Graphic Designer’s Guide to Pricing

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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?

This 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.

When 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?

Over 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?

My 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

“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?

Yes. 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”?

Sometimes 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

Pitching 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?

Go 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.

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.