This blog is part of a three part series (yeah, I know right? Who is she?) If you’re interested, click below to access the three parts.
Part One
Creative Criteria for Charming Clients
Part Two
Particular Pricing Preferences
Part Three
Hourly Rates and How to Find Them

Now I’m sure you are used to the billable hour, it’s the most common pricing strategy. But did you know there are a host of others?

Per Hour Pricing

So, let’s start with the most common and straightforward and basic; per hour pricing. For every hour you work, you have a cost. Working out your hourly rate should take into account anything you are doing, design, discussion, research, anything that uses the specific set of skills that the client has hired you for. Working out that number is a bit of a tough task, of which I have explored in part one of this blog series. It is a complex thing because it is placing a monetary figure on what you do, which can sometimes be confused with what your worth is (it’s not).

Having an hourly rate is most common because it uses a straightforward measurement tool, time, and is widely understood by both client and designer. It’s also limiting, because there are only so many workable hours in the day. And more importantly, it starts both parties on opposite ends of the aim scale; you want to bill more hours, the client wants you to work, and bill, for less hours.

Value Based Pricing

Pricing based on the value of a piece can be incredibly financially beneficial when done right. It bases the value on the perceived value to the client that the work is worth. Say, for instance, the ecommerce website that you are building for a client is likely to add $10k additional revenue in the first year to their business. Value based pricing takes this figure and looks at what the fair compensation would be, given that what they are creating will make the client 5 figures plus. It takes a fair amount of experience to understand this concept, as well as a lot of guts to be transparent in this situation. But this is why this is the most profitable way to bill creatively.

Project Based

Project based rates are good when you know the outcome but there is a bit of a grey area in the time it will take. For this, you would take the hours you expect the job to take, multiply it by your hourly rate, then add 10% for contingency if it runs over the expected hours, and quote that whole figure as the project rate.

This can also be favourable for the client that is working to a budget as they know the cost regardless of if the project takes longer or shorter than if they were using an hourly rate. This is generally recommended if you have done the type of work before and can estimate based on experience. It also works well if the time-based approach and the value-based approach are massively differing. In this instance, it may be $2k worth in hours, but be $6k value, so you would find the happy medium in the middle and bill $4k for the project. This also has an element of risk associated, as it’s the same cost whether it takes more or less hours than factored into your calculations.

So those are the 3 main pricing strategies, billing the hours, the value or the outcome. Blair Enns is the absolute master on this. Coupled with the many different experiences I have had with clients, I have consulted his book Pricing Creativity countless times.

Now we get to HOW the client pays you, this can be built into your quotations, especially if it’s something that you want to utilise as currency (we’ll get to that).

Cash, Card, EFTPOS, PayPal

These are all pretty straightforward BUT be sure to stipulate how you prefer to be paid and if there are any associated fees either yourself or the client needs to be aware of. Credit cards, if you accept them, often come with a fee that you are responsible for paying and can eat into your profit. Funds transfer is most common, but not possible in every situation. I generally use PayPal for international clients, because it makes the transfer and conversion much safer. Just remember to bill in AUD, meaning the client is responsible for the conversion of the funds and any costs that may incur. Just do your research and don’t feel like you have to stick with just one.

Barter Pricing

A cost as old as time. Barter uses the idea that you swap your services for goods or services with equal value. This takes money out of the equation, meaning it doesn’t become part of your earnings. I actually used this for a client where I produced some work for him and in exchange, I have an account at his store that I chip away at, with the value of the account equal value to the services I would have otherwise billed for. This is a set up that works for both parties when used in the right way, but make sure the value is right for both of you.

Part Payment, Part Barter Pricing

Pretty self-explanatory but you would cost out the value of the job, then minus the value of the barter and charge that. Be sure to list these separately on the invoice, adding any notes that are relevant, just to cover yourself in the agreement. This was how I ended up with so many By Samantha Melbourne dresses. For each collection I created, I built into the quotation that 2 dresses from each collection was to be part of the payment. Because it wasn’t something I would usually go and spend $400+ dollars on, it ended up being a nice reward to myself. It also can favour the client as they are getting the value of the item, but they have that item at cost price.

Retainer Pricing

A retainer can work in a few different ways, but the key idea is always the same. Think of it like your phone bill, but circa 2005, because everything is unlimited these days (showing my age!). You pay $30 a month and have 300 minutes to use in your plan. At the end of each month, those minutes get wiped and you owe $30 again, regardless how many hours you used chatting to your friends or voting for Australian Idol.

The same principle applies here. The client would have your services on retainer, where they are allotted “x” number of hours per month at a fixed fee. If they use them up, great value for the client. If they don’t, great value for you. They are really paying for access to you, that there is time they can use. Just remember to flag when they are likely to go over and bill accordingly. Number of hours, frequency and the terms of this agreement is really important to iron out right at the start of the relationship, so be sure to discuss and get it all in writing.

Blocks of Hours/Prepaid Pricing

This is one of my own design, which takes a few different aspects from some of the different structures and “Frankensteins” them into a solution. Basically, if I can see a project will take 5 hours or so, but I also know the client is prone to scope creep, I offer a prepaid hour block pricing. I tell them that the cost will be estimated at 5 worth of work and they can purchase that block, but if we get to hour 4 and I think it’s still going to be another 2-3 hours, I can have that conversation with them and they can purchase more hours.

This also works with larger corporations that would rather not be on a retainer as they are going through fluctuations of work or have multiple contact people who will be using the services. By pre-purchasing a block of hours and being notified when they are on the last hour of the block, they can budget accordingly and track the time in their own way for each project.

As you can see, there are so many different strategies, and it’s up you to work out what works best for you in each situation. You are the boss after all! I use each of these across all of my clients, I don’t tie myself to just one or two. This is mainly due to every client being different, with different needs and different outcomes needing to be achieved. They say variety is the spice of life, so why not make the boring accounts and billing section a little spicier!

Next in this three part series, we talk about one of the most common questions I get asked, “But how do I work out my hourly rate?”. Read on my friends for the next part of the series is a little bit of math and a whole lotta magic.

Read Part three – Hourly Rates and how to find them

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