Paid Work From Home

How to Price Your Web Design Work

Simple pricing strategies for freelance web designers

Freelance web designers are often stumped by how they should price their web design and/or development services. This knol aims to give the freelancers an idea what strategies and methods they could use to price their work. Hopefully, this knol can also help freelancers and consultants reduce the amount of stress from feeling they "got fleeced" on deals and projects.

Imagine This

Photo by Sabrina Eras

You're a web designer with an eight-to-five job and it's 2009. The global economy is in a slump and the idea that your company won't be slashing jobs like a mad swordsman is keeping you warm and fuzzy at night. You're doing OK financially, but not great. You usually have wide-open weekends that you spend playing World of Warcraft and updating your Facebook page. You've always wanted to take web design projects on the side but opportunity has not yet presented itself. So
One weekend, your Uncle Bob sends you an email saying he needs a website done fast and he learned from your cousin Jebediah that you were a "web design person." He is gracious enough to say in his email that he is willing to pay your regular rates since it's a rush project, but he says he'll be happy if you gave him a good old "family discount." (Of course, you're inclined not to give him his discount since he gave you socks for Chirstmas.)
Now, you find yourself scratching your head ans asking yourself, "How much am I going to charge for this project?" The warm and fuzzy feeling you have that evening has been replaced by confusion.

Back to Reality

Your situation may not be totally the same as the one I just described, but you, like many web design freelancers, may have faced a question of how to price your web design work without getting the raw end of the deal.
Most likely, you will consult different sources on the internet about rates and pricing of web design projects. You will probably even ask different people-- your co-workers, your friends, your significant other, your company's resident gossip-- just to get the "best" price for your project. Asking your peers and friends is one way of getting a figure you will throw to your clients, but there are are other ways, perhaps better ways, to get that elusive figure.
Getting the right price is crucial because a) in today's economy, every dollar or (euro or peso or rupee) is very important more than ever, b) you will be able to cover your own costs, c) you will be earning money you are satisfied with without you feeling you got fleeced, and d) your clients will be as happy as little elves prancing in the grassy knolls if they feel you're not overcharging them.

Know Thyself

Photo by TJ Scenes

Before you go on crunching numbers and throwing prices around, you need take some time to think and reflect what you want to achieve in your freelancing career. Ask yourself these questions:

Do I want to get more clients? Do I have the time to devote more clients?
Do I want to keep a few quality clients and maximize what I get from each project?
What kind of professional relationships do I want to build with my clients?
Do I want my freelancing to work around my personal work/life balance scheme or the other way around?
Do I want to be known for my low prices and quick turnaround time or high quality and level of craftsmanship?
What kind of clients do I want to work with? Local or off-shore?
Am I doing the right thing by freelancing?

Obviously, there are more questions you can ask yourself ("Who am I?" or "Why am I here?"), but the ones that I raised have answers that points toward your strategy in freelancing. There's no one correct strategy and there will always be contextual differences among freelancers, so the answers you arrive at will be your guideposts in determining your pricing.

The Pricing Methods

With a clear view of your goals and objectives for freelancing, it's now time to load your spreadsheets, bring out your calculator, and dust off your abacus: We're gonna start pricing!
For our computations, let's assume that in your full-time web design job you are earning $4, 000.00 per month (net) on a 20-day month with 8 working hours per day. Of course, your salary and rates will very depending on your location, (a designer in New York or Los Angeles will likely have higher rates than a designer based in Bangalore), but let's stick to these figures.
The most common freelance pricing schemes are Per Hour pricing, where the freelancer bills the client for every hour he/she works and Per Project pricing, where the freelancer bills the client for the whole project. We will be concentrating on the latter. Also, there are numerous specific pricing methods out there, ranging from simple to very complex, but for simplicity, let's focus on four easy to use and understand methods:

Cost-plus Pricing

In this first method, you will arrive at the price by adding your desired profit to your base cost.

The first step is to compute your base cost. You can do that by extracting your direct hourly or daily rate:

$4, 000/month X 1 month/20 working days = $200/working day

$200/working day X 1 working day/8 hours = $25/hour
Now that you've calculated you rates, let's calculate the base cost of your web design project. Let's assume that you're a fairly fast designer who can whip up a web site, complete with a few design studies, mockups, optimized images, xhtml and css , over the weekend in a total 12 hours

$25/hour X 12 hours = $300/project (Direct cost)
The next step is to take into account the indirect costs of completing your web design project. This includes the electricity for your computer, communication costs like phone calls, office supplies you use up, and the coffee and pizzas that fuel your creativity. Getting this figure is a little fudgy due to the infinite number of variations, but let's assume that you allot an extra $120 for incidental costs for the project:

$300 (Direct cost) + $120 (Indirect cost) = $420/project (base cost)

In addition to the base cost, we can calculate the effective hourly rate:

$420/project / 12 hours/project = $35/hour (Effective hourly rate)

That means that $420 takes into account the full cost of completing your web design project. You can look at it from another perspective: this figure will mean that if you take a project below this amount, you're taking this project at a "loss." (Of course, nothing is keeping you from working on a project pro bono for that hottie client).
The Cost-plus pricing method, we will add our profit to our base cost. Suppose we want an 80% profit margin:

$420/project X 180% = $756/project (Price you will quote to the client)

or

$35/hour X 180% = $63/hour

Now, you can adjust your profit margins depending on several factors such as the industry situation, your skills and experience, your popularity, or if you know your client likes to negotiate like Donald Trump. (You usually put a much higher margin when your dealing with Donald Trump).

Target Return Pricing

The Target Return Pricing method works similarly to the Cost-plus Pricing method, but it takes into account your desired Return on Investment (ROI). Let's suppose you invested $5, 000 for your freelancing practice, where spent it buying a new kick-ass notebook computer, advertising in your favorite community website, and subscribing to Sports Illustrated (you figure web designers need recreation), and you are targeting one client per month. You also want to recoup your investment in one year. So how do you go about pricing your web design projects?

Since you are expecting one project per month, then you can calculate the amount you need to spread out in one year so that each project can contribute to recoup your investment:

$5, 000 / 12 months = $416.67/month (Target Return)

This means that you need to profit $416.67 for each project for one year so that you can get your ROI in the period that you want.
Since you already know your base cost from the previous pricing method, we need to add it to our target return:

$420 (Base cost) + $416.67 (Target return) = $836.67 (Price you will quote to the client)
Alternatively, you can come up with your hourly rate based on the assumption that it takes you 12 hours to complete a project:

$416.67 / 12 hours = $34.72/hour (Target Return)

$35 (base hourly rate) + 34.72 = $69.72/hour

Obviously, this method works when you have invested on equipment, advertising, or any other items that helps your freelancing practice. If you haven't spent a single dime in your projects, perhaps other pricing methods are more appropriate.

Value-based Pricing

Value-based pricing takes a different approach because the final price is rests not on you, but on your client. Instead of extracting the price you will tell your client from your salary, your hourly rate, or your desired profit and return, you will take a cue from how much value your client puts on the benefits of the website you will be building. Yeah, it's a bit less proactive than the previous two methods, but it has the biggest potential.
Let's imagine that your client is book publisher and they want a website to sell their latest release, a sequel to a successful teen romantic novel about vampires and werewolves (What cool novel doesn't have vampires and werewolves these days?). The book costs $15 and they're expecting a boost in sales because of the movie version of the first novel is coming soon. You estimate that the new website that you will design will get a monthly traffic of 1, 000 visitors per month for the first year, with a conversion rate of 1%, or 1% of people who visit the site will buy the new book:
Let's calculate the estimated amount of sales the new website will generate for your client:

1, 000 visitors/month X 1% = 10 visitors buying the book per month
10 visitors X $15 per book = $150 book sales per month
$150 / month X 12 months = $1, 800 book sales for 1 year
As you can see, you estimate that the website could generate $1, 800 for your client, yet you only need $420 to break even. With knowledge of the benefit your client will get from the website, are you going to bill your client a price in the vicinity of $420? Of course not, except maybe when you have a handshake deal after four shots of tequila .
You can bill your client $900, and present that they'll be getting a 100% return in one year. You go home happy with a deal in hand, then that's the time you go on drinking your four shots of tequila in celebration.
The challenge with Value-based pricing is that most of the time, you have little or know information about the benefits your client is getting for the website or service you will be providing them. So this entails a lot of research and business intelligence on your part to find that valuation.

Psychological Pricing

Psychological pricing plays on your clients' perception of a good, fair price to what you are offering. This method is the easiest to use because there are really no hard and fast rules in setting your price.
An example would be pricing on what your client thinks is "fair." If he has contracted a different designer in the past and that designer charged $800, that price may be a glass ceiling you'll be forced to work with because to your client, he is not willing to pay $800 for more for a similar product or service.
Another example is your positioning relative to your competition. Suppose your value proposition is your cost advantage and the industry average rate is $700 per project. Since you want to strive to be on the lower end of the cost spectrum, you can charge $650 for your project. Heck, you can even charge $699 just to maintain your "below the industry average" pricing scheme.
Psychological pricing is based heavily on your clients' perceptions and this presents a "hit or miss" proposition for you. You'll consult people, visit online forums, enter chat rooms, and join online poker games to find the price that you will set to your project. Yes, you are flexible in setting your price, but most likely, you'll end up experimenting with different prices until you hit the sweet spot.
Clients will always try to find the best deal, but you will often encounter that "best deal" is a term that differs from client to client. This could lead to frustration and stress eating, but as long as you adapt to your situation and do your market research, you'll be fine.

The Price is Right

Photo by ansik

There's really no one right way of how to price your web design services-- you have to take it on a case by case basis, while taking into account a lot internal and external factors like your experience and skills, the market situation, and even fuel prices.
No matter which method you employ, you ultimately want to get the right price for your project and earn the money you deserve. So the next time you are stumped with pricing questions from clients like Uncle Bob, you won't crumple in a fetal position and scramble for happy thoughts in your head.

Additional Resources

If you want to do more research on pricing strategies for your web design services, you can also refer to these resources:

How can I trust websites claiming paid work from home(filling in questiones,surveys)?How find in Australia?

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Does anyone know of any good paying work from home jobs?

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