One of the big challenges facing new graphic designers is how to set their pricing. It’s important to get it right because if you set your rates too high you’ll lose potential clients, and if you set them too low you’ll struggle to make a living. It can also be an especially tricky task because it requires trying to look objectively at your skill sets and the value you offer to your clients.
The following is an excerpt from our free ebook How To Be A Freelance Graphic Designer, which can be downloaded here. This is such an important topic that we felt it was worth devoting a post to it. The ebook explores pricing in greater depth.
What Is Your Income Goal?
If asked, “How much would you like to earn?”, most of us would probably respond with something like, “As much as possible, please!”, and I’m all for that answer except that it doesn’t help us set our rates. That is, unless your plan is to ask the client to pay you “as much as possible”, which I doubt would be very effective (though I’ve never tried it, so if it works, please let me know). What we need to do here is come up with a realistic goal of what we want or need to make as an annual income.
Realistic is the key word in the above sentence. Your goal needs to be realistic about how much you need in order to live, and also about the fact that it will take time to build up your client base. What you need to survive will depend on the cost of living in your area, your own living situation (Do you live alone in a mansion, or in an apartment with six roommates? Do you have dependents? Do you have a spouse or partner who also works?). What your workload will be, and how fast it will grow, depends on how connected you are, how aggressive you’re willing to promote yourself, luck, the current economy, and a host of other factors.
Now take your income goal and the amount you expect to be able to work and fill in the following equation:
So, here is a sample of how this works. As mentioned, your numbers will likely be quite different. In this example, lets say that I’ve determined that I need to make a bare minimum of $15,000 per year in order to cover basic living expenses (food, rent/mortgage, utilities, car, etc.) and that I expect my business expenses (see Expenses For A Freelance Designer) to be roughly $10,000 for the year. Let’s also say that I’m new to freelancing, but I’m pretty well connected and I’ve figure that in the coming year my workload will average out to about two billable hours per day, five days per week (10 hours/week x 52 weeks = 520 billable hours—see Understanding Your Rates for the logic of this average, and the difference between billable hours and working hours).
Now, if I’ve been realistic with all these estimates, then setting my hourly rate at $50/hour should mean that I’ll be OK financially. I now need to compare this number with the average rate I determined by talking to other freelance designers and how I’ve decided my rates should relate to it. If it looks like $50/hour is a reasonable rate for the market I’m planning to work in and the skills I have to offer, then I’ve arrived at my rate.
If it looks like I may not be able to get away with charging that much, I need to do something to affect the other numbers in my equation. Can I reduce my living expenses? How about my business expenses? Can I realistically do anything to bring up that billable hour average? If any of these are possible, it will affect your final number.
What If I Can’t Find a Rate That Works?
If you get your expenses down as far as they will go, and are not confident that you can get a higher average of billable hours, and the rate you come out to is still too high for your market, don’t give up yet.
One option is to keep a part-time job at the beginning while you build up your client base. This can give you a little more financial security, though it may mean that sometimes you will be burning the candle at both ends to get it all done.