Pricing Methods

As a business owner I have worked with different pricing techniques over the years. What I can tell you is that there is no magic formula that allows you to always use the same strategy for your pricing. It is therefore good to try the methods below for yourself and see when to apply them and for which possibility. This until you get the feeling yourself for what works best.

Price per Hour

For this first method you will work with a fixed hourly rate. This means that you actually get paid for every hour you spend on it. This is actually very easy. You simply keep track of all the hours and after completing a project you make an invoice and send it to the customer. I myself am not a big fan of using this method to calculate the price for your design projects. Time equals money, which is what I don’t like about this. Suppose your projects are reimbursed at a fixed hourly rate and as a business owner you have two designers in your team. One with a lot of experience and the other with less experience. In this case, both help you with the design of the website. Who do you think you can make you more money? That’s right, those with less experience. This is for the simple reason that as you gain experience, you will work much faster and consistently make the right decisions. This means that in the long run as an entrepreneur you can earn more money with an inexperienced designer than with an experienced designer. Or if you are a freelancer who, after 2.5 years of freelancing, can deliver faster and more value for the customer in a short time. In this case, you would then earn less for the same work.

You can apply this nicely when you are just starting out and your hourly rate is still low. You can then get hours under your belt and be flexible in calculating your time. It can also work well for small adjustments that last less than a day or in combination with a different pricing method. For example, you have made a design but the customer wants to adjust something that falls outside the scope of the project. Then you can indicate what it costs with an hourly rate to adjust it. To determine what your hourly rate should be. You can easily calculate this with one of the following calculators, freelance hourly rate calculator and here is another one.

Benefits

• You get paid for all the hours you spend on it.
• If new functions are added, you can easily do this at a fixed hourly rate.
• Works well for minor adjustments.
• If you are starting as a designer, it is often an excellent way to gain experience.

Disadvantages

• Clients don’t know in advance what the exact cost of the project will be €7.500 or €15.000.
• You need to keep track of all hours and communications for adjustments and new changes.
• The more experienced you become, the less you get paid.
• Can cause a disturbed relationship with the customer because it does not know in advance how long it will take you.

Day rate

With a day rate you use a fixed rate per day. That is when the customer pays you for a whole day and also books you for a whole day. You decide how quickly and for how long you want to carry out the work. And that automatically helps you find ways to organise your projects more intelligently, to take less than eight hours of work time. When calculating your price, it should not only be about how much time you put in (hours worked), but about what the result itself is worth to your customers. The advantage of a day rate is that it is clear what the scope is. Suppose the customer wants a design for a landing page and you indicate that it will take you two days and your day rate is €1.000, then it is clear to the customer what they will be paying. When working with a day rate you sometimes run the risk that the project will not be completely finished after these days. Customers often assume that after these days the project will be completely finished. It is up to you to monitor the scope well, for example, what about having to carry out multiple adjustments that fall outside the scope? Then, for example, you can clearly indicate that everything outside the scope is processed with an hourly rate. This is how feedback rounds can get out of hand, if you have not made proper arrangements about this beforehand. For example, you can say that you have 2 feedback rounds and that you receive feedback from 1 person during the project.

Advantages:

• The customer knows what will be paid to complete the work.
• If you can work faster, you have the advantage of more time.
• It’s easy for you to plan how long it may take you.

Disadvantages:

• You have to delineate the scope properly. This takes time
• What is included in the work and what is not?
• Revision rounds can get out of hand.
• You need to plan what you can deliver each day and be very productive.

Fixed project pricing

For this method you use a fixed price for your customer per project. The customer knows exactly where they stand in advance and that the project will be delivered completely, at the calculated price. I therefore recommend using this method, then working with a separate hourly rate when it comes to projects. It is best to calculate a fixed price by having a Kick-Off briefing completed in advance and then working out the scope of the project for this. This prevents you from having to deal with a customer who suddenly wants 25 pages during the project instead of 10 pages. If you have this in black and white, you can easily indicate this. This way, the customer also knows that this no longer fits in the scope of the project. If you are going to work with fixed pricing, it is best to do this by making a calculation based on your day rate + an extra value (%) on top, this is for the added value you create for the customer. Finally, you set the all-in price to make the project. You can then ask to invoice 50% for the start of the projects. This way you have the certainty that the project will go ahead. Make sure you have drawn up the scope well in advance, so if a page needs to be added later, the customer pays extra.

Benefits

• Great if you are efficient and consistent in your delivery.
• It works well if you have a lot of experience and can work quickly on schedule.

Disadvantages

• Revision rounds can get out of hand.
• Make sure the scope is clear otherwise, you can’t calculate extra work separately.
• Ensure there are clear expectations and agreements about what happens if the project does not go as expected.

Value-based pricing

Finally, value-based pricing is the most difficult when it comes to pricing your services as a web designer. But this method does mean you truly get what you are able to generate for a company in profit. However, I almost never use this method. It takes quite some sales skills to convince your customer to go for this option. And you also have to find the right customers for this, who have worked with this method before. In addition, you will also need to have insights into the business such as turnover and profit. You’re required to study the customer’s figures and be able to prove what it will actually bring them in terms of a return. But in practice this is often difficult. As such, I can’t recommend you start with this pricing model until you’ve tried the others. Suppose you do a redesign for your customer’s existing webshop for €15.000. Your design ensures that the user experience as well as the conversion rate is significantly improved. As a result, it now suddenly provides the customer with €100.000 more in profits after implementing your design. Now that investment of €15.000 suddenly doesn’t seem like that much anymore. I think every business would happily pay €15.000 in order to make €100.000 profit. The problem is often that you cannot guarantee an extra €100.000 in advance and that it is difficult to make it tangible. For this you need results from previous comparable projects and it requires good research and successful case studies. You can then try to convince the customer based on statistics. This is often a time-consuming task. If you want to know more about value-based pricing, I can definitely recommend a book on this subject written by Dan Mall, and an article he wrote here.

Benefits

• You get paid for what your design actually delivers.
• Works well with high-end companies.

Disadvantages

• You need to be well prepared and have statistics about the company’s financials.
• You need top sales skills.
• It is time-consuming and often difficult to make tangible to the client in advance.
• It takes a lot of time to read up and prepare.

Legend has it that Pablo Picasso was sketching in the park when a bold woman approached him.
"It's you -- Picasso, the great artist! Oh, you must sketch my portrait! I insist."
So Picasso agreed to sketch her. After studying her for a moment, he used a single pencil stroke to create her portrait. He handed the women his work of art.
"It's perfect!" she gushed. "You managed to capture my essence with one stroke, in one moment. Thank you! How much do I owe you?"
"Five thousand dollars," the artist replied.
"B-b-but, what?" the woman sputtered. "How could you want so much money for this picture? It only took you a second to draw it!"
To which Picasso responded, "Madame, it took me my entire life."
By Ellen Rohr

Get your money first

Always make sure that you ask for 50% up front with a price proposal to cover yourself and to have assurances in place if the project comes to a standstill. It is good to ensure there is a cash flow, throughout the year if you are an entrepreneur or freelancer, sometimes projects can come to a standstill. You’ll also often need to advance things such as copywriting or having photos taken. I’ve never experienced a customer not wanting to pay a deposit up front.

Key takeaway There is no magic recipe to always arrive at the right price. It takes a lot of testing to find out what works for different projects. It is good to try out what works for you. Each situation requires a different approach. For example, this can also be a combination of a fixed project + hourly rate.