How To Price Your Services As A Creative

I swear, when I started my business, I came up with my pricing based somewhere between my mood and what sounded good at the time. I had no idea how long anything would take, the value I was adding, or the actual cost for me to complete it.

I just went with what sounded good.

And let me tell you, it’s no way to run your business. Especially if you’d like to, I don’t know, make money?

So today, I wanted to dive into the actual formula I use to price my creative services. *Hint* it’s not pricing hourly :)

HOW HOURLY PRICING HURTS YOU

The most common way most creatives “price” is by using the hourly rate method. I put price in quotes, because using hourly rates actually is not pricing your services. It is billing.

Billing occurs when you send an invoice (after your services have been completed) with the final cost due. It is an estimate, based solely on time, and it forces you into being a commodity.

Pricing is a strategic way to establish the value for your product or service. Pricing is done ahead of time. It is based on the value provided, not the time taken. It is a business decision. It generally does not fluctuate from client to client and it allows you as the creative to compete on value, rising above becoming a commodity.

Think about when you shop for a car. You go to the dealership and fall in love with that shiny, new Tesla. You ask how much it costs with the features you want. Does the dealer say, “Well, we charge $100 an hour and estimate that those features will take 20 hours to complete. So, it will be $2,000?”

No! That dealer ALREADY knows the price for those features. He doesn’t mention how long it took them at the factory to complete them (and you don’t really care anyways). You just want those heated seats, upgraded interior, and fancy wheels. Those upgrades have a value to you and you’re willing to pay for it. So when he quotes, “Oh, yes. This car wouldn’t be the same without the heated seats, upgraded interior and fancy wheels. That is included in our Premium Package and costs an extra $15,000. You say “TAKE MY MONEY”!

In this scenario, if the dealership was just using the hourly pricing method, they would be leaving $13,000 on the floor. They also probably would not be able to sustain the cost of doing business, because the hourly cost to complete the task is only one small piece of the pricing puzzle.

THE FOUR ELEMENTS OF CREATING YOUR PRICING STRUCTURE

RATE

If you’ve been in business for any length of time using the hourly bidding method, you’ve probably run into the issue of running into unexpected delays and projects running way over the original allotted time. Ouch. So how do you avoid that going into your next job?

First, we need to cover the rate. This is the hourly rate X number of days X number of employees. Alright first, lets cover your rate. Let’s say you charge $100/hr X 8 hours a day and you estimate this job will take you 5 days.

Initial Quote:

Okay, but what if this job goes over, the client asks for 96977339 revisions, and now this quick 5 day job has turned into 10?

We need to make sure we account for that extra cost and time that we ALWAYS tend to underestimate— by increasing either our hourly rate or number of days or both. So in this example, let’s increase our hourly rate to account for those unexpected delays in the budget.

Revised Rate:

We’ve added a bit of a buffer ($2,000), but it still would leave us short if the job truly went over an extra 5 days. But even if you’re a solopreneur, you need to think and plan for what it would cost if you had to hire out to get this same job done.

If you hired out for this job, you’d probably need to hire a project manager, an art director, possibly a junior designer. Right now, you are fulfilling all these roles, but it doesn’t mean you’re doing it for free. We must account for that cost. So let’s add them in now.

Revised Rate + Roles Needed for Project:

So, we’ve gone from an initial quote of $4,000, added in a buffer to get to $6,000, and then added in the true cost for the labor required to accomplish the job to arrive at $29,000 for labor alone.

OVERHEAD

I know you’re probably freaking out over finally seeing the true cost and just how much you’ve been undercharging. But I’ve got bad news for you, even at $29,000, after you had to pay your employees, YOU STILL HAVE NOT MADE ANY MONEY ON THIS JOB.

We also need to account for overhead AKA the cost of doing business. This can be anything from the software you use, your equipment, rent, taxes, and much more. Let’s give a fictional example here:

Overhead Costs:

You will want to pro-rate this cost and charge a portion to each client. This is part of the cost to do the work. So let’s take the total $46,500; and let’s say you average 100 clients per year. So you’ll need to add on $465 to the quote to account for overhead costs.

PROFIT

But even at $29,465, you have only broke even. You have not made any money for your business yet. We have to add in profit. Profit is defined as: a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something. Right now, we have only accounted for the expenses.

Profit is generally anywhere from 10-30% on top of the sub-total. So in this example, we are going to charge 30% profit:

Profit:

So your final quote to the client would be $38,304.50 and your take home for your business will be $8,839.50.

VALUE

Now that you know how to price your creative services just based on the numbers alone, we need to ask a more important question. The hard cost for this project is $38,304.50, but what is the value of this project to the client?

If you aren’t solving a valuable, or big enough problem, the client is likely to be unwilling to pay almost $40,000 for your services.

But what if this project is currently costing this company $100,000 a month for not addressing? What if solving this problem for them would not only save them $100,000/month, but add another $1,000,000 to their revenue this year?

Well, that’s a pretty valuable problem.

And its value is easily worth way more than $40,000.

When charging based on value and not based on price, it is recommended you charge 20% of the first year’s revenue, discounted for risk. In this case, it would look like this:

Value:

The value to this client, to solve this problem, is $440,000.

The only way you’ll know if you’re solving a valuable problem is to ask more questions. Instead of taking them at their word when they say, “I want a new logo”, ask them “Why?”.

• Why do you think you need a new logo?
• What problems are you trying to solve?
• What are you hoping to achieve?

Then you will start to get the bigger picture of not only what the new logo means for their company, but also if that new logo will even solve the problem for them.

Ask better questions, provide more value, get better results, and it might be the difference between making $40,000 and $440,000.

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