It's time to raise your design rates.
You heard me. Whatever you've been charging per hour I'm telling you that you're worth more. So close this page and go raise your hourly rate and forget about reading the rest of this article. Unless you’re sceptical that is. In that case feel free to read on.
Raising your design rates is a tough decision
One of the hardest decisions we make as designers is how much to charge for our services. I can't tell you how much your design rate should be. Only you can decide what your worth. You need to base your prices on Location, skills, experience, equipment, overhead and many more factors. Eventually, you'll come up with a rate. It's probably too low, but it's a start.
Once you know your hourly rate what are you suppose to do?
Maybe you keep your hourly rate secret and quote your clients flat rates based on the scope of each job. In order to come up with that flat rate you first determine how many hours the job will take. You probably pad in a few extra hours for unexpected issues. Ok, whom am I kidding, there are almost always issues so there's nothing unexpected about them. You then determine the final price by multiplying the time by your hourly rate. Voila!
Perhaps you're like me and disclose your design rate to your clients. You either quote them a time up front or if you're lucky, you bill them for the actual time you spend on their project. Scope be damned. They want to make a dozen revisions, let them. They're paying you by the hour. If you quote a time and it doesn't take that long, you could reduce your bill accordingly. Should the scope of the project change along the way and it takes more time than you anticipated you could advise your client of the extra charge.
Either way is an acceptable way of running a design business. Once paid you can rejoice that you made $50, $100, $200 or whatever per hour your rate is. But as I said earlier, whatever that figure is, it isn't high enough.
If you don't raise your design rates you'll lose money over time
You may be wondering how you could lose money if you don't raise your design rates? The answer is simple, technology. As technology advances, we become more efficient. I remember a time when adding a drop shadow to an image required about 20 plus steps in Photoshop. More if it didn't turn out the way you liked it the first time. Depending on the speed of your computer it could take upwards of 10 minutes to complete the task for one image. Then computers got faster and software got smarter. Now you can add a drop shadow to an image in Photoshop in less than 5 seconds. When you take that in perspective a task used to take 10 minutes earned you $5 for each image you added a drop shadow to (based on a $50/hr. rate). With newer and greater technology that same task now earns you $0.07 per image. Makes you think, doesn't it?
Building websites has sped up as well. Coding a website from scratch takes time. If your client wants a special feature it could take several hours to code, test and implement the feature. However, if you're building a WordPress site and need a special feature, chances are you can find a plugin that handles it. Should you be loosing money because it took you 30 minutes to find, install and configure a plugin as opposed to several hours to code the feature by hand?
You need to remove something from a photo? You need to convert a bitmap image to vector? Heck, you need to create a PDF file? All these tasks used to take time and require several steps. Not anymore. The advancements in technology have made these tasks simple and efficient. But it's also cut into your billable hours. The easiest way to combat this is to increase your hourly rate.
Stop stalling. Now's the time to raise your design rates.
As I'm writing this there are only a few months left until the New Year. This means now is the perfect time to start raising your rates. As you quote new jobs base your prices on the start date. If you start the job before December 31st feel free to charge your old rate but everything from January 1 on should be billed at your new rate.
Raising your design rates is scary, I know
I know raising your rates is a scary thought. How do you tell your clients? Will they go elsewhere? Will you lose business? There are so many things that go through your head at the notion. But let me tell you a secret. If you're a good designer, you won’t lose business. In fact, even if you do lose some clients, and again, you probably won't, your new rates will more than make up for it with your remaining clients.
To alleviate your concern let me tell you some of the pros and cons of raising your rates.
Let's start with the cons
- You could possibly lose some clients. This may sound like a big deal but you'll see below why it really isn't something to worry about. Besides, any client that leaves you over price, wasn't really a good client to begin with.
That's pretty much it for the cons. I even Googled the topic to see if I was missing something and nothing came up. There are no other cons to raising your rates.
Let's move on to the pros
- You may attract more upmarket clients. There's a reason why high priced auto repair shops are always busy. Joe wrench down the street may charge a fraction of the price and yet he's struggling. That's because people believe they get what they pay for. They are willing to dish out more money because they believe they are receiving better service. The same principle applies to design clients. The more they pay the more value they'll see in the design.
- Clients that can afford your higher prices are more likely to have continued funds available for future projects. I always worry when a startup comes to me with $1,000 to develop their marketing material. On the other hand, a startup that comes to me with $10,000 will probably be sticking around for a while and have more work for me down the road.
- You will be viewed as a more influential designer. Is that high priced lawyer really that much better than the public defender? Perhaps, perhaps not. But regardless, which would you rather have representing you?
- You can compete with designers who charge more. More on this later.
- And let's not forget increased profitability. It's simple math. You provide the same services you always have, charge your clients more for them, your revenue increases.
So when you look at it, the pros drastically outweigh the one con. And remember, increasing your prices does not necessarily lead to fewer clients and loss of income.
Time for a coffee break
Let's look at Starbucks as an example. I'm not a coffee drinker, but I can appreciate this analogy. When you average out the price of a regular coffee, Starbucks is expensive in comparison to other coffee outlets, and yet millions of people stop there each day for a jolt. Is Starbucks coffee that much better than everyone else’s? Not necessarily. Could coffee drinkers find a less expensive cup of java elsewhere? Absolutely. So why do so many coffee drinkers dish out a few bucks each day when they could just as easily stop at the gas station and get a cup for fifty cents. It all comes down to perception. Starbucks is a classier establishment and people are willing to spend a bit more for their products.
When Starbucks raises their prices, as they often do, do they lose clients? Undoubtedly. But the fact is they don't care. The earnings from their remaining loyal customers more than outweigh the loss of revenue from those they lost. You should take on a Starbucks attitude with your design business.
Not convinced? Let me break it down for you mathematically.
For the purpose of this scenario let's say you have 15 regular clients. Each client gives you 2 hours of work per week for a total of 30 billable hours at your design rate of $50/hr.
30 billable hours (15 clients x 2 hours of work) X $50/hr. = $1500 per week
Now let's say you raise your prices by 20% to $60 per hour. In doing so you lose 2 clients, a much higher rate than would be expected. Let's look at the math.
26 billable hours (13 clients x 2 hours of work) X $60/hr. = $1560 per week.
What? All that stress of raising your prices and all you get is a lousy $60 more per week? Is it worth it?
Let me answer you by saying yes, it is worth it. Realistically no designer has a bunch of clients that give him or her an equal amount of work each week. Most of your business will come from a select few clients and if they are happy with your services they will continue at the higher rate. You're more likely to lose the smaller clients that only give you work from time to time.
Even if the above scenario was real, you would now be earning slightly more than you were before but spending 4 hours less doing so. Imagine what you could do with those 4 hours? Reinvest them in your business by creating new marketing material you keep thinking about but never doing? Use the gained time to go out and network and potentially attract new clients? Heck, be selfish and take some time off. You're not loosing money after all.
In the pros above I mentioned how you could compete with more expensive designers. Let me tell you a story. When I left the commercial printer I had worked at for 15 years they were charging their clients $50/hour for my services. Starting my own studio I adopted their design rate as my own. I live in a small city and $50 per hour felt right. Financially I was doing very well at that rate and kept it for several years. I had some great steady clients but I really wanted to land a couple of big fishes. I kept submitting quotes whenever I received RFPs for large projects but I kept losing out to designers in Ottawa or Montreal (both cities are roughly 1 hour from where I live). I know for a fact that designers in Ottawa and Montreal charge a much higher rate than $50 per hour, so how were they beating my prices?
Doing some investigating I discovered that they were NOT beating my prices. If fact, for three of the lost RFPs I was able to discover that I was the lowest bidder. So low in fact that the committees selecting the designers didn't take my quotes seriously. In one case I was told the client had asked for four quotes. Three of them were all within a couple hundred dollars of each other and mine was almost four thousand dollars less. I was told the committee thought my low price was because I either didn't understand the scope of the project or I wasn't an experienced enough designer and had bid too low.
That revelation opened my eyes. Shortly afterwards I raised my rate by 40%. I was still charging less than designers in Ottawa and Montreal but my quotes were much closer and I started winning my share of RFPs. The larger companies I did work for took me seriously and I started being offered much higher quality projects to work on. I had landed my big fishes. In return, these new clients started referring me to their peers. Clients that approach me to develop their brand identity now have budgets in the thousands instead of the hundreds. I'm now developing corporate websites and not just small business sites. And I'm now working more hours than I was before and my bank account shows it.
Do you tell your clients or not?
One of the big dilemmas when you raise your rates, is whether or not to tell your clients. I chose not to tell my existing clients about my rate increase. On January 1st I just changed my rate in my invoicing program (Billings Pro by Marketcircle in case you're interested) and started invoicing at the new rate. Not a single client ever questioned the increase and I have not lost a single one of them. I only had one client contact me in December to ask if I was planning on raising my rate? She was filling out an application form for a grant request and wanted to know how much to put down for design work. Her reaction when I told her about the increase was “it's about time”. Seriously, that's what she told me. I had been working with her for years and she through I was underselling my services. She congratulated me for taking my business to the next level.
Now I don't necessarily advocate keeping quiet and sneaking the new prices on your clients. I'm just telling you how I handled it. If you feel you need to be upfront by all means inform your clients. To make it easier you could tell them the new services you may have incorporated into your business that merit the price increase. Or you could explain that you chose your rate because you were inexperienced and still learning. Now with several years under your belt you've decided to raise your rates to better reflect the high level of service you provide. If you've formed a good working relationship with your clients they will more likely want to stay with you regardless of the increase instead of starting new with a different designer.
It was two years ago when I increased my rates. I'm now contemplating whether or not to raise my design rates again in January. Not 40% like last time, but maybe $5-$10 per hour. I'm attracting more and more clients from outside my geographic area and want to compete on a larger scale. However, a designer's most loyal clients are usually the ones closer to home. I still live in the same small city and don't want to overprice myself to the local economy. Besides, I have a much lower cost of living than those in larger cities like Ottawa or Montreal so I don't need to charge the high design rates they do.
Time to take action
OK, I've talked enough. I'm hoping I've convinced you that it's time to raise your rates. You don't have to do a 40% increase like I did. You can start with 10%-15% if it makes you more comfortable but increase it nonetheless. If all goes well you can increase it again in 6 months or next year. You and your bank account will be glad you did.