Web Design Freelancers: The Psychology of your Rate
The question I get asked most from fellow freelancers is, “how do you determine your rate”? It is a tricky question with no direct response that is appropriate for anyone one person in any one area. There is a lot of that goes into determining a rate – a lot of personal questions need to be answered and a significant amount of research within the industry and area needs to be done as well. Or, you could just wing it and see how a rate is working for you and adjust accordingly. However there is one thing that many will ignore – the simple psychology of your rate.
I tried to put together a simple and quick reference point for freelancers confused about their rate or new to the whole environment in “Freelancers, how to determine our rates?”. However, I did get a lot of personal responses to the post asking why the rates were so low – I assumed people would be asking the opposite. Well the answer is easy, I took into account the psychology of a rate.
A lot of my close friends and colleagues place their rates between $75.00 and $150.00 an hour. Granted these individuals are extremely talented and have the portfolio and experience to match. I just can’t see justifying that high of a rate without coming across as arrogant or alienating many of my clients. But that doesn’t mean that I am making less money per project – I actually make slightly more. Because it has nothing to do with your hourly bill rate, it has everything to do with your clients’ comfort level with your relationship.
I’ve determined that the optimal rate for small to medium sized clients is $65.00/hour. It is slightly more than $50.00/hour, connoting some sort of value, and significantly less than $100.00/hour – I’ve found that anything close the breaking point of $80.00/hour is generally perceived as expensive and typically unnecessary. Clients generally have a point at which they will “work with you” because they realize they get what they pay for – however back-of-mind they also have a point at which they realize you are too expensive and negotiations will be uncomfortable and impolite. Don’t be naive, clients are doing the math and realize that a rate of $100.00 an hour comes out to be roughly over $200,000.00 a year – more than most are making themselves. And yes, unfortunately most are not taking into account that you are not constantly working a 40 hour week or just doing this on the side.
So how do I keep up with my colleagues charging $100.00 an hour when I only charge $65.00? It is simple; I play the psychology card and work on everyone’s comfort level. If I changed a client $100.00 an hour for 5 hours of work that is $500.00 – simple math. Instead, I charge clients $65.00 and hour for 8 of work which works out to be slightly more — $520.00. The thing I realized first in this industry is that clients will negotiate over a few dollars an hour but won’t over a few hours on a project. They are more concerned with the project rate and its cost than the duration of the project.
The simple fact is that most business people will assume they know how much they should be paying for your services, but have no idea how much time it takes you to do your magic. The clients that say “it should only take you …” are the ones you should be running from anyway. Now, don’t get me wrong – I am not conveying poor business ethics or in anyway proclaiming you mislead your clients. I simply suggest incorporating the idea of charging less for the opportunity and convenience of having a longer project duration. Longer project durations reduce stress, increase time for creativity and help alleviate the possibility of missed deadlines – all completely justified reasoning. Also, including this buffer will give you some negotiating room – if the client requests a fast turn-around, you simply explain that it is possible but at a raised rate. Let the client at that point make the decision.
I should mention that the psychology of your rate works both ways – know your client! If you have a large and established client, a small rate will leave them thinking you are inexperienced and unprofessional. Most larger corporations want to pay over $100.00/hour – it isn’t that they want to pay that, it is that they want to hire the designer demanding that. Larger clients know more than anyone that you get what you pay for, and they are willing and have the resources to do so.
Your rate is a personal thing – don’t take my or anyone else’s advice right on. You have to work out your rate for yourself. This post and others should be used as a reference point! Figure your rate out through trial and error – you may take some projects at less than you are worth and you may lose some gigs because you went to high; but that is the nature of figuring out this all important number!
- January 15th, 2007
- 43comments
- I am a proud member of the 9rules network
Manual “semi-trackback” concerning current web design research.
Rating clients should be carried out on a subjective basis tailoring to both your requirements and the clients. I feel If we make our services cheaper and everyone one else goes cheaper we are ultimately discounting and making our industry like a budget store. I hate it when even rich clients say “we want this as cheap as possible” Yet they are pulling in $100s of dollars themselves
Jens –> thanks for the link. Skimming it now and it looks pretty good.
Sci –> I feel you. It is a tough business we are in. On one end we are all competitors of one another and on another we are all working together. It is finding that balance that makes everyone happy and keeps all of our wallets fat; clients and designers a like.
Now we just need to figure out how to make our clients pay us on time.
KJ –> Good Luck!
You bring up some valid points, but I would like to see your process on determining the size of the client.
My hourly rate is primarily determined by deadline. Typically, the larger clients demand things sooner than the smaller ones, which is what determines their rate. I’ve always been terrified of my clients seeing that they are getting charged, and possibly discussing that with another client who is charged less. My only excuse at that time would be the deadline.
Sizing up the client can be tough. Everyone should be doing a little research on their client prior to submitting a proposal or having that first phone call. It is like an interview — you have to know where the company stands before you can begin negotiating money.
Usually you can tell a lot about a company from their website — try and figure out if they are a small, medium or large sized organization. Things that help with this are figuring out how many employees they have, how many offices they have, and if you can, try and figure out how much business they do in a year. The easiest thing is do you know of them prior — are they a “known” name? Some are obvious such as Sprint, ABC or Disney — you know they are large and have the pockets to pay.
However, even successful companies such as local law firms won’t be willing to pay for that they don’t understand. They may have the money to do so, but not yet the reasoning. You may need to work on these clients — start them small (and cheap) with the understanding to re-evaluate down the road. I usually go with the stance that there are two ways to go about it — the cheap way and the right way. Most business oriented individuals wil immediately want the value that comes from doing it the right way.
To start with, I fall somewhere in your first two categories in your linked article. I’ve got about 3-4 years experience, but not a fantastic portfolio (been mostly relatively simple pages for friends in bands, etc). I charge considerably less than most designers I know ($25/hr, occasionally offering a small discount to close friends and referrals), but that’s for good reasons:
1. I understand my experience and portfolio up to this point is not huge, fantastic, or widely varied.
2. I typically go after small clients that can’t afford huge invoices. Small mom-and-pop stores, local garage bands, one-man (or woman) operations. The kind of people that want a website (and know they want/need one) but can’t afford to go to a big design firm and shell out thousands of dollars for a complicated website when really all they need is a few pages to display prices and contact information.
Interesting points though. I may have to reconsider how I charge for projects, and whether it would be more worth my time to charge per project instead of per hour.
I usually prefer to bill on a project basis — I feel like you get more bang-for-your-buck on both sides and you alleviate the potential for client-side micromanagement.
If it makes you feel any better, I started off charging $15/hour and did that consistently for well over a year. But like you said, once my portfolio and client grew — so did my rate.
I enjoyed this article! How much to charge a client was something I had difficulty with, and managed to loose a client over! Won’t be making that mistake again!
Thanks.
Glad you like it — hope it helps!
“So how do I keep up with my colleagues charging $100.00 an hour when I only charge $65.00? It is simple; I play the psychology card and work on everyone’s comfort level. If I changed a client $100.00 an hour for 5 hours of work that is $500.00 – simple math. Instead, I charge clients $65.00 and hour for 8 of work which works out to be slightly more — $520.00.“
Is that to mean you could have done the job in 5 hours?
Yes. I could have done the job in 5 hours — but am charging a reduced rate for the opportunity of an extended timeline — which keeps the project total the same as if it had been faster. This way you get a longer timeline — which creates less stress, leaves open opportunity for creativity and alleviates the risk of a missed deadline.
“if I changed a client $100.00 an hour for 5 hours of work that is $500.00 – simple math. Instead, I charge clients $65.00 and hour for 8 of work“
If I’m understanding correctly, what you’re saying is at least a little disingenuous if not unethical. Are you saying that you charge a lower rate but up the hours to make up for it? I.E. you bill for 8 hours on something that took 5 hours of work.
I’m in a different line of work but I agree with charging on a project bases. I have a set rate and I use that as a basis for my estimates but I estimate the total cost of the project and I stick to it (baring scope changes). In that way, I and the client don’t have to watch the clock. It almost always works out to the client’s benefit. I’ll do a better job/more work because I want to do it right and I don’t worry about extra time I spend on the project. Unless, of course, it’s significant, in which case I’ll discus it with the client before doing it.
I don’t do much freelancing web work but the handful of projects I have determined the requirements for free and quoted then built it for a negotiated but set price. I could then calculate from that a per-hour but it’s not the same thing as charging per hour and keeping detailed (and disputable) time records. I know and design into that process that client’s will change their mind as it shapes up but unless it’s significantly different (like add a store front to what was an info site) I haven’t had to re-quote a new price.
Getting the sense you didn’t read the entire post — I explain the opportunity for both sides in this situation and explain how this is not unethical.
“Now, don’t get me wrong – I am not conveying poor business ethics or in anyway proclaiming you mislead your clients. I simply suggest incorporating the idea of charging less for the opportunity and convenience of having a longer project duration.“
I am not a consultant but I hire plenty of them as needed. I agree with your assessment. Someone who charges $50/hr is not, in my perspective, less talented … they may have less work at the moment, they may want to establish a relationship, or a few other reasons.
Someone who quotes me $150 an hour doesn’t care about my project. Now, I recognize that none of you really care about my project but that’s the psychology aspect. I have never paid $100 an hour and won’t any time soon. In most cases I don’t even consider someone who doesn’t bid by the job rather than the hour.
“Someone who quotes me $150 an hour doesn’t care about my project.“
You can’t be serious? Chances are the person who is charging that much got to that place because they cared so much and clients realized that and thus supply/demand came in to play and they were able to raise their rates.
That’s a foolish, blanket statement.
“That’s a foolish, blanket statement.“
The good news is, you and I now know we never have a reason to do business together, right?
“The good news is, you and I now know we never have a reason to do business together, right?“
Haha, very true. :)
I agree with you Josh — You can’t make the blanket statement that a higher priced freelancer “doesn’t care about your project”.
I think we all care, and those are of us charging the higher rates (and deserve it) got to that level by caring about our clients and their projects. I personally attack all projects as if they are mine — I don’t believe in one-off clients — I believe in working towards creating last relationships. Word of mouth and client referrals are where most of my business comes from — that is developing through caring.
Then here’s a simple question I pose to anyone who’s not a designer/developer, but rather to those who hire us.
Would you rather hire/contract someone who charges by the hour or by the project?
I probably shouldn’t be answering to this, because I’m a developer, but I’m sure the ones hiring would rather pay for the project.
My problem is that I almost always underestimate the time needed to make an application, and if I was charging by the project, I would end up not making as much money (or loosing), even if I think about some unexpected situations.
Hourly is the way to go, but as expressed here, has to be a reasonable price, based on your experience and knowledge, and has to be fair for both sides.
I like knowing how much others charge, so I’ll share my rate: anywhere from $10 to $75 an hour, depending on the client and the project. I mostly work on PHP, MySQL, CSS, XML, HTML, JavaScript (AJAX), and some basic graphic design.
“My problem is that I almost always underestimate the time needed to make an application…“
Umm…then maybe you should start estimating more time? I realize that sounds simple, but seriously…if somebody wants a project-based fee let them know that they will most likely pay significantly more as you have to over-estimate the work to be safe.
No, I think you need to be more accurate in your estimates. Regardless of how you invoice, it should be fair to both parties. You should not have to charge significantly more one way or the other.
If you run into issues that cause you to work more hours than you expected, first you must ask is it due to your lack of knowledge/experience/expertise - in which case, eat it - or is a situation beyond your control - in which case, discuss it with your client and, hopefully, work out an equitable solution.
Fees ranging from $10 to $75 - you’re either giving some people a really great deal or you’re significantly over charging someone. I can see having a flexible rate, but if I’m paying you $75, I’m going to be really upset if I find out someone else is paying only $10.
As for project vs hourly, look at it as if you’re hiring a contractor to work on your house. Would you agree to an hourly rate when you have no idea how long it should take or do you want to know how much it’s going to cost before you agree to the contract?
I’ve worked both sides of the fence - hiring contractors/consultants and being a consultant. When done right, I prefer project basis either way.
Last thought - even if you’re not making as much as you can because you’re putting in more time than you thought, you have to keep in mind you’re building trust and reputation. If you regularly invoice significantly more than you estimate, you’re clients will know this and they won’t trust your estimates (or you).
Martin, I don’t get your explanation. You’re doing 5 hours of work. Elapsed time shouldn’t matter. If you do it all at once or you work 1 hour a day over 5 days, you’re still doing 5 hours of work.
What you’re saying is that you advertise to your clients a fictitious rate because you bump up the end cost by tacking on hours.
I simply suggest incorporating the idea of charging less for the opportunity and convenience of having a longer project duration.
But you’re not charging less. In your example, you’re charging $20 more.
Kevin –>
It is like doing the dishes. I can do them in 5 minutes or I can do them in 15 minutes. If you want it done in 5 minutes - I am going to charge you more for the inconvenience and the added stress. It is an up-sell charge for the added benefit for time for you.
However, if you let me take my time and allow me to take 8 minutes (granted you are being charged for the additional 3 minutes) — then I will significantly reduce the rate per minute. So, over all you are paying more for the project but less per minute. The client however is going to be much more comfortable to know the dishes will without a doubt be done on time without a risk of delay and feel more comfortable that every dish will be clean and spotless. The client could pay a higher rate per minute and have their dishes done faster — they do run the risk of having spotted glasses or potentially a cracked dish. Do you really need your dishes done in 5 minutes — that is can’t wait 8?
This is not about misleading a client — it is about rethinking the way you charge and what you charge for. Instead of knowing it takes an hour to design a site — know the opportunity cost to you and be willing to up-charge or offer a reduced rate in to increase or decrease that opportunity cost. My point is simple — more clients will go for the reduced rate — caring more about the rate and not taking into account the project total. It is a all psychological. $100/hour an just scares the hell out of people. Offer then half that with the benefit of not scaring them, getting some extra time on your bhave and having an increased project total — almost a win-win all around.
I still disagree. The problem, many times, with project-based billing is that either A) a client completely kills you because of scope-creep and you hardly make a dime or B) your contract is so filled with “we’ll only do this” so that you DON’T get screwed, that the project never sees it’s full potential.
Who knows though, I guess it really comes down to personal taste. The firms I’ve worked at always billed hourly and once I went solo I tried both project and hourly based billing and found hands down that hourly-based left me with a happier client.
The guys at Blue Flavor have a great article on the subject.
Frankly, charging a lower hourly fee gives everyone a chance to relax about getting the project right.
I’m not stressed out trying to be miracle boy and hitting absolute, mind reading perfection on the first try. The client isn’t worried about making changes and adjustments while watching the clock.
I think everyone benefits from reasonable rates. And yes, rush charges do apply.
I’ve been walking out the door to travel across several states to be home for the holidays and stupidly answered the phone. The clients happily payed dearly for delaying my departure.
Well said koozebane! My point is that this is a win-win for everyone and you actually end-up making more money per project.
I mean come on, I am telling you how to make more money on a project and make the client happier and more comfortable than charging less for a shorter deadline — how is their an argument?
Martin,
As I owned a web design company for 5 years we approached it from a different perspective and never charged by the hour but rather by the project. When we first started our clients were smaller and we charged $500.00 for the first page and as we all know that’s where the work is really done. Before we sold it we were charging $10,000.00 for the first page design alone, respectable but really worth it wonce we had designed several databases that we tacked on for about $5,000.00 each. Once designed it only took our software guys about 30 minutes to install an already developed database.
The other point is absolutely the clients you chase down, the bigger the better, smaller clients will whine about every little charge, larger clients have an approved budget to begin with you just have to help them decide what that budget should be otherwise they’ll spend their wad in the first 6 weeks of the year and they’re a wasted client until next year.
Have a good one,
Forest
Two simple questions;
1 - Are your clients aware that you could have done the job in 5 hours?
2 - Are you consciously making sure the project takes 8 hours?
a3dmofo –>
Are you nuts? I think most of us know we “could” do it faster — but are you trying to burn yourself out? I “could” design a site in 20 minutes — should I? Would you want me to if you knew you would get a much better result if I took 4 hours? This isn’t just about time allocation — it is about quality of work. My work is of a much higher quality when the duration of the project is longer. I don’t suggest or recommend on forcing yourself into a high-pressured, rapid pace project — you will stress and your work will show. I tell the client my availability and we work with their schedule — the client doesn’t determine my availability. You would go crazy if you let that happen.
To answer your second question — I do everything in my power to ensure the project is completed within the estimate time budgeted for completion.
Lets not get into a back-and-forth here with you trying to pin me into a corner and prove some sort of unethical behavior. I am explaining the psychology of your rate — it has to to with reality, not with being mislead.
One could make the argument that by not showing your full breath of work on your portfolio (the good and the bad) you are being misleading. Why only showcase your best work — that isn’t an accurate representation of your cumulative work. We show are our best work because of psychological factors as well — it is what we know will impress the client most. Do we come forward with our mishaps and mistakes, of course not — we focus on our successes and best efforts.
I usually end up with project billing because of the type of clients I’ve had. They have been small start up solo proprietorships and half were even side hobbies turning slightly more serious but not full time. They all thought they needed a web page to be a real business yet had very little budget (but very little requirements). Since they all had no idea what they want or how to even evaluate it I give them a simple clean design cheap as a package type deal. I spend most of my time being a consultant not web designer, explain the basics of internet marketing and guide them to more information, what hosting is etc. In the end a few want to go ‘pro’ and I send them on to firms like Martins :)
I don’t make big bucks in this niche but I enjoy the type of people I work with and the fun atmosphere.
No, I’m not nuts, and of course we could all do something faster, it is a balancing act. I’ve said, I understand your argument, and I don’t think you’re 100% off base, but I do think the way your presenting it comes across as, “I’d like to charge $100/hr, but I can get more clients at $65/hr. So in turn, I’m going to make a 5 hour project, into an 8 hour project, so I still make the same money.” That’s how you’re coming across, and I seem to not be the only one who sees it that way.
Now in your mind that’s good for everyone because the client ends up with a better project, and you made the same money. And while I agree clients get scared of a rate like 100/hr, in the end, the two questions they’ll still have regardless of rate are, how much will it cost me at the end, and how soon can you get it to me. The conundrum of our business is we want them to care about the quality just as much as we do, but the truth is most of them don’t. The balancing act comes in trying to find what works for everyone. Your method seems to be only what works for you, and disguising that from your clients.
No, I’m not nuts, and of course we could all do something faster, it is a balancing act. I’ve said, I understand your argument, and I don’t think you’re 100% off base, but I do think the way your presenting it comes across as, “I’d like to charge $100/hr, but I can get more clients at $65/hr. So in turn, I’m going to make a 5 hour project, into an 8 hour project, so I still make the same money.” That’s how you’re coming across, and I seem to not be the only one who sees it that way.
Now in your mind that’s good for everyone because the client ends up with a better project, and you made the same money. And while I agree clients get scared of a rate like 100/hr, in the end, the two questions they’ll still have regardless of rate are, how much will it cost me at the end, and how soon can you get it to me. The conundrum of our business is we want them to care about the quality just as much as we do, but the truth is most of them don’t. The balancing act comes in trying to find what works for everyone. Your method seems to be only what works for you, and disguising that from your clients.
a3dmofo –> Not actually implying you are “nuts” — I completely see your point and thank you for your comments. I am actually rather surprised this post is getting so much activity, but love it!!
I agree that a client will want to know how much the total project is going to cost and how long it is going to take. To one point, I am only talking about adding a small and seemingly insignificant amount to time to a project, increasing 5 hours to 8, or 5 days to 8 days — yes it does get problematic as you increase 5 months to 8 months; but it is all relative. Most of “my” clients won’t mind waiting an additional 3 hours or 3 days for a reduced hourly rate.
To your other point — your hourly rate is what gets you in the door. Most people won’t even meet with you if they perceive you as being “too expensive”. Getting in the door is usually 80% of the battle. If they agree to meet with you or speak with you on the phone, all that is left is having your confidence and portfolio speak for itself. I’ve had to many potential clients not even give me the time of day because my rate was too high. With a $65/hour rate and what I consider to be a strong portfolio, I have no problem “getting in the door” anymore.
O.K. Martin, I’m starting to buy into it but still have some difficulties.
What’s key here in your explanation is that between the 5 hour job and the 8 hour job, you’re not actually doing the same job. That’s an important point. In one, you’re doing a better job, putting in more effort.
However, what I would say is that when I do the dishes, the way I do them, it takes me 10 minutes. If you (the client) have to have the dishes done faster, I either have to cut corners (do a sub-standard job, fewer minutes) or work off-hours to get it done in time (it still takes me 10 minutes but I’m charging more because I’m working through the night to do it).
“However, if you let me take my time and allow me to take 8 minutes (granted you are being charged for the additional 3 minutes) — then I will significantly reduce the rate per minute. So, over all you are paying more for the project but less per minute.“
Here in lies the problem. I don’t really care that I’m getting charged less per minute. I’m being charged more for the project.
Kevin –>
My “advice” might not work for everyone with every client. My point is simple, most clients care more about the hourly rate than all else (assuming you have a solid portfolio that initiates the conversation).
So, adjust your working methods accordingly — do whatever you have to do and justify it so that you can bring down your hourly rate. My hourly rate is $100/hour — but I am having a hell of a time getting many clients to pay that. So, I’ve changed my methods a bit all in an effort to accommodate the client.
While I agree that logic suggest that most people want to know the project cost as a total — I’ve found that having a high hourly rate can keep you from even getting to that conversation. This is a psychological method to get the client to be more comfortable with your rate — I just had to adjust my working schedule to accommodate.
Good article and it’s pretty much what I do when I estimate. I look at the “istics” - optimistic, realistic, pessimistic - and determine from those three numbers what risk I’m willing to tolerate (and that all depends on the size of the project, what is known/unknown, and who I’m working with).
Although I say I prefer working on a project basis, I still come to an estimate based on hours and rate. If the client asks, I’ll show them how I came up with the estimate.
With large projects I may approach it with the client as two projects. The first being a requirements gathering project to produce the specifications for the second. Then I quote on the first phase which will produce a quote for the second phase.
I think it’s extremely important to understand what will and what won’t be done. It is the only way to fight scope creep. This isn’t always easy, but it’s important.
I’m not very flexible on my rate. I see it like you’re buying hours (my inventory) and my hours have an associated cost. I don’t care if you’re hiring me to sharpen pencils, you’re still buying hours.
Where I am flexible, and why I prefer project billing, is with my hours. If I’m in the midst of a project and I know I can do something better for the client but it will take me a couple of extra hours, I’ll just do it. If it’s going to take a significant amount of time, I’ll present it to the client giving them the option (”this wasn’t in the plan, but I can do this for an extra $x. Here’s why I think you might want it”).
I even had one case where I did a significant amount of extra/unplanned work (over a weekend so I didn’t discuss it with the client). I then invoiced the client but I explained that the extra was at their discretion. Meaning that they were not obligated to pay it but I hoped they would appreciate the value of what I did.
They did and they paid me. People appreciate honesty and good work. When they saw they results, they realized it was worth the additional expense.
Of course, not everybody would pony up. You have to know who you’re working with.
Having said all of this, my consulting is more in management (IT and other), leadership and performance. I still do some development but that’s more fill-in work than anything. Admittedly, most of the development work is billed on an hourly basis.
Appreciate the comments Kevin — I like your take on taking the “istics” into account; I am going to have to use that.
I think the rate depends upon your portfolio …….
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