Students often ask tutors “How much should I charge?” Pricing creative services is something many freelancers approach with fear, doubt and some anxiety. After all, you are not pulling products down off a shelf and handing them over. Not only are you creating what your client needs, you are also selling it. You have overheads, technical equipment, skills and experience you paid big money to acquire, plus personal expertise that must be factored in. These elements can’t always be appreciated by clients— especially new clients.
Everything you say about your pricing and fees at the beginning of a new client relationship will be carved in stone and very difficult to change later. The first conversation about price/ fees/ cost sets the stage for the future. Improving your dialogue about pricing will make you money and keep you in business.
To develop a clear strategy right from the beginning, let’s read some tips from Peleg Top, founder and principal of Top Design.
How do you know how much to charge for a project?
Peleg takes you through his process, “The first step is figuring out my living overhead. How much do I need to bring in a year to live? Be realistic! Then I can calculate my true hourly rate, based on working 40 hours a week. Ah, but do I work all 40 hours? More like 30. Now I know how much I must charge, so then I can figure out how much I should charge. Having a good idea of what the ‘must charge’ figure is allows me to have an ‘absolute minimum per hour fee’ to start with. Then, based on estimating the number of hours it’ll take to do the project, I multiply the hours by my hourly ‘charge out rate’ to get a ‘project fee’ figure to start with. Then I add 10% for unexpected contingencies. Most of the time the figure I will quote the client will be somewhat higher and based on the value of the project. This gives me some latitude if something goes wrong or takes longer than I expected.
I never give an estimate that is hourly-rate based. The hours bit is used for my budgeting purposes only. The idea is that the faster and more efficient I am on a project, the higher is my profit margin. If it takes me only ten hours to complete a project (where I quoted based on 15 hours) I will never charge for ten hours as that would devalue the perceived worth of the work. If I’m more efficient than I expected to be, good for me. If I’m less efficient – it costs me.
The higher value figure I will charge the client comes from me being well positioned and well prepared in what I do. Clients don’t generally question my fees because they know they are getting expert work.”
How to know the client’s spending budget?
Freelancers often find it hard to bring up the question, but you must find a way to get that information before you start a project. Peleg handles the situation with a soft-sell approach and offers some advice on words and voice control.
“I generally start the conversation in a casual way that shows I’m relaxed and confident talking about money. Sometimes I hear other designers’ voices flutter nervously when they start talking about money. Hesitation tells the client you’re not sure of your worth or what you base your fees on. So toughen up and pretend you are confident!
What I say is: ‘OK, let’s talk about money.’ That opens up the discussion and brings you straight to the topic.”
Note his use of the partnership – making phrasing of this question, “Let’s talk…” Peleg also feels the specific words you choose are critical here.
“The next question I usually ask is, ‘What kind of budget did you allocate for this project?’ Notice that I didn’t ask, ‘What’s your budget?’ If I did that the client simply hears ‘How much money do you have for me to take?’ and the client is probably thinking: ‘If I tell him how much money I have to spend, he will probably want to take it all!’ Positioning the question in this manner implies that we assume the client did his homework and came ready with a dollar figure in mind.”
Of course that is not always the case so you should be prepared to negotiate. Peleg explains, “My negotiation process starts the moment money is brought into the conversation, so it’s important that every question I ask is strategic. I learn to listen for sub-text answers between the lines.
The technique that works best is when I ask, “What will you be comfortable spending on this? As little as $5,000, around $15,000 or maybe up to $30,000?” Giving the client three ranges of spending (low, medium and high) generally makes it easy for the client to give me an idea of where they come in that range. That’s what I ultimately want to get out of the conversation. I need to know a spending range they are comfortable with. One of those numbers will either hit a hot button, which will result in a good reaction, or the client will tell me which figure he is comfortable with.”
What about a client who finds your price range still too high? Or he has unrealistically low price expectations?
It is important to recognise there are clients who not only don’t know what is involved in doing a design project; they may also be inexperienced with the value of working with a creative person’s services. Here’s how Peleg handles this delicate and all-too-common situation.
“I ask the client ‘What they are basing your budget on?’ Then I let them know that, in my experience, it’s not possible to complete a project of this scope for their (low) figure. I remind them “The general rule of life is ‘if you want to pay less, you’ll get less’”.
Sometimes it’s OK to walk away from a project if it’s not going to be a good financial fit. Saying “No” is OK. It can actually position you to look more desirable because you have higher standards, which come at a higher fee.” No one expects to get champagne on a beer budget.
Peleg also describes a successful negotiation. “The most successful negotiation is always where both parties feel they are getting what they want in a fair way.
We all negotiate on a regular basis, not only with clients, but also with our spouse, our kids, our employees, our vendors. So for the negotiation to be a success we start the process keeping both parties’ needs in mind. The most successful negotiation is when there is the least amount of back and forth trading to get what each person wants!”
Finally I asked him to focus on one important lesson to remember about pricing your creative services fee. “Every project will have different costs depending on who is doing it. During my marketing and pricing workshops, we go through the process of pricing a project and we always get a different figure from everyone in the room.
“There is never a standard price across the board. And that’s OK. Every designer brings different skills to the table and everyone has different financial needs and overheads. At the end of the day, the ones who get the project with the highest fees are the ones who are well-positioned and who are most specialised in the client’s industry or the product they are producing. “I teach my mentoring business clients ‘Get rich in a niche. That’s a good place to be!’”
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