, etc, but not paying with money, or not before you paid off your % part for that year (otherwise I could always invest in marketing, new people, equipment, and never pay back) in case you leave the team or we decide to end our working relationship -So if we end it after two and a half years, you get 2% equity minus (or plus) 100k (3.3 times the estimated 30k) – If you leave before the first year, then we have to pay 100k -I think it sounds easy and fair -Also you DO NOT create all the work upfront – You create the needed work for them to present their project and raise funds -If that is more than your estimate + their beforehand estimated costs, you get 50k for example -less than the 100k, but more than 30k for the uncertainty of maybe not being able to raise the money – But even if the entrepreneur or team don’t manage to raise it right away, and time passes, the entrepreneur or team will owe that person AS A PHYSICAL PERSON (not as a company) 100k FOR ANY VENTURE YOU START ON THAT SUBJECT/AREA (and of course you won’t be able to use their designs) -Can you please tell me where is the part where this is unfair??

    Then when you say you do all the work, what exactly do you mean? You mean the planning, testing, coding, marketing?? Designing is an awesome job, but IN NO VENTURE, not even on one about selling graphic design services, everything is about graphic design! I don’t know if you’ve ever coded in your life, or tested a product or created a prototype or many other things, but just like your job takes time and deserves a good rate for that, there are many other things out there other than design on a venture… It is outright stupid to enter a venture with a partner in which you are going to do all the work, but if sb needs to be warned about that, sure, don’t talk to strangers when you are a kid and they offer you to get into their van…
    (Oh, I thought we were grown up over here ;)

    Other than that very good tips and advice!! Seriously!!

    PS: I already know who I won’t be asking for design in exchange of % equity haha!

  • mango124

    A very user-friendly article with some great points. When you are starting something like this, like free-lancing but under a name (not personal name), how do you go about establishing it as a thing. Like, do you do sole proprietorship? Or LLC? Or go all the way to a corp?

  • Lacie

    William, you are a saint. Thank you for this article!

  • DizneyLyrix – Lyric Videos

    When starting out, do you think it would be fine to charge a YouTuber $100 for designing merch for them? I think it’s actually quite cheap as they’re going to have full commercial rights and they’ll be selling loads to their large audience (they have more than 3 million subscribers and a professional merchandise store)… I’m not sure, any opinions? Any opinion is appreciated, I really need some different perspectives as soon as possible! Thank you <3

  • I always use a contract – not because I want to be able to hit someone over the head with it if they don’t honour our agreement , but so that we both actually know what the agreement IS. Had far too many experiences where both of us had very different assumptions.

  • Luyanda Mpongoshe

    Great wisdom shared, Will. I will definitely keep in mind from now on. Im starting up a Design, multimedia and IT company. I have been doing some of the advises you shared, regarding pricing. Im on the seam page as you in terms of starting up charging small then up the prices when you get regular demands. *Thumbs Up

  • Sarito:.

    thank you so much:.