Pricing Strategies for Creative Work

Excerpted from The Creative Professional's Guide to Money
by Ilise Benun
Copyright © 2012. Used with permission of HOW Books.

Is There a “Going Rate” for Your Services?

For most creative services, the short answer is “no.” It depends on so many factors, including geography, budget, timing, etc.

Still, many have tried to codify that information, and it’s important to be aware of what’s out there, especially if you have no other basis for beginning to think about it. There are a couple of guides that are updated regularly to give you a sense of general price ranges, especially The Handbook of Pricing and Ethical Guidelines, published by the Graphic Artists Guild. For more resources
on pricing, see the Creative Freelance Blog.

Keep in mind that what you find will only be “industry guidelines.” In relation to the specific clients you are negotiating with, the prices suggested may seem too high or too low for the work you have in mind. You can use these guidelines to demonstrate to your client why you are charging what you are, which can be effective. If not, you’re better off finding a price you can both live with, regardless of what “the industry” suggests.

How to Find Out the “Going Rate”
by Mikelann Valterra

Is there a going rate for your services? Does it depend on your location, your depth of experience, your credentials or years at work? Sometimes, but not always.

You should always have a sense of the “fair market value” for what you do. You must do some market research to find this out. You can’t guess. If you do, you’ll probably guess wrong and probably too low. Finding out what others are charging can be a revelation. It provides objectivity where none was before, where a vacuum existed before. And it will help you put yourself and your services in perspective. You will probably be surprised at how all over the map the prices are, which means there is actually no “going rate.” You’ll find people with less experience charging more than you. Or someone whose work you think is inferior charging twice as much as you (and sometimes vice versa).

As you do your research, you will inevitably find a range. In fact, a range is what you are looking for. Once you are clear about the general range that people are charging for your type of service, you will have a better sense of where you fall in the range and what you can charge. What if you set your rates on a day that you don’t feel very good about yourself and your work? Doing research helps you to be objective about your rates.

If you do find something that resembles a “market rate,” don’t think it will stay that way forever. Rates can and do change, so keep your eyes open to see how. New competitors and new technology can greatly affect the market rate. A downturn in the economy can cause people to discount their prices, so where you were once in the middle, now you’re at the top. New technologies like “crowdsourcing” may bring a flood of new, low-price alternatives to the market for your services, thereby threatening to devalue or diminish the value of yours, which means you either ramp up your marketing or adjust your pricing. Either way, it is important to stay in touch with what people are
willing to pay.

Don’t wait until it’s time to raise your own rates to find out what the going rate is. You should always know the range of what people are willing to pay for your service.

    Mikelann Valterra is a certified financial recovery coach and author.

How to Research Your Rate

There are people you can talk to and places you can go, especially online, to find out what others are charging and what you can charge.

Ask Your Clients
The best resource for pricing information is your clients and prospects. They are the ones actually paying the fees and will
know the going rate, if there is one.

This can be a delicate discussion, and it may not be appropriate to ask every single client. But there are probably a few with whom you have a strong relationship, who want to support the growth of your business and would be willing to share this information and perhaps much more. Do this over lunch or coffee (your treat!) and be ready with your questions to make it the most productive conversation possible.

Ask Your Professional Colleagues
If another creative professional approached you at a networking event, engaged you in conversation and asked you all sorts of questions about your business, including what you charge and what’s included in that fee, what would you say? Of course it depends on the context and the person, but Mikelann Valterra suggests that there is nothing wrong with asking that question of the people you meet, too. She recommends phrasing it this way, “Hey Janet, can you give me a sense of your rates? I realized that I don’t know.” It’s as simple
as that.

Even better, be the first to offer. Be generous with details about your own pricing and the thinking behind it, even about your struggle to determine those prices. You may find you’re not alone. And you’re likely to learn quite a bit from each conversation.

If you feel more comfortable asking colleagues you know
and trust, then find a small group you can join for the purpose of sharing information like this. And if you can’t find it, start that group or network for yourself, either online or off. Claims Valterra, “Not only will you gain a lot of valuable information by asking these questions, but you will gain a deeper understanding of [your colleagues’] business and know when and how to refer to them.”

Scour the Internet
If you’re looking for a less stressful way, you may be able to find some information online, although it may not be the most reliable source. A few of your colleagues or competitors might post a rate sheet, primarily to weed out the wrong prospects. Some trade associations make this information available as a benefit to their members, and some creative searching can turn it up. Try using keywords for the services you provide + “fee survey” or simply “rates.”

Options for Pricing Your Services

There are a few basic ways to price creative services.

Time-based. We’ve addressed pricing hourly, as many freelancers do and sometimes must. But for work that takes the
time it takes, like strategic consulting, or that doesn’t take less time the better you get, time-based options are worth considering. To make it worth your while, your hourly rate should be high and increase regularly with your growing experience and refined expertise.

You can offer short increments, fifteen minutes or a half hour, like lawyers do, or longer increments, such as a day rate, as consultants do. In fact, if you are looking to do more high-level, strategic work, it makes sense to try a consulting model and experiment with a day rate. If you’ve positioned your services well, clients will see the value and pay it. Project-based. As discussed, this is the most common way to charge and it’s especially useful when working with new clients. A project has a beginning, middle and end, which allows you to try a project with a new client to see what it’s like to work with them, how much hand-holding is involved, how long the approval process takes, etc. Then you use that information when pricing the next project or the next phase in a more substantial project. In project-based pricing, time is only one element; you also factor in your overhead and your profit.

A subset of project-based work is “phased projects,” where you price by phase. You can’t price Phase 2 until Phase 1 is finished, as Phase 1 lays out the steps and specifics for Phase 2. This is a useful solution to pricing problems that arise when trying to price a substantial project with many unknowns, especially web design projects that can easily morph out of control. Pricing the phases separately means you’re not locked into a price you devised when you necessarily knew very little, and it allows for lots of changes. The accumulated knowledge will be helpful in pricing later phases, and it will also help you avoid scope creep.

Package-based. More and more creative professionals are offering package deals, especially for clients with small budgets and, in particular, for web-related projects. A package price puts boundaries around a project that has no beginning, middle and end of its own. Whether you’re offering writing or design services, you can create a package with X number of pages, X number of revisions and a variety of features included, all for a package price. Anything over and above gets charged as extra.

Retainer-Based Pricing

For some creative professionals and firms, retainer arrangements are the ideal. The foundation of the agreement is that the client guarantees a certain volume of work over a certain time period. In exchange, the creative professional or firm completes that work for a fixed fee. This fee is usually based on hours accrued but can also be based on a set of deliverables.

Clearly, the steady cash flow of a retainer arrangement is a benefit—but when your fee is based on hours spent, be aware of the potential cost to your positioning. You may be perceived as just another vendor, instead of being valued as a strategic partner and for your experience as a creative. That’s why value-based retainer arrangements focused on deliverables—the scope of work done—are better for you. (Exceptions to that rule exist, of course, such as when you’re doing maintenance on a website.)

That’s one reason why retainer arrangements work best for strong, existing relationships. It can be a natural progression from project-based work with a client that values your work. Don’t try it out with a client you’ve never done business with, as you won’t know the subtleties of that relationship until you’re in it for a while. Spend six months, at least, working on a project basis first.

As for structuring a retainer arrangement, Emily Cohen says, “Retainers based solely on hours accrued are best used for implementation and/or execution-level engagements.” She suggests that a better way to structure a retainer, especially for strategic, conceptual-level relationships, is to define it instead against a scope of work. That way, it is based on value, not time, and negotiated on defined deliverables, not hours accrued. “You agree to complete X number of projects throughout the year and you get a monthly fee for that. So the ‘retainer’ is actually a payment plan for a scope of work. You can discount your rates if you like but you’re not going to return any money for time that is unused. And you accomplish your goal, which is steady cash flow.”

A retainer agreement is a commitment and should be no shorter than six months, but it can be a one-year contract that extends, if all is working well. Use the contract renewal milestone to discuss and modify the arrangement as needs change—yours and theirs. That, in itself, will help keep lines of communication open.

Retainer Q&A with Emily Cohen

Q: What is a retainer arrangement?
A: To a client, a retainer arrangement is when a creative professional or firm provides discounted fees in exchange for a commitment to ongoing work and regular cash flow. They usually expect priority attention and quick turnaround.

Q: What is necessary for a retainer arrangement to work well?
A: Retainer arrangements tend to work when there is open communication and clarity about what each side is giving and getting, as in any consensual agreement.

Q: What are the problematic issues to be aware of?
A: First of all, most retainers are based on a certain number of hours you allot to the client. But what happens if they don’t use those hours? Do you return them? Do they roll over? And if so, for how long? All of this needs to be discussed and negotiated. A trial period can help, where you agree to something, try it out for three months, then assess and discuss whether adjustments need to be made.

Q: What are the benefits to the creative professional?
A: It’s a bit less paperwork and time saved because you don’t have to spend hours working on proposals. That will often justify the discounted fees.

Q: Any best practices?
A: You should keep (and submit to the client) a summary of what has been accomplished each month. These rrangements have lots of gray areas, so they need to be entered into seriously, with clear guidelines and processes for regular and clear communication.

    Emily Cohen is a consultant to the creative industry.

Sample Retainer Arrangement

Sharon Bending, of Chicago-based Bending Design, has retainer relationships with a few of her clients in the financial services and association industries. Here’s how she structures them:

• Time frame: The client must commit to a minimum of six months and a minimum of ten hours per month. Any
  less than that and it’s hard to get anything accomplished; you’ll spend more time checking your time than getting work done.
• Payment: We agree to a set number of hours ahead of time and they pay that full amount before the month
  begins because I have to set aside those hours. The client is charged an hourly rate, which is a benefit because normally we charge by the project.
• Prioritizing the work: I set the schedule of work as much as possible in a weekly call to review priorities. Otherwise
  they are likely to throw work at us and expect everything to be done at the same time.
• Reporting: They get a report of the hours, including descriptions, at month’s end so they can evaluate if they need more. (I don’t even think my clients read this, but they feel better knowing you are doing it.)
• Overage: If we are running close on hours, I let them know, and I always get their permission before going over.
  If we go over on hours, they’re billed at a higher hourly rate.

A Word About Markup
It is customary in business to charge a markup, that is, an additional fee for outside services you purchase for a specific project. Unfortunately, many creative professionals don’t feel comfortable charging this fee or fear their client won’t agree to pay it.

The rationale behind this markup is sound: When bringing outside resources to a project, you use not only your skills and talents but also your time, expertise and your existing relationships with vendors, for which you need to be compensated, not to mention the time required to negotiate the services needed, then to manage that aspect of the project. You should not be doing that for free.

Creative Business newsletter has surveyed subscribers and found that, “markups on most outside items and services (delivery charges, service bureau fees, other creative services and miscellaneous materials) range from 15 to 30 percent, with the single most common markup being 25 percent. Markups on printing, however, are often an exception due to higher costs and greater risk.”

Track Your Time to Calculate Profitability

No matter how you price your work, time is a critical factor, whether you reveal your hourly rate or not. So it’s essential that everyone’s time is tracked, from principals of creative firms to all interns and freelancers. Not only will this help calculate accurate profitability, it will also make staff- and process-management much clearer. Instead of guessing who’s doing what in how many hours, you’ll know.

The stumbling block, of course, is making people do it, including yourself. It can be challenging to develop a timetracking habit, but that’s all it is—a habit. And there are many handy gadgets and cool tools to make it practically painless, but you have to use them.

If you do track your time, here are the benefits as outlined by Emily Cohen: “Time should also be recorded daily for improved accuracy; weekly time tracking is ineffective and ultimately just a guess. A firm that calculates profitability based on accurate time tracking and realistic hourly rates is better prepared to:

1. keep historical financial records for past projects that can then be used to determine pricing for future projects of similar value, scope and complexity;
2. identify profitable relationships and projects;
3. identify and eliminate unprofitable relationships and
   projects.”

Perfectionist, Heal Thyself

Creative professionals are notorious for over-servicing their clients. You love the creative process and want to do your very best—it’s a point of pride—so you finesse every last detail and stay up way too late to finish a project. A common way to lose money—especially if you are a perfectionist—is to spend too long on projects that don’t pay enough.

Unfortunately, most clients can’t tell the difference between mediocre and excellent design. That’s why you must know when you’ve spent the allotted time, when what you’ve produced is “good enough” and when it’s time to move on to the next paying project.

Going the extra mile once in a while, whether the client notices or not, is fine and can even add value to your business. It’s very gratifying when clients recognize and appreciate the polish you bring to your work, especially if that appreciation comes in the form of a premium fee. But if you’re regularly spending 20 percent more time on every job—which you’ll know if you track that metric—it may be time to rethink things.

Raising (and Lowering) Your Rates

Prices go up but hardly ever down. So it’s expected that where your prices are today isn’t where they will stay forever. But many creative professionals are still charging the same prices as when they started, or not much more. Are you?

If so, it may be the fear that your clients just won’t pay one penny more than they currently pay. That may be the truth for your current crop of clients.

It may also be that you don’t know how or when to raise your prices. Here is one approach.

Ideally, you should be earning more every year, not because you are so wonderful that you “deserve” more, but because you are perfecting your craft and learning more every year. Therefore, what you provide is worth more. As your business grows, as it naturally will, you evolve from one type of client to another, from one type of project to another, constantly reaching for better (sometimes bigger) clients and projects. That means you grow out of current clients and reach toward better ones. Leaving behind what doesn’t fit anymore is a natural part of any life cycle.

With this mind-set you can consider each new client an opportunity to raise your rates—just a little. Add 5–10 per cent to what you charged last time for a similar project and see what happens. Try it as an exercise. This way, no existing client is affected by the increase but—all things being equal—you get the benefit of earning more every year. It’s a flexible way to price, especially if you’re just starting out, when you’re likely to price too low anyway. Get in the habit of doing this and it will become easier each time. (One caveat: If you’re not organized, it can become complicated, as you have to track what you’re charging to whom.)

Raising Your Rates With Existing Clients

Don’t worry. This approach doesn’t mean that you have to give up the “old” clients you like. Some will stay with you and those who do will need to be trained to expect an increase, perhaps every other year or according to other milestones. For example, certain seasons or times of year are conducive to change and can be used as a catalyst, such as the new year. Anything new, for that matter, can serve as a justification for increasing prices: new company name or business structure, new office, equipment or employees.

You can move long-term clients slowly and incrementally toward a higher rate. What’s important is setting the precedent that things will change—the specific change is incidental. So even if the increase is miniscule, what’s important is that it takes effect.

Or you can suggest a different type of working relationship with an existing client. For example, if you’ve been working hourly to date, you can suggest moving to project-based fees. When you modify or upgrade your services is a perfectly logical time to increase prices too, especially for existing clients. Offering new services is like a new beginning. It creates a new mind-set, especially if you position and promote it that way. Old rules no longer apply, and the result is much less pushbackfrom existing clients.

Often, in fact, negative reactions to higher prices are a result of how they’re presented, not the prices themselves. Always give clients plenty of advance notice that something new is coming up. Give them details about how they will be affected. Give them time to respond and an opportunity to provide feedback.

Inevitably, some clients will fall away as you increase your prices, while others may decide to stay on because the value you provide is greater. You also might be tempted to use a rate increase to get rid of clients you actually want to fire. This is not a great strategy because it doesn’t always work. They may just accept your increase and then you’re still stuck with them.

Instead, it’s better to advise a client that your business is growing. You don’t need a lot of explanation. Emily Cohen suggests saying,

That way, you don’t abandon them, but you aren’t tethered to them for the rest of your days. This is also something that gets easier with practice.

Lowering Your Rates

In difficult economic times, many businesses lower their rates and modify their services; they make concessions and negotiate with clients in order to get the work that’s there. There is nothing shameful about any of this, if you do it the right way.

The guideline to use is this: Don’t do it just because someone balks at your first price. And only do it when you adjust the services offered as well.

That said, there are situations in which a discount is standard procedure or a useful technique to achieve a different goal. For example, you can regulate your cash flow by offering an early pay discount to institutional or corporate clients who would otherwise take their sweet time to pay. But it doesn’t always work.

According to Cameron Foote, “With many clients, early-pay discounts are not necessarily a guarantee of speedy payment and it is not unknown for some to take the discount and still pay on their regular schedule. So offering an early-pay discount could be just giving money away. A usual exception, though, is large government and institutional clients.

In many cases they are mandated, either by law or their own procedures, to pay any invoice that offers a discount first. Although 2 percent off if paid within ten days (written as 2% 10/net 30) is typical, any early-pay discount usually moves an invoice to the top of their pile.”

Whenever possible, before you lower your prices, offer instead to add something in exchange for the proposed price. In some cases the same end is achieved but you haven’t cheapened the perception of your services. Instead, you’ve actually added value and held your ground. It’s worth trying.

Seven Ways to Make More Money
by Mikelann Valterra

1. You can raise your fees and charge more.
2. You can increase your number of clients and therefore bill more hours. (This means putting in more time.)
3. You may be able to leverage your time by selling it in ways besides working for private clients (for example, you can offer groups or seminars).
4. You can hire staff and either bill their time for more than you pay them or use their help to work with more clients.
5. You can subcontract work that comes to you and make money on commission or earn the difference between what you pay the subcontractor and what you collect from the client. (This is similar to point number 3.)
6. You can earn referral fees or finder’s fees by referring prospects to other creative professionals who offer complementary services.
7. You can create and sell products, thereby diversifying your revenue and having more than one stream of income.

    Mikelann Valterra is a certified financial recovery coach and author.