How much should I charge my clients for graphic design?

100-dollar-closeupHow much should I charge my clients for graphic design: The ultimate question with ne’er a concrete answer to be found. Many bloggers have postulated formulas and questionnaires to help you determine your optimal rate. Some say to charge hourly fees, others say to charge by the project with rate cards. Some do both, depending on the nature of the project. So what’s the answer?

The answer is to charge what you’re worth; and thus the question becomes not what to charge your clients but how to determine what you are worth as a graphic designer. This can’t be done with a formula, and it can’t be done with intuition alone. It takes a strategic approach, a well-planned and well-researched effort, to determine what you are worth in your market.

Nearly every formula I’ve seen includes a profit margin, which is impossible to pre-determine honestly. Ask anyone what they want to gross – I’m sure it’s in the hundreds of thousands at least. Here’s what you need to do instead:

  1. Research the competition. Who sells to your target audience? How do their skills and experience stack up to yours? What do they charge?
  2. How will you differentiate yourself from the competition? If you’re offering an economy service, you will charge less. If you’re offering a premium service, you will charge more.
  3. How much is your target audience willing to pay? How many of them are willing to pay that price? There’s always a point along the curve where volume and profit are optimal. Determine what that is by polling likely clients and by studying your competition.
  4. What do you need to live the lifestyle you’d like? Is your goal to work as a lone freelancer forever or to grow a business that ultimately automates itself?
  5. What is missing in the marketplace? Economy? Value? Quality? Communication? How can you fill that void?
  6. What volume of work can you expect in your market?
  7. How much can you comfortably get by on?

Let’s say your major competition charges $100 per hour and designs logos at $1,500 a crack based on 15 hours. You discover that many of their clients like their work, but complain that it takes them a long time to complete projects. You’ve just discovered what clients are willing to pay plus a void you can fill – expediency.

Your next step is to determine what expediency is worth to your potential clients. Don’t be afraid to make some phone calls and poll your competitors’ clients to ask what they would be willing to pay above and beyond what they already do for expediency. If you learn that, on average, each would be willing to pay $100 more for a total logo design, you know you can charge more. If they are not, you could charge the same or even less and promote quick turnaround times as your major differentiating factor.

Assuming your clients are willing to pay an extra $100 for fast turnaround, you can charge about $7 extra an hour for your time (about $107). But this is not your worth, this is still a very abstract figure. Your next step is to determine how many people are willing to pay this price, and how much it will cost to reach enough of them — and convince enough of them — that you’re the top choice. You have to plan your marketing before you can determine your price, so develop a marketing plan and determine exactly how much it will cost you to acquire a new customer. You can find resources for doing this at SCORE or the SBA.

So now, let’s say it costs you $200 to acquire a customer willing to spend $1,600 on a logo, and that you can expect about 100 customers per year at this price. Now you can conduct even more research to determine what would happen if you increased your price to, say, $2,000 and $1,200 per logo. You might discover that it costs $400 to acquire each customer at $2,000; but you will only net 75 customers per year. Or, you might find that it costs you $100 to acquire a customer at $1,200, yet you can net 200 customers in a year’s time.

To break it down:

Example Fee Cost to Acquire No. Clients Net Profit
1 $1,600 $200 100 $140,000
2 $2,000 $400 75 $120,000
3 $1,200 $100 200 $220,000

At this point, it appears that charging $1,200 for each logo design is more profitable – conversely, you’re more valuable to your clients when you charge $1,200 versus $2,000, because value isn’t always measured in monetary terms. Still, you realize that you’re the only one doing the work – and handling 200 logos in a year alone is a daunting task indeed.

Next, you need to measure your overhead (rent, bills, insurance, etc. – marketing is already accounted for because you’ve determined your customer acquisition price). Let’s say your overhead is $2,000 per month. In a year’s time, that equals $24,000. Now you’re down to a net profit of $196,000.

Now things get interesting. You’re no longer an employee. You’re running a business, and therefore you need employees. Depending on your business model, you could hire traditional employees or hire freelancers to work for you. I side with freelancers – they’re more cost effective, and you have to relinquish some control. This isn’t a bad thing. You plan on hiring four freelancers, so that each freelancer has one logo design per week at $500 per logo design. That’s another $8,000 per month in salary expenses, and multiplied by 12 months, that’s $96,000.

You make $100,000, less taxes which at approximately one-third would leave you with a total net of roughly $67,000 (I’m not a tax guru, but I have a suspicion your accountant can save you some of that one-third).

Determining your price can be tricky, but when you fully consider the cost of operating your business and your personal life it’s much easier to define. These examples are meant to demonstrate that sometimes charging less can be more profitable if you can achieve the volume of work and the quality staff to conduct the work to sustain profitability. Play with the numbers, both in your projections and in your practice, to see what yield the most profits with the least amount of effort for you. That’s smart business sense.

For more resources and considerations on determining your graphic design fee schedule, check out the links below. Just remember that most of them approach this figure from the lone freelancer point of view, which is something you want to avoid, yet they do contain valuable information nonetheless.

http://justcreativedesign.com/2009/02/26/how-much-to-charge-for-design-work/

http://freelanceswitch.com/general/explore/#2

http://freelancefolder.com/the-fast-good-and-cheap-pricing-method/

http://www.allfreelance.com/freelancing_blog/2008/04/04/pricing-and-positioning-your-rates-amongst-other-freelancers-and-businesses/

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