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The Improbable Art of Estimating

Recently, we received the following topic recommendation, from Tom B., regarding estimating.

I’ve been having difficulty estimating how much work will be involved in new projects, and how much to tell the client they should expect to pay. I feel a huge pressure to underestimate - almost as though to be realistic about time requirements is somehow shameful. A discussion about how people deal with the pressures of estimating would be very useful.

We thought we might put it in two different perspectives — small agency vs. large agency — and go from there. The topic probably makes for a good discussion as opinions on estimating and pricing seem to be all over the map.

Peter’s small agency take

Estimating can be a fairly straightforward task. Mine is based on the amount of time I assume we will spend on a project and multiply that by our studio’s hourly rate. At the end, I add cost for expenses, plus 20%.

It’s that simple.

The time multiplied by hourly rate is self explanatory. The cost for expenses includes inkjets, spray mount, paper, boards and all that kind of stuff (yes, they do add up). The plus 20% is my extra cushion… in case I underestimate the amount of time we will spend, it saves my ass, in case I spend less time than anticipated, it’s extra profit. Outside vendors I will bill at cost +20% mark-up.

How do I know how much time I should plan to spend? That’s the tricky part… it’s based on experience and… time-sheets… yes, that’s where these babies come handy. I can check for similar projects in Studio Manager, look at the time-sheets and base it on that. For those working in organizations and dreaming about running your own shop, or freelancing on the side, maybe not a bad idea to keep track of your time spent on projects as well. That way you’ll be better prepared providing your estimates.

I don’t really care how big or small clients are for my estimates. All I care about is the amount of time and expenses I think we will occur. Now, that does not mean I charge the same to a big corporation compared to a small business, the difference is always based on the amount of time that I think it will take. For a big corporation I know I will build in more for research, extra explorations, more meeting time, more approval stages, more rounds of revisions, etc. I do define in my estimates clearly what is included and what not. And I indicate that any additional work will either require a revised estimate or hourly fees.

Funny thing is, that I had heard all this in a small business class before I graduated from art school, but when it came to applying it, it seemed so much harder. Judging from the emails and calls I’m getting from “start-up” designers, its part of the learning curve.

After messing up a bunch of times (well, years of under-estimating, really…) I finally recognized that it can really be this easy.

Is my way of estimating perfect? Of course not—there are always projects that take unexpected turns, things I overlook, time-sheets I was too lazy to enter. But overall, I have to say it’s working pretty good. I can also recommend a publication I subscribe to: Creative Business. Included in the subscription is free business advice by phone and email. I’d say that alone is worth the annual subscription fee tenfold.

Tan’s large agency take

The art of estimating can be one of the most challenging aspects of our business. Just like finding clients out of thin air, and keeping talented employees happy — it’s damn tough to get it right, and anyone who tells you they’ve got it figured out is lying.

The bottom line is that yes, you have to cover your expenses — but at the same time, you don’t want to leave money on the table, or scare the client away with a steep price tag. Estimating is about finding a balance between the scope of work and what the market will bear, or in most cases, can afford.

I used to run a small shop but these days I work in a larger agency. The fundamentals of estimating remain the same, however the scale and variables are different. Since most readers are more interested in smaller-shop estimating, I’ll be as brief as I can.

For large agencies, it’s not just about higher budgets. It’s about greater capabilities, more depth of research, and most often, more experience dealing with clients of similar caliber. When a corporation calls a larger agency, chances are, they are already educated on the process and are prepared for the engagement and cost. A sense of security for the client is everything when it comes to estimating, and is one of the primary advantage for larger agencies.

Agency variables are dependent on things such as the size of the project team, the phases involved (research, naming, testing, implementation, etc.), and the complexity of the approval process, among other things.

When a client balks at an estimate, there’s generally two approaches in response. One scenario is that the client isn’t as prepared to engage a large agency as they might have thought. In those cases, we work with the client and offer to separate the scope of work into progressive phases that may fit their needs and pocketbook better. The second approach is to downscale the general scope of work. We offer a smaller engagement — maybe nix testing or another step in the process, simplify the approval process, or just streamline the size of the agency team.

What we don’t and can’t do is arbitrarily reduce the price just to win a client. We can’t because our billing rates and expenses are consistent and non-flexible. We don’t because it would devalue our services and expertise.

So, what is your method for estimating? How do you fend off the ever-constant pressure to underestimate to get the work? Have you ever underbid a job to win it? Was it worth it in the end?

Do you have a supercomplex formula, or do you generally just wing it? Do you adjust pricing to suit the type and size of client, or do you have consistent pricing for everyone?

Maintained through our ADV @ UnderConsideration Program
PUBLISHED ON Dec.21.2004 BY Tan Le & Peter Scherrer
Darrel’s comment is:

Estimating is pointless without solid project management to go along with it. By far the most valuable lesson I've learned is that you need to be overly anal when it comes to the project management portino of the project.

On *ideal* projects, I tend to break it down like this:

Scope/Project Research - flat fee

this, in turn, is used to create the actual estimate, which includes:

- cost estimate

- project timeline

- milestones for both vendor and client

- detailed outline of what will be considered 'additional fees'

Then, the key for sticking to the estimate, IMHO, is to stick with the timeline and milestones. ANY additional discoveries during the process are noted, but added to a list for 'phase II'. This prevents feature creep, but doesn't restrict creative thinking for both parties.

On Dec.21.2004 at 10:32 AM
Bradley’s comment is:

We used to underbid all the time--like it was a religion. Good lord, we were cheap, to the point that it was a defining characteristic. It was a key fixture in our self-promo materials: "Work with us and save a buck!" basically. Of course, much of this was more problematic before I joined the agency, and because of leadership's desire to be a better group, they gradually started to abandon that. I was in a position to see both sides though when I came aboard.

The fear is always scaring away potential clients with a price tag that's too high, but in my experience you REALLY have to go overboard before you send someone running for the hills. Not that there isn't pressure to charge less, there certainly is, but one problem my agency encountered was that after having developed a reputation as Bargain-Bin Central, potential clients weren't so inclined to work with us. There was a fear on their parts that we'd not only under-charge, but underperform.

So we put an end to it. In a recent new business pitch we greatly exceeded the price tags offered by our competition, effectively doubling what the client was willing to pay. We met half-way and won the business. I'm convinced that had we walked in there as cheap or cheaper than the others we would have lost; the greater expense combined with a lot of hard work and confidence made the money look worthwhile I suppose.

This probably isn't always the case. But we've been finding that more and more that marketing decisions aren't made entirely on expenses...sometimes that slightly higher price tag commands a bit more respect. It says "We'll be accountable for what we do."

On Dec.21.2004 at 10:58 AM
Don Julio’s comment is:

I think Tan said it well (as usual) if I may oversimplify a bit. The difference between larger and smaller clients at the end of the day, is the amount of time they can buy. The question people don't ask often enough is: How much can the client afford, or What is their budget?

They may or may not have one - but it prompts them to consider they should have - and lets you see up front how transparent the client is prepared to be. This is often indicative of the type of cient they will be and also demonstrates if they respect your time and services. We often hear budgets, and a desired scope of work, but come back to the client with - again as Tan mentions - a phased, or tiered set of tasks based on priorites that they can afford. As a consultant, it is our job to always hear what they want, but make the proper recommendations. A +/- 10% disclaimer at minumum, with a note about what hard costs are reimburseable.

We have small to medium sized clients, and have bid against the big shops as well. The big shops put teams on a project - an account executive, creative director, art director, designer, writer, etc. Small shops may only have a few people, with outside support working on an account. The small shop competitive argument is that you work with the people you hire and get more personal contact with the people doing the work. Big shops do not necessarily have better designers (except for Tan, of ourse). Build in contract provisions that allow adjustment if the scope of work is altered, or timelines revisions are not adhered to, or revisions are excessive.

Quick "rules" I've learned: What is your desired annual salary (be realistic - see Aquent Salary survey)? Divide that by numbers of weeks you will work (50 or less - not 52 - if you don't plan for vacation time, you won't get any). Divide that by the number of hours you can realistically bill each week (again be realistic). How much time is spent managing the business that is not billable? You may find that you can only bill 20-25 hours a week and still have time to run the place.

Take 50K (for easy math): 50K/50weeks = 1000 per week. 1000/20 hours available = $50 per hour... make sure your annual salary number covers ALL your expenses, plus taxes, health, rent, car, gas, equipment, insurance, upgrades, professional memberships, subscriptions, conferences, continued education, SAVINGS and PROFIT (it's a life long thing afterall). The last two are often overlooked in calculations.

Another formula is to take ALL your hard costs, calculate the hourly rate, and then mulitply by 2.5 - 3 to cover the unforseeables (and again create savings and profit to maintain your business in the future. This is a standard agency mark up for freelance help.

The GAG book (no joke), Graphic Artist's Guild Ehtical Pricing Guide is another comparative resource to see how your math stacks up. It is NOT the bible, just a measuring stick that is helpful in not overlooking the steps and processes you should be providing at minimum. Experience is the last piece that will tell you what is working, or not. You have to monitor and adjust to find the formula that works for you.

Lastly, hire the best bookkeeper money can buy. One that knows the biz, preferably. They will free up more of your time to do billable work, and are trained to help you budget, monitor and avoid pitfalls. Hire this person FIRST. Before design help, before an office manager who can do books on the side, etc. To ultimately remain successful you should surround yourself with the best people you can.

We don't underbid, or offer more services for lower fees. Fastest way to fail, I think. We do structure time and deliverables to meet budgets. Food for thought.

On Dec.21.2004 at 11:11 AM
ian’s comment is:

excellent topic! i can't wait to read peoples comments.

i definately put the "free" in freelance...


On Dec.21.2004 at 11:16 AM
Pesky Illustrator’s comment is:

If I might add an opinion: Estimating is the cornerstone of one's professional self-worth as a small business. (I haven't been part of a large agency for a long time.) Sure, we've all done our share of underestimated work. It breeds happy clients who have no idea of quality work and poor designers who sell their value short, in the long run. And for that reason, even though most folks are in a post-9/11 survival mode, estimating, at least for me, needs to have two tiers.

The first tier is the time/involvement calculation: X dollars per hour.The face value and direction of the job as a straight line. And the second tier is open ended and curvalinear. Multiple changes, urgency, contradiction and indecision, unexpected extensions of the project, changes in usage, etc.

There's the usual dance around the client's four walls of expectations but sooner or later you find out their ceiling. So a probable range - a high number and a low number are prefereable to a written-in-stone figure when you know it could go either way.

Sometimes an extraordinary (read nightmarish) number of comp ideas are required for a fickled client,so having an open ended charge is advantageous. It expresses the unknown quality of creative work with limits.

You don't jump in a taxi and drive around until you remember where you're going without incurring extra rates, so why should it be different for designers?

Don Julio's reference to the Graphic Arts Guild pricing guideline is right on. They've been a great meauring stick for many years.

And lastly, I put in good attitude, listening and flexibility as keys to making this all work.

Good posts....

On Dec.21.2004 at 11:59 AM
Tan’s comment is:

The most important aspect of a client relationship is trust. Estimating becomes a formality when trust has been gained.

I should also mention that before you start getting down and dirty with numbers and scope, it's good to ask yourself if you're trying to gain a client relationship or just a project.

Winning a client takes getting to know them and their business, understanding where your services are needed and in what capacity, and (I know this is cliché) creating a vision of where they want to go and how to achieve it. The rest, as they say, is small stuff.

Winning a project just comes down to schedules and numbers. The expectations and value of service is much lower — which makes it a much more difficult place to begin.

>hire the best bookkeeper money can buy

AMEN to that advice. There's a vast difference in competency among bookkeepers/controllers out there, even among larger agencies.

On Dec.21.2004 at 12:30 PM
Armin’s comment is:

Would anybody care to provide some real-life examples? Say, the latest project you estimated, whatever it might be…

If you feel weird about revealing your pricing you may post anonymously, just don't pull our collective legs.

On Dec.21.2004 at 01:11 PM
Tan’s comment is:

I'd share some numbers on our current packaging engagements, but the numbers are so skewed that they'd be of little value to others.

Oh, I did just give a down and dirty, rough estimate for a small PR brochure project. For a 20 page + cover, full-color brochure — copy provided by the PR agency, imagery and cost TBD.

Standard brochure project pricing is set at $2,000 per page + 20% expenses +/- 10% contingencies. That comes out to about $57,600. But I think the PR agency only has $20K allocated, including photography. Ha! Looks like we're making postcards...

On Dec.21.2004 at 02:20 PM
Tom B’s comment is:

Nice to see my suggestion for a disscussion has been taken up with such interest.

The reason I suggested this topic is because I've just come through a nightmarish project. I don't wan't to go into specifics or mention any names, but I'll try to explain the general situation.

I work for a small design/marketing agency. We were asked by a client we had previously worked for to pitch for a job very similar to one we had done for them previously. We didn't like the idea of pitching, as they knew our work already - but we went ahead. We didn't want to lose the client.

With hindsight, they weren't really interested in a creative pitch, they wanted to compare prices.

We got the job after lowering our estimate, but explained to the client that in order to stick to this budget both parties would have to be incredibly strict about project management. We gave them a very thorough schedule and assumed they would stick to it.

Suffice to say, they didn't stick to it - at all. They completely failed to supply us information and images at the times we needed them, and they made so many changes it would make your head spin ( I think we counted more than a hundred emails one day!)

We went hugely over budget - not just the reduced budget, but also the original, 'realistic' budget. We missed deadline after deadline (which is incredibly traumatic). But I can honestly say that it was through no fault of ours. I've never experienced anything like it.

When it came to sending them an invoice - we charged them for the work we'd done. We didn't add on any expenses, or charge any extra for weekend work, but the amount came to almost double what we had estimated.

And, surprise surprise, they refused to pay a single penny more than our estimate.

Our terms of engagement clearly state that extra work caused by client changes is chargeable on a time basis, so we haven't done anything wrong. But they refuse to accept responsibility for the over-running.

The question is - could we have done something about this at the estimating stage? (bearing in mind that we got the job because we lowered the estimate)

All things considered, I think we did a bloody good job of the project - we really saved their ass this christmas in getting it done at all. But this doesn't help us if they don't pay us what we're due.

The saga continues - it may get even nastier.

I'm going to be a lot more careful when estimating in future. I just hope I don't lose any so-called 'pitches' because I'm being realistic.

On Dec.21.2004 at 04:10 PM
Tan’s comment is:

Tom — 2 suggestions.

1. Bill incrementally, and if a client is suspect, make sure you've billed 70-80% before releasing the job to the printer (or launching the site) — and if need be, hold the job hostage until you've been sufficiently paid.

When I had my small firm, we once held a job until the client delivered a cashier's check to our office. Sometimes you have to be ruthless.

2. I heard a story a while back about Ken Carbone's change order practice. If a job had gone over the allotted budget and timetable — everytime a change was made, he would fax back the revision along with a change-order invoice for the incremental amount worked to make that change. After a while, the faxes would add up, and the client would get the message loud and clear.

A paper trail also makes it easier if legal action becomes your last recourse.

So I don't know if having a more thorough estimate would've necessarily helped you avert that client. Your situation sounds pretty common — anyone else have suggestions on dealing with deadbeat clients like this?

>oops, didn't mean to reveal my surname.


On Dec.21.2004 at 04:29 PM
Tom B’s comment is:

We did consider holding the job hostage, but were worried they'd pull the job entirely and refuse to pay a penny if we did (they'd probably do somthing awful in-house).

We thought we'd be in a better position legally if they'd gone ahead and printed it. After all, it's our intellectual property until they pay us for it.

Besides, we were tying to help them out! We didn't know it would end up like this.

On Dec.21.2004 at 04:41 PM
Tan’s comment is:

>We thought we'd be in a better position legally if they'd gone ahead and printed it. After all, it's our intellectual property until they pay us for it.

yes, it's your files and design — but to the client, what they really paid for is the printed piece that got delivered, which is technically the property of the printer. Once that's done, why should they care about the design files? As long as they don't demand the files, reprint, or repurpose the work without your permission — you have no legal grounds to pursue them.

I don't mean to be harsh about it, but you need to understand what can be leveraged to get paid.

On Dec.21.2004 at 05:03 PM
ps’s comment is:

incremental billing i think is key. plus i agree with tan that most of the job should be billed and paid for, before going to print.

project and payment schedules have to be agreed upon upfront. i know there are big corporations that claim it takes them 30+ days to get an invoice processed and paid. but just as they are in a rush to get a job delivered to them, they can pick up the phone and have payment expedited. its a two way street and most clients know that. just as they have their payment terms, designers can have their own.

On Dec.21.2004 at 05:14 PM
Tom B’s comment is:

You're not being harsh Tan, it's all good advice.

As a matter of fact, they did ask us for the files. I think they wanted to take the design in-house. We didn't hand them over though.

They also produced some posters with illustations eeriliy similar to those I had done for this project.

They weren't exactly the same: they'd altered them slightly. Damn cheeky if you ask me.

On Dec.21.2004 at 05:16 PM
heather’s comment is:

wow, great timing on this topic! was there a little bird in my house last night? because i swear my boyfriend and i were just arguing about this! he is in sales, and thinks i'll never "win" freelance jobs if i don't broadcast my rates out there like a furniture store or something. he insists people ALWAYS want to know how much things cost, but doesn't understand that our field seems very hush-hush on pricing. isn't it seen as cheap to even say "all brochures cost $x"? because we as designers know each client/project is different, and a blanket price can't possibly make sense.

so how do you let people know that you don't cost a lot (because i freelance as supplemental income, so there is no need to worry about rent/overhead) while still sounding like a professional?

On Dec.21.2004 at 05:19 PM
Don Julio’s comment is:

The question is - could we have done something about this at the estimating stage? (bearing in mind that we got the job because we lowered the estimate)

It sounds like you may have a defensible position and I feel like a Tan parrot today, but change orders are the key. As hot as the client may be for a deadline, you should be just as hot in hitting the breaks to arrange a revised cost estimate for costs that exceed an agreement. This is a definite advantage for a bigger agency, as someone (ie., AE) likely rides shotgun on this issue, where smaller firms may buy into the client's urgency and put client needs above their own - while both parites needs should be equal priorities.

Client's don't always like it, but they respect it, and your time when you do. Plus they will sign and agree to extra fees when you have what they need in your hands. The work, or deliverable is often your only leverage. I also find the clients that push excessively for deadlines are likely to be the problem ones, by also nitpicking invoices after the fact - it should be a warning sign to take preventative action. Isn't hindsight great?

The nice thing about a website is you can shut it off (like electricity) vs. a print deliverable pending payment. If this is how they are to work with, you probably should reevlauate a future relationship - and further (ie., legal) action is always an option, especially if the amount is significant and the process well documented.

On Dec.21.2004 at 05:32 PM
Don Julio’s comment is:

so how do you let people know that you don't cost a lot (because i freelance as supplemental income, so there is no need to worry about rent/overhead) while still sounding like a professional?

You do an entire industry a disservice when you do work for substandard fees and fuel misperceptions that there are tons o' computer jockeys sitting by salivating over the next design project. I wouldn’t go to the “Discount Design House” any quicker than I’d pursue “Two for One Eye Surgery,” but then there are people who would...

If you calculate fees like above based on your goals and expenses, you may arrive at a lower hourly rate, I'm a bit lost wondering why someone would want to do give away something of greater value to clients who will not likely appreciate the difference. Our clients are buying design first for quality and distinction. We typically arrive at a project fee, but it is based on hourly calculations. Not many clients even ask about our hourly rates.

If you are selling based on the lowest price, I'm willing to bet you won't find a lot of clients you'll be happy working with. Why not take the time to cherry pick and find a dream client or two that will pay reasonably and fit into your supplemental plan? And then send your boyfriend to Kinko's.

On Dec.21.2004 at 05:51 PM
Jeff Gill’s comment is:

Tan & Peter (& Tom),

Thanks for this. This is very useful to me. I have so much to learn in this department.


One thing I am wondering about:

The way that most everyone (including me) seems to arrive at their fees, whether they share it with their clients or not, is The Hourly Rate.

A good hourly rate, even a really good one, just doesn't seem like fair compensation for an identity package that will last 10 years and will earn the client a shedload of money.

If the value of what we do can be reduced to an hourly rate, doesn't that place us firmly in the service sector no matter how loudly we argue to the contrary?

Is this just the way it is, especially for us small fish, or is there a way of working & billing that is a more accurate reflection of the actual value of our work?

On Dec.21.2004 at 06:45 PM
ps’s comment is:

A good hourly rate, even a really good one, just doesn't seem like fair compensation for an identity package that will last 10 years and will earn the client a shedload of money.

i don't think a client making a shitload of money gives me the right to ask for more. if the client loses money and goes out of business, i'm also not going to send them a refund check.

if my work is well received, i get other rewards: more work, referrals etc. that in return creates demand which might give me a chance to increase my rates.

On Dec.21.2004 at 06:58 PM
Tan’s comment is:

I understand what Peter is saying, but disagree. It's not about being opportunistic with a client, ie. milking a wealthy client for more because you can — it's about determining the value of your work in relation to the scale, circulation, and impact that the work will bring to the client. In short, the scale of pricing should and does indeed reflect the size and reach of each client.

For example: what I'd charge to design a product identity for a local mom and pop coffee shop is nowhere close to what I'd charge for the same work for Starbucks. The value and impact of the work is on a different scale — not to mention the process and complexity of the engagement.

I've seen 7 figure estimates go out for work of equitable worth for the client. It'd be futile to reconcile those budgets solely based on hours and materials. But that doesn't necessarily make it unfair for the client.

We only bill hourly when the work goes beyond the original scope of work, ie. a change order for revisions above and beyond the project parameters. We do so because it's incremental work that must be tracked in defined amounts. Otherwise, we would never expose our billing rates to any clients. Doing so would be foolish.

I detest the GAG Pricing Guideline, but even it has general pricing scales that are based on the gross annual revenues of clients. For example, a corporate identity for a $1 million company should cost less than the same work for a $100+ mil company. Really, look it up.

On Dec.21.2004 at 07:50 PM
Robynne Raye’s comment is:

This is a timely discussion. Today I had an ad agency tell me they could only pay 5k per illustration for 1 year, unlimited US usage for one of the largest fast food restaurants in the world. I estimate that to be much closer to 25 -30k per illustration, on the cheap side. We spent many wasted hours working up the estimates. I once read this great quote from Carlos Segura when asked about estimating jobs. Can't remember where I read it but it went something like this: Every client has a number in mind. If they don't tell you then they're not telling the truth. If they don't say up front, then I say something obviously ridiculous, like how does 300k sound? Then they freak and say, "no were thinking it should be closer to 50k." Brilliant strategy.

One thing I've noticed is that it takes many years of building up your confidence - and understanding your worth - before you can start asking for the kind of money you deserve.

And I agree with Tan, we never work for an hourly fee.

On Dec.21.2004 at 08:18 PM
Tan’s comment is:

>If they don't say up front, then I say something obviously ridiculous, like how does 300k sound?

Haha, that's an awesome trick Robynne. Gotta remember that.

It reminds me of this one meeting we had to pitch work w/ Coca-Cola. We were going through our portfolio presentation when one of the marketing directors interrupted me and casually asked, "Suppose we wanted you to do a poster like that for us — how much would it cost? Just a ballpark." He had put me on the spot, pressuring me for a response that would conceivably pigeon-hole us for all subsequent work. The whole table went quiet, especially my team, who stared at me with panic in their eyes, wondering what I'd say.

So without hesitation, I casually replied "Well, I'd say our range would be anywhere between...$3 thousand to $80 thousand..depending." The client paused, laughed, and then admitted that he deserved that answer for asking such a stupid question. Clearly he was more interested in seeing how I would respond rather than the number itself.

Afterwards, my partner asked me how I came up with such a smartass but effective answer so quickly. I told him that the one thing that came to mind was the ludicrous price ranges from the stupid GAG pricing guidelines. You know, the ones where they'd give a useless range like...Annual Reports—$15,000 to $200,000. So I figured, what the hell, if he wants numbers, then I'll just give him some numbers....

On Dec.21.2004 at 09:06 PM
Robynne Raye’s comment is:

Actually I wanted to clear up that last sentence in my previous post. We never do "creative" for an hourly fee. That is where the true value lies. Change orders and pure production, yes. Creative, no.

Hey Tan: I despise that GAG pricing guide also. Many times I feel bad for my students, because they have no idea where to start or look for help when it comes to pricing. Many in the academic world just tell them to go to the GAG book. What a joke.

On Dec.21.2004 at 09:32 PM
Don Julio’s comment is:

GAG book. What a joke.

Fair enough Ms. Raye. I did cite it is by no means the Bible - and the AIGA likens standardized rates to price fixing - so then, what is the advice you offer for establishing rates? Big client = Proportional fat bucks? Where is the threshold for ramping up your rates. Rock star gratuity ;)?

I do my homework and am more familiar than I should be for basic project fee ranges of competitive shops in town, but out of curiousity what is the benchmark you consider for the “creative?”

On Dec.21.2004 at 10:00 PM
Tan’s comment is:

Hey Don, don't feel like you have to defend your introduction of the GAG book. It's an old issue that we've beat on before in many previous threads.

I hate the book and think it's a joke, but it's not totally useless. Once in a while, a client will ask for something we've never priced before, like a billboard or a giant tradeshow prop or something stupid like that. We'll usually flip open the GAG book first, laugh at the range, then email a few friends and ask for guidance. So it has some uses...

Btw, I don't care very much for the GAG organization either, not just the book. But that's another story.

On Dec.21.2004 at 10:20 PM
Robynne Raye’s comment is:

DJ: Not sure I understand your question. Can you ask it another way? Our rates are different for different clients. Non-profits are not charged the same as corporations. Not sure if I answered your question. but let me know...

On Dec.21.2004 at 10:45 PM
Don Julio’s comment is:

I like the older GAG books better - with estimated fees for creating things like marble-ized paper?! I wonder if anyone has actually used that piece of information.

I hear you Mr. T., it’s a slightly better than nothing scenario. The Artist’s Market was an old reference that is even more entertaining - not sure if it is still published.

Not defending so much as being truly curious about large client pricing strategies. One of those things you wish you could be a fly on the wall for.

On Dec.21.2004 at 10:47 PM
Don Julio’s comment is:

Sure Robynne - I am curious about how the sliding scale is developed. What criteria is being used to make the call? Are there just two rates (corp and non-profit), or big and small as well? Is there a formula behind this determination or just a combination of intuition and experience?

I'm just wondering if there is some insightful equivalent of the Kinsey Research out there for pricing creative work.

On Dec.21.2004 at 11:25 PM
Robynne Raye’s comment is:

Hey Don

We use a sliding scale for corporations, depending on the size of the company. But I get a lot of help too, thank goodness. I use a guy in Seattle to help me price out work. He used to be an artist's rep, and has recently gone solo, but I've been a client of his for years (more than 15), His business is to help small to medium size design firms price their work, and then he helps negotiate to get the best deal. He also looks over every single document I sign - including non-dislosure statements. His fees are very reasonable, and he's really helped educate us. I don't know what I'd do without him.

If you'd like his contact info, let me know and I can pass it along.

By the way, I didn't mean to offend anyone who uses the GAG. Personally, it's never been helpful to me and seems to just confuse my students. Realize that this is coming from someone who hasn't looked at it in years.

On Dec.21.2004 at 11:52 PM
Don Julio’s comment is:

Now that's interesting - Yes please, the contact info would be great to have. It figures that someone is ready to provide this service, based on the sheer number of designers that seem to be mystified by it. Thanks for sharing.

I can't imagine that you offended anyone re: GAG - I'm not a fan, but there are not a lot of well known alternatives published. GAG seems to have a niche as well - I guess marbling paper makers need help too.

On Dec.22.2004 at 12:51 AM
Robynne Raye’s comment is:

Don - I just emailed you his card. I wasn't sure if it was Okay for me to post it here? Anyway, if it is, feel free to share. Also you might tnot know that "bubbles" is my alter ego, so don't dump it when you get the email (honest, iIt's just me, not a porn site). The subject line is "info you requested'.

On Dec.22.2004 at 01:14 AM
Armin’s comment is:

> I wasn't sure if it was Okay for me to post it here?

It would probably be better that people interested e-mail you (or Don…) rather than have his info just floating around here. Raw contact information on blogs gets plundered easily.

On Dec.22.2004 at 08:43 AM
Don Julio’s comment is:

Ha - I got your email before reading this and almost tossed it out with the morning spam.

Thanks Bubbles.

On Dec.22.2004 at 11:10 AM
Tan’s comment is:

Is it just a slow holiday week or does everyone have estimating all figured out?

I'd love to hear more about what people think of value billing? For most firms, billing the equivalent of $100K per employee is a good mark for profitability. But that math doesn't work out. A firm that bills $10 mil a year doesn't necessarily have 100 employees — it can have 30 and achieve those revenues.

What are the thresholds and gauges for profitability in your company? Do you have any idea what I'm talking about?

On Dec.22.2004 at 11:51 AM
ps’s comment is:

For example: what I'd charge to design a product identity for a local mom and pop coffee shop is nowhere close to what I'd charge for the same work for Starbucks. The value and impact of the work is on a different scale — not to mention the process and complexity of the engagement.

tan, i'm not billing the same either, but its based on the same formula, how much time and resources will i put on the identity. for a mom and pop shop it will be much less of an effort, therefore i can charge much less. i'm certainly not basing it on their future success. for that i'd buy stock.

On Dec.22.2004 at 12:02 PM
Tan’s comment is:

So aside from reconciling time and resources, you don't adjust prices for the size of a corporate client at all Peter? I'm not talking about their future worth, I'm talking about their current size and revenue. Granted, my mom and pop vs Starbucks example was extreme — but suppose it was local startup biotech worth around $3 mil vs. Amgen, which is worth about $6 billion? Suppose they both need a press kit — the local one needs 100, and Amgen needs 100K of them. Same number of client contacts, relatively same process on both sides. So you're saying that you'd charge them the exact same amount, based on the same scale of value for your services?

Nothing wrong if that's your philosophy, but I think you're missing some financial opportunities.

On Dec.22.2004 at 12:41 PM
DCD’s comment is:

About half way through this year, I started using timesheets and tracking time spent on projects and office work. Holy moley, I had no idea how much extra time I was giving away to clients. It's taken me six months to finally come round to the idea that no matter what I do for a client, I should bill for the time. It's a bit lawyer-esque, which unnerves me, but what else can you do, throw away half your day in order to be "genersous"? That's not generosity. I'll still give free time here and there but now I know exactly how much and where to draw the line.

On Dec.22.2004 at 01:02 PM
M Kingsley’s comment is:

Anecdote 1:

Several years ago, my partner Karen Greenberg did some illustration for the How Magazine Design conference — so of course, we attended. Besides getting to meet both David Carson (very nice) and the Hallmark Cards Precious Moments Design team (so many of them!), we went to The Pricing Game.

The Pricing Game, from what I hear, is a recurring event at these conferences. In it several designers and firms estimate an imaginary project; this particular year, Pushpin, Michael Vanderbyl and (IIRC) Rich Tharp priced packaging a tube of cream or whatnot. Each presented a quick slide show of their work, described their capabilities, and finally their figures.

Tharp — around 500 bucks

Vanderbyl — 1500

Pushpin — 20,000

Karen and I were shocked to realize that our off-the-top-of-the-head guesstimate matched Michael Vanderbyl's. Here we thought he's rolling in dough, and he's charging the same amount! That is, if he was telling the truth...

Anecdote 2:

We once were approached by a caviar importer about designing their packaging. We estimated $16,000. They flipped out and said that Milton Glaser (whom they worked with earlier) asked for $8000. That is, if they were telling the truth...

Anecdote 3:

I recently wrote a $120,000 estimate for designing ads and billboards (international exposure), then doing the complicated Photoshop production, for an agency... which had been hired by a larger agency, which was hired by a large Japanese corporation. Every 'deliverable' was estimated by a day rate, added up and presented with a smile face dotting the 'i' in 'Kingsley' It's a metaphor.

They only wanted to pay $20,000.

I was left wondering how much the media buy was going to be and thinking how small my original estimate was in comparison.

Anecdote 4:

A non-profit performing arts venue approached us about designing their seasonal brochure. They said they had admired our work for years and really wanted us for the project. They came out and said that they had a design budget of $8000. They needed a written estimate — strictly paperwork. I wrote "$8000", once again dotted the 'i' in 'Kingsley' with a smile face, and said "thank you, it's a privledge to be considered". They said they couldn't afford $8000 and went with someone else, no discussion.

Morals of the stories:

1. People sometimes don't mean what they say.

2. Cost is determined by what the market will bear.

3. It's easier to justify one's position by cutting costs than implementing something abstract like a graphic design project.

4. You need to develop a thick skin.

and my favorite...

5. Who knows?

I have an idea oftentimes, but really.... Who knows?

> Btw, I don't care very much for the GAG organization either, not just the book. But that's another story.

Tan, the Graphic Artists Guild has an http://www.gag.org/activities/advocacy.php" target="_blank"> active advocacy division and used to have a peer-to-peer advice network. Members could call, describe their issue, and then be given the number of other member(s) who had the corresponding expertise. Two things which your (voice of Gollum) precious AIGA pales in comparison.

You are welcome to you opinions about their Pricing and Ethical Guidelines; but earlier in our career it served as both a reality check and source material when it came to considering certain protection clauses in our estimates. At that time, another thing not offered by the AIGA.

On Dec.22.2004 at 01:04 PM
Mark Notermann’s comment is:

Great Thread!

When it comes to logos and "scalable creative work" (where price should have some correlation to use) Does the agency license use to the client, or are the rights always tranferred?

Is there some kind of way to get residual payments out of large scale work, akin to musical public performance royalties?

I realize this might sound like a pipe dream, but maybe there is an example or model out there somewhere...

On Dec.22.2004 at 01:14 PM
Tan’s comment is:

Sorry, not taking the GAG vs AIGA bait Mark. Nice try, and great anecdotes.

Your story #4 reminds me of a conversation I once had with a colleague regarding work for nonprofits. She had this nonprofit client that she designed beautiful annual reports for — got awards, recognition, donations, everything. But year after year, they would nickel and dime her on everything, disputing small expenses, and never budging on their measly $2K (or something close) budget. But she kept designing for them b/c she believed in the organization and their cause....Until a few years later, they decided to move offices, and somehow found the cash to build a new building. They hired a renowned architect out of NYC that charged them $700K for the honor of working w/ him. The organization gladly paid what he asked — no haggling, no pleading, no nickel-and-dime-because-we're-nonprofit shit. I think she confronted them with the large discrepacy in pay — to which they basically replied, "But that's what architects costs."

It's amazing what we tolerate as graphic designers, and how little we value our own work. She still does their books, but I think she's getting double her budget now. Imagine that.

You figure out the moral.

On Dec.22.2004 at 01:29 PM
Don Julio’s comment is:

What are the thresholds and gauges for profitability in your company?

In my former life and at a 45 person agency (15 years ago), annual billings were in the low 20 million range - close to 500K in revenue per employee. The healthy agency target back then was actually closer to a million per person. Media buying, marketing servicesPR bolstered those numbers, but there were several million plus $$ accounts. Is that one of the differences between advertising and design?

David Baker has offered some nuggets on Speak Up and personally cites that you can increase your profitability (with a tune up) by $20K annually for each person on your staff (this is for smaller firms up to ten people). After 10, profitability goes back down until you surpass 30 people I think... lots of insight at this site. There is a free Benchmark analysis regarding billings as well.

On Dec.22.2004 at 01:49 PM
M Kingsley’s comment is:

Is there some kind of way to get residual payments out of large scale work, akin to musical public performance royalties?

Mark N., at the moment I can only think of three:

1. Design a product for sale on a royalty basis. We're still getting royalties on a line of cards that my partner Karen Greenberg created ten years ago. They're small, but afford us the occasional nice dinner out.

2. Limit the application of the project in your estimate. This would require that you are the 'author' of the work, no other illustrator involved, no other photographer involved, etc, and act as a de facto illustrator.

3. Develop the hypnotic powers of Mandrake the Magician, then negotiate with impunity.

On Dec.22.2004 at 02:13 PM
Jeff Gill’s comment is:

Thanks again, Tan, Peter, et al. I'm soaking it all in.


A mildly interesting side note: I just read Sagmeister's book (yep, I'm bang up to date), and I enjoyed noticing how very little the hours he puts in correlate with the money he gets paid.

On Dec.22.2004 at 03:06 PM
Don Julio’s comment is:

Tangeant to this topic - I'm curious about how often and what ranges of work are being done on a retainer basis.

Any takers?

On Dec.22.2004 at 04:29 PM
Thomjon Borges’s comment is:

Jeff, it is clear to me that Sagmeister is spot on!

Hours worked has little do do with our worth. In fact, clients are not paying for the amount of time we spend on a job — but rather, they pay for our experience and ability to deliver a great product.

I get paid for the "idea," not how long it took me to come up with it.

On Dec.22.2004 at 04:33 PM
Tim L.’s comment is:

I'm curious about how often and what ranges of work are being done on a retainer basis.

Well, Blam! Bang!, our 2-person firm, started out with a proposal for a client's website. When it became clear to me that they needed a lot more than that (identity, marketing plan, taglines, print materials) we also pitched an identity redesign. They agreed there was a need to do that, before the site was designed--makes sense.

About $75K later, we've created a website, identity, brochures, site updates, radio spots, ads, signage, you name it. The identity and site were done as initial projects, and because they loved us so much (and felt we were really communicating their heart and soul with our work) they asked to keep us on retainer to do everything else I've mentioned. 1.5 years later, we still do a decent monthly amount (about $1-2K)of work with them.

And to top it all off, it's generally a fantastic working relationship--lots of creative freedom, and a client who values marketing and design! :)

On Dec.22.2004 at 04:38 PM
Don Julio’s comment is:

I get paid for the "idea," not how long it took me to come up with it.

True enough - all well and good - but short of:

3. Develop the hypnotic powers of Mandrake the Magician, then negotiate with impunity.

How do you determine the value of the idea?

On Dec.22.2004 at 04:48 PM
Jeff Gill’s comment is:

Hours worked has little do do with our worth. In fact, clients are not paying for the amount of time we spend on a job — but rather, they pay for our experience and ability to deliver a great product.

Thomson I agree with this, but it wasn't exactly what I was pointing out with the Sagmeister book. For example:

p. 243 Judybats ad

Hours: 15

Fee: $1880

p. 245 Marshall Crenshaw CD package

Hours: 88

Fee: $1800

On Dec.22.2004 at 04:54 PM
M Kingsley’s comment is:

> but short of... ...Develop the hypnotic powers of Mandrake the Magician, then negotiate with impunity.

How do you determine the value of the idea?

Smartass answer:

Divination, channeling and crystal balls.

Awkward real answer:

1. Your local marketplace or industry generally has an idea of what things go for.

2. Speak to your design colleagues. We're all in this together.

3. The school of hard knocks; aka write enough estimates to get better at writing them.

4. Take many of the previous comments in this thread 'under consideration'.

The first time I dropped my portfolio of at M&Co., Tibor wrote me a very nice letter saying "ideas only cost 2 cents. It's the execution that counts". He had a great point. Perhaps the value of our ideas stem from our experience and ability to get things done.

So let's make that a corollary to real answer #3:

Do enough projects to develop self-confidence in both your abilities and your estimates.

On Dec.22.2004 at 05:20 PM
ps’s comment is:

Hours worked has little do do with our worth. In fact, clients are not paying for the amount of time we spend on a job — but rather, they pay for our experience and ability to deliver a great product.

I get paid for the "idea," not how long it took me to come up with it.

so how do you provide an estimate to the client? i assume you don't know in advance how great your "product" will be.

On Dec.22.2004 at 06:09 PM
Tom B’s comment is:

I'm surprised no-one has picked up on a phrase I used in my original suggestion:

...almost as though to be realistic about time requirements is somehow shameful.

Admittedly, a lot of this is probably down to inexperience - but I always feel a huge pressure to underestimate.

This doesn't really come from not wanting to overcharge the client - often I know that they can and will pay more. I just feel that, whatever the underlying rate used in my calculations, I'm just taking too much time to do these projects. I always feel like, next time, I ought to do it quicker.

Before I was in a position to estimate, I never felt this. I worked within somebody else's deadlines and did my damndest to produce the best possible work.

It's not really a lack of confidence - more an overwhelming unrealistic perfectionism.

Does anyone else here feel this pressure? Does it go away with more experience? Is there anything I can do to control it?

On Dec.23.2004 at 09:05 AM
SLK’s comment is:

In general this has been a great post.

I have two questions:

1. Where can one get the Graphic Artist's Guild Ehtical Pricing Guide other than becoming a member? It seems a little silly to pay $200+ for a membership just to get a book that is perhaps helpful and perhaps laughable.

2. Robynne Raye I too would really love to get the contact info for that guy in Seattle who helps with pricing work. I could of really used him on a job where not only was the client nickle and diming me but they got their high paid lawyer involved to whittle my contract down to the bone.


On Dec.23.2004 at 11:11 AM
Don Julio’s comment is:

I think the Sagmeister example is a good one. We want to stay in business AND we want to do the choice projects. Some can pay full fees, others can't. If the cause is deemed worthy, we have to decide if it fits into our shedule - and what other work might be displaced. Despite the contract limits - we will push beyond them when needed to make sure the job goes out the door as we intend - since it represents personally/publicly what we are capable of. A repeat client often says of his own firm “You’re only as good as your last job.” Still waiting to hear how to determine the value of an idea.

I had a creative director at my first job way back when who always said the focus should be on doing the best work - and the money will come. Armed with my then recent grad sense of self-entitlement having “paid my dues” at the time, I felt I should be compensated for what I knew I was capable of (but had still yet to prove).

Largely this focus has held true and over time our fees have increased accordingly, although when I had an account exec on board to help manage my client relationships, change orders, etc., we did better at capturing deviations from the original contract.

For me, it is not a lack of confidence either. The desire is to drill down to the well of information on what exactly the market will bear as part of the value equation - that still seems the toughest thing here to calculate. I know what major shops regionally are billing and quoting -but they also fluctuate. Seems a little more like Vegas sometimes baby, TCB. Roll the dice.

On Dec.23.2004 at 11:31 AM
Ron H’s comment is:


You can get the GAG Book at most book stores (B&N, Borders) and probably on Amazon. I haven't bought the Gag book but I can understand some frustration with suggested estimates but I do think there is other valuable info on contracts, work flow and other business issues that are helpful.

On Dec.23.2004 at 11:53 AM
Armin’s comment is:

Graphic Artists Guild Handbook: Pricing & Ethical Guidelines for $23.07 at amazon.com.

On Dec.23.2004 at 11:58 AM
heather’s comment is:

You do an entire industry a disservice when you do work for substandard fees and fuel misperceptions that there are tons o' computer jockeys sitting by salivating over the next design project. I wouldn’t go to the “Discount Design House” any quicker than I’d pursue “Two for One Eye Surgery,” but then there are people who would...

If you calculate fees like above based on your goals and expenses, you may arrive at a lower hourly rate, I'm a bit lost wondering why someone would want to do give away something of greater value to clients who will not likely appreciate the difference. Our clients are buying design first for quality and distinction. We typically arrive at a project fee, but it is based on hourly calculations. Not many clients even ask about our hourly rates.

i don't really think i can be compared to, say, something like this or even this. I did go to design school, and I think I'm pretty good at it most of the time. I just want to do some extra freelance work for some small businesses in the area, gain some extra experience and make my portfolio a bit more well-rounded. is that so wrong?

I'm in a market where fees are low to begin with (research shows), and even the cherriest of dream clients are still shopping for reasonable fees. (notice: not cheap, just reasonable). after all, it is just business, isn't it? everyone has a budget and a bottom line, and although clients are buying for quality and distinction first, price is most likely number two on that list.

tan, i agree with different fees for different clients. it makes total sense to me.

On Dec.23.2004 at 01:00 PM
Pesky Illustrator’s comment is:

A recent example of our estimating method:

We slaughtered the rooster at midnight with a machette and disposed of the head into a paper bag. Blood was spirting from the twitching torso over a pattern carved into the dirt as the art directors chanted. This was not for the sqeamish. Most of the blood landed on the grid of numbers in the $3000 to $3,500 range - which was a good sign. (Those Orisha are just great at estimating these kinds of things.) So then the creative director opened the bag again and asked the rooster head if this was the right fee to charge. The rooster head distinctly answered "yes" in a Caribbean accent. We typically then inform the client who has to be kneeling, with eyes closed, within a circle of candles nearby. The agreements were made and contracts signed with the remaining rooster blood as the art directors drank rum and the conga drumming continued into the night. Next morning I designed three comps of the logo within three hours and they chose one that afternoon: An ornate little coyote trademark. That calculates to about $1000 an hour minus the expense of the rooster, the rum and the candles.

This method of estimating was from an old copy of the GAG handbook, but I doubt that anyone else uses this formula anymore.

On Dec.23.2004 at 01:17 PM
BlueStreak’s comment is:

"...almost as though to be realistic about time requirements is somehow shameful.

...I'm just taking too much time to do these projects."

TB, I have those feelings too. And this conversation, as well as conversations I've had locally, have helped me put these thoughts in perspective. This is an oversimplification, but I've come to realize that I've been pursuing an irrational desire for frugality. I've had a fear of chewing up the potential return on the client's investment with extensive, and potentially unneeded, design development.

I'm learning that to do great work, you have to pursue clients with the resources and willingness to pursue extensive design development. Unfortunately by the time I figure all of this out, I'll be too old to put it in practice.

This topic has been great group therapy and I hope I get to continue eavesdropping.

On Dec.23.2004 at 01:51 PM
Tom B’s comment is:

I just looked at the www.viewlogo.com website that heather posted a link to.

My god! I had no idea design could stoop so low.

This is trash! absolute SHIT!

It makes me want to cry. Look at the mascot section. I know so many incredibly talented illustrators who're desperate for commissions. To see such crap masquerading as illustration makes me despair.

On Dec.23.2004 at 02:31 PM
Don Julio’s comment is:

I'm in a market where fees are low to begin with (research shows)...

Are these fees published somewhere - it would be great to review.

Glad to hear you are not in the “other” category. I’ll bet by advertising your prices in design, depressed market or not, you will inevitably attract clients for the wrong reason - that was my point.

By hanging tough and not setting the bar too low, you will get what you are worth and feel better as a net result - which can also lead to more inspired work. It sounds like you are doing homework for your region. It is good to be competitive, but not with wholesale, going out of business pricing.

I guess you didn't want to send your boyfirend to Kinko’s? One simple “local” test is to find your nearest service bureau - and see what they bill for design and production. As a trained desinger you most likely bring a higher skill set to the table. Should you price yourself below them (it’s a personal decision)?

In San Diego service bureau pricing can range from $50 - $95 per hour. Probably because there is a physical location and perceived overhead - clients don't even question those rates - even though they are often getting a substandard design product.

On Dec.23.2004 at 02:59 PM
Steven’s comment is:

Pesky, that was freakin' hilarious!

I learned early on in my career that being super-cheap never works out in the long-run. As others have mentioned, cheap clients invariably are also high-maintainence and perhaps a bit unscrupulous. If you start off a client relationship working cheap, it's almost impossible to get them to pay more. And in fact, a cheap client probably won't respect you very much either. Usually these types always try to nickle-and-dime their way towards better "deals" for themselves.

To some of you, don't worry about whether or not you should be able to get something done in a shorter amount of time, and therefore be charging less. If anything, charge for the real time it'll take you to get the work done, and then internally work to do that work in less time, thereby making more profit on the job.

Like others here, I almost always work for a fixed fee. It's important that the client focus on the value of the idea or item being created and not the time it takes to do it. I absolutely don't want a client to nit-pick about how I spend my time. Besides, the value of what I create is the culmination of my experience, skills, and abilities, as well as the long-term client value/importance of the item being produced. If a client doesn't see the value of these intangables, then they should just go to Kinko's.

So I adjust my prices depending on the nature and size of the client and the scope of the project.

I'll give break for insignificant client changes. But for problem clients, I'll charge hourly for client changes beyond the original estimate, keep a running tally, and inform them each time of the extra cost. And I have no qualms about stopping a job if things are getting out of hand. I agree with others, it's pretty much the only effective leverage a designer has. Hey, this is what building contractors do when they have problems.

Monsieur Kingsley, with regards to Anectode #3, ya know it's been my experience that ad agencies are invariably painfully cheap when it come to fees they'll pay to designers, and then they'll pay you in 90 days! I've had this happen to me a few times, so I no longer seek work through them. Besides, they'll just turn around and bill huge sums for that work to the client. I'll work for agencies if it's through Aquent and I'm getting paid weekly for a good hourly rate. (Yes, in this instance, I'm fine with hourly.)

Tan, I think it must be very difficult to price complex big-budget projects: so many variables. It's probably been a good growth experience for you, though, I imagine.

On Dec.23.2004 at 04:37 PM
heather’s comment is:

By hanging tough and not setting the bar too low, you will get what you are worth and feel better as a net result - which can also lead to more inspired work. It sounds like you are doing homework for your region. It is good to be competitive, but not with wholesale, going out of business pricing.

this puts everything into a good perspective, thanks don.

i never even thought of the idea of a fixed fee, but the way steven explains it makes total sense. we once had this client complain about the expenses charged to her for print-outs. she wanted proof of ALL the print-outs we had done, wondering why there was so much. luckily i had saved them all and could produce them on a whim! i could absolutely see a client like her asking to explain each hour. steven, would you mind giving us an idea what these "flat fees" are like?

$50-$95?? i think i might actually get thrown on my butt with an hourly like that ;) maybe i'll get there eventually...

On Dec.23.2004 at 07:22 PM
Tan’s comment is:

>Tan, I think it must be very difficult to price complex big-budget projects: so many variables.

It's not really that different, just more...more people, more parts, more zeros. The scale is vastly different, but you get used to it.

In my 3rd month at the mega-agency, I had to put together a cumulative estimate for a $3 mil brand development initiative. The proposal/estimate was a small book — I think it was 48 pages. I was among 7 directors on the project team (strategy/naming/design/research/account/production/etc.), who each had a smaller team working under them. The out-of-pocket expense estimates for some of the phases were larger than the total budgets for some annual reports I've done. I know ad agencies work with multi-million dollar budgets, but 90% of those budgets are media-buy dollars. Design firm budgets are mostly all billable fees.

It has been challenging but fun to work on such a large scale. Since then, I've gotten accustomed to the scale of projects and clients we deal with and don't really even blink at the numbers anymore.

But as big as agency budgets can be, think about architect firms that generate estimates for large architectural projects, like a $100 mil hotel or a $300 mil stadium. Or what about estimates for movies, I mean, can you imagine the parts, people, and pieces that are involved in a $150 mil hollywood flick?

No matter how big of a fish you think you are, there's always a bigger pond out there...with even bigger fish.

Debbie comes to mind :-)

On Dec.23.2004 at 09:51 PM
Greg’s comment is:

OK...I've been following this discussion with quite a bit of interest, since I'm packin' up my game and headin' way out east next week, and am switching over to freelance from inhouse... and I'm still as confused as ever. Aside from a few horror stories to avoid, what can be garnered here? What can a little one-man op do when he's gotta compete with not only respected and experienced designers but with the Viewlogos of the world? I can't price myself at $50/hr and get clients, but I can't price at $15/hr because apparently I'm doing all of Designdom some sort of disservice. I gotta say, the deck seems stacked here.

On Dec.23.2004 at 11:02 PM
Tan’s comment is:

Greg, no matter what you charge, the most important thing to remember is that your rate has to be based on something real. What I mean is that determining a billing rate isn't just a matter of choosing an arbitrary number — it's determining your cost of business, how much work you're likely to get, and how much income you want to earn. Be realistic and conservative.

Peter's basic math formula in the intro is a good start. For determining basic billing rate, try this formula below. It's very basic, and just a rough framework for thinking about expenses and income.

1. An average person can work about 2,100 hours a year — that's 40 hour weeks minus weekends, holidays, and 2 weeks vacation.

2. Now calculate all costs incurred in order for you to work — computer equipment, software, toner, paper, supplies, rent, utilities, cell phone, bookkeeping services, insurance, absolute everything and anything you can possibly think of. Guesstimate that number for the year. (for example: $1,200/month x12 = $14,400)

3. Now, determine a goal for your yearly income. Make it conservative. ($40,000)

4. Take your expenses + your income goal and divide it by 2,100 hours ($14,400 + $40,000 = $54,400 / 2,100 hours = $25.90)

5. Now, since no one can work 100% without marketing for work — realistically, 50% is much more achievable. So take that figure from step 4 and multiply by 2. The result is your billing rate goal...or a start at least. ($25.90 x 2 = $52 / hour)

The truth is, no one can charge $15/hour and afford to make a real living in design — not even ViewLogos.com or that other site selling on eBay. On the other hand, few freelancers are making $100/hour throughout the course of a year. As the Aquent salary survey shows, most designers are making somewhere in between.

Knowing your goal billing rate also helps you to track your hours on a job and know if you're making money or losing money — even if you're charging a flat project fee.

So relax, be smart, plan well, and you'll do ok. Nevermind what others are charging.

On Dec.24.2004 at 01:51 AM
Derrick Schultz’s comment is:

Thanks to everyone for all the great insight. I'm still a design student and most of the freelance work I take on is either through my internships or pro-bono, both with the understanding that I'm still a student and you get what you pay (or don't pay) for. So I certainly have little to add, but I'd like to toss some ideas out if someone wants to bite and respond to them (I admit I'm playing devil's advocate on these, but I'd still appreciate some response if possible)

1. The concept of charging rates based on the client's own revenue at first really intrigued me...but then I got to wondering: wouldn't clients be disappointed if they knew thats how their rate was set? I'm sure some of them do know that, but I imagine clients might talk to each other once and a while. So if boss at one firm finds he's getting charged 100/hr while his friend who owns a smaller company is getting 65/hr for essentially the same job, I could see that getting really ugly from a customer service standpoint.

2. Going along with #1, I wonder if charging different rates affects one's own work habits. I mean, if I know one job is 100/hr and another is 65/hr, I know which one I might put more effort into. Obviously, I'd love to have the utopian ideals that we will work with 110% effort if the job is six figures or free, but I also realize most of us are putting food on the table with this job. I'm also reminded of why my school only accepts internship positions that pay: the fact being that paying jobs mean that the company has invested interest in good work and using my talents. It would seem the same could be held true of pay rates to clients.

3. There's a lot of talk about an estimate just being an estimate, and that if the client is a pain and asks for a million rounds of changes that it is then fair to change the work order and charge more. All well and fine by me, but does it work in reverse as well? If the client is super efficient and you finish the project under time, do you charge the client less? maybe thats just an obvious rule...but its not mentioned in here, so I wonder if its "well, he thought this would be the amount, so lets just keep it at that and I'll have a bigger profit margin."

Again, maybe on the devil's advocate side. And I'm not calling anyone out either. I appreciate all the discussion about this. And even if you do feel the way I described on here, I'm not saying its a bad thing, we all have our own philosophies after all.

On Dec.24.2004 at 03:57 AM
Don Julio’s comment is:

I can't price at $15/hr because apparently I'm doing all of Designdom some sort of disservice.

Per Tan's update, forget Designdom for a moment my design brotha' - the disservice is really to yourself - and sets the bar below what anyone can realistically earn a living on. We are talking about more than college-survival-on-a-budget type of living here.

Tan mentions not even blinking at the numbers anymore - but he did at first. The same is true for $15 vs. $50 and hour. After college I thought $1,000 was a lot. My thinking needed to change if I was to be able to make this a viable career. To get past that I decided to alter MY perspective by subtracting a zero from all my preconceptions. I chose to see a $20 as $2, 1000 as 100, 10000 as 1000 and so on. 1000 didn't seem like much anymore.

Perhaps if you do the calculations, it will help prove what you need to charge to have a sustainable living as a designer.

If someone asks why you charge what you do, you then will also have some hard evidence vs. an arbitrary number conjured from rooster chanting, or whatever preferred methodology you employ. Add a child or family to your living expenses and you will be even more motivated to stick to your guns - and not sell a valuable service for less than it is worth.

We all balk at car repair estimates, but there it is in black and white, hourly rates, parts, labor, disposal fees, etc., -it is what it is and you need what they provide. Lawyers and Doctors have HUGE college fees to repay, we may cringe at their rates, but when it comes down to business, you want the right person looking out for you. Design is no different.

I repeat my earlier advice - at $50 an hour my bookkeeper saves me thousands each year and keeps me current with billables, receivables, state, federal compliances and more. She is one of my secret weapons.

On Dec.24.2004 at 11:15 AM
Steven’s comment is:

I agree with Don that a good bookkeeper is worth his/her weight in gold (or at least their hourly).

Forget about $15/hr. as a fee! Tan's method for determining an hourly fee is the way to go. And as he mentions, about 50% of your time is going to be eaten up with marketing your skills, invoicing, writing contracts, managing your office and expenses (even if it's just a spare room), networking for clients, learning software, etc. etc. So that means that your $15/hr is really a $7.50/hr. design fee. At that rate, you might be better off working at 7-11 or Walmart.


My fixed fees are determined by my hourly rate multiplied by the number of hours I think it'll take, plus 15% to 20% as padding to cover unexpected complications or time spent. So the fixed fee is really a stealth hourly fee packaged as a single number. But I never discuss the hourly determinations with a client. As I said before, I absolutely don't want a client involved with my time managment. That's my concern and none of their damn business. I want the client to understand this as a single design fee, which is determined by a number of factors, and leave it at that without explaining every freakin' nickle and dime. The design fee for a brochure, or whatever, is going to cost X amount of $. Then to this design fee, just like Peter, I'll delineate out-of-pocket expenses plus a 20% mark-up. (And if a client snivels about having expenses marked-up, just inform them that the mark-up is to cover the time spent getting the materials and dealing with vendors, along with the fact that, as re-imbursable expenses, you are basically taking on the burden/risk of this debt until payment of the final invoice. That's your money that is being tied up with a project that could be used for other things like groceries. Yes, these expenses may be a part of the project, but they are manifested by the project and are the responsibility of the client and not the designer. If you look at the AIGA's standard contract, you'll note that they go to great lengths to say that the designer is only responsible for designing and that additional expenses are undertaken only as an extra service to the client.)


With #1, if you are charging a fixed fee for design services, then the question of hourly rate is mute. I think that a bigger client would expect a bigger fee for their project, in comparison to a smaller client. As Peter mentions in his original statement, bigger clients are more involved than smaller ones. One other point, in certain instances, I will build in a higher hourly rate to a fixed fee for a project if I'm really, really busy. This is sort of like charging double-time for working beyond a normal business day. Also, if a high-maintenance, pain-in-the-ass client wants to use you, it's a way of making the agony worth your time. In both of these cases, it's not to your advantage to take on the project, so it needs to be worth it from a monetary standpoint.

With #2, yeah, I'm more motivated to work on a higher paying job than a lesser paying job. And the funny thing as well, frequently the client of a higher paying project is nicer and more professional than the lower paying one.

With #3, if things go smoothly and you finish a project in less time, revel in the fact that you've made more money. Or if the guilt is over-whelming you, do some little extra thing as a bonus and tell the client that it's just a little thank you for being a great client. But once again, this is all predicated on the idea of a fixed design fee.


I guess it just boils down to adapting to new situations by leveraging previous knowledge and experience. But I bet it was a trip the first time you were pushing around seven-digit numbers!

On Dec.24.2004 at 05:51 PM
DCD’s comment is:

For those of you struggling with pricing/setting hourly rates, there's a good discussion of the topic in this new book...


...similar to Tan's comments above.

On Dec.24.2004 at 07:21 PM
Peter Waksman’s comment is:

Here is a formula I use in software development

project duration = (X*3)^n

where X is the time it should take if nothing un-expected happens. The factor of 3 is because of reality always throwing in something un-expected. The exponent n is the number of people working on the project. Cynical eh? The formula works.

On Dec.27.2004 at 09:52 AM
Pesky Illustrator’s comment is:

Peter, that's a lovely formula, but try a factor of 30. There's the unexpected and then there's the Unexpected. (The rooster head method never is wrong.)

On Dec.27.2004 at 12:43 PM
Tan’s comment is:

A related tangent on client cynicism...


On Dec.27.2004 at 01:18 PM
Pesky Illustrator’s comment is:


Thanks for saving my sanity. LOL

On Dec.27.2004 at 02:17 PM
Don Julio’s comment is:

No one has mentioned the shorthand PITA (for Pain in the Ass) clients. There should always be a fair price charged to those who set out to make your life miserable. Anywhere from three to thirty times seems about right.

Re: Tan's link: Ze Frank AND Speak UP's Armin Vit are among April's Y Design Conference speaker line up. Stay tuned.

On Dec.28.2004 at 06:01 PM
Armin’s comment is:

Don, it sounds like a capital-F-Fascinating event already…

On Dec.29.2004 at 08:31 AM
BlueStreak’s comment is:

>PITA (for Pain in the Ass) clients

My mentor factored this in estimates as the "asshole tax."

On Dec.29.2004 at 10:24 AM
gordonr’s comment is:

I work with a fair amount of graphic designers on a regular basis in developing software. Reading through the comments, I'd say that there's a lot to be gained by investigating some of the literature on estimating that software types have done.

Perhaps first off is a fundamental distinction between an estimate and a target. An estimate is (hopefully) an accurate representation of how much effort is required to complete a task. That's fundamentally different than a target, which a lot of people seemed to mention when talking about how much fees should be (ie: how much should I be compensated for my effort - rates, price, profit, etc.). A target says, "I've got $20,000 - how should I allocate my time around that amount to accomplish a series of tasks" -- it may or may not have any connection to the reality of how long it's going to take to get said tasks done.

Budgets are useful to know in advance, as they provide us with goalposts. But they should really have nothing to do with effort estimates, until the two collide head on after a client has asked for something too large, that will cost too much, and has too little budget. Then you have to make trade-offs, like do less, spend more, etc.

Likewise, the relationship between effort and time is not always 1 to 1 either. Just because it's a week's worth of effort doesn't mean it's going to take a week's worth of schedule. Someone already quoted the effort/duration equation above to illustrate this point.

Estimating effort based on previous recorded data is a great method, and probably the only really good method for guessing the future. The other not-so-great method is the "pull a number out of my ass" process. Great quote from a famous software development book:

"It is very difficult to make a vigorous, plausible, and job-risking defense of an estimate that is derived by no quantitative method, supported by little data, and certified chiefly by the hunches of the managers."

from Fred Brooks, author 'The Mythical Man Month'

Replace the word managers with "designers" or "software developers" or whatever your profession.

How many people go through a process like the Wideband Delphi when estimating? How much better would our estimates be if we did?

On Dec.29.2004 at 07:59 PM
Valon’s comment is:

I always seem to be late on great posts in here.

Tan ~ great stuff man:

There are so many great things said in here so far, but I will have to add my 2 cents just for the sake of being a part of this awesome post : )

This is how I've been doing it. I have been right for the most part, but I have to admit that there have been times when I've gone overboard just to please the client and ended up with "zero" profit at the end, which is not as bad of a thing, as long as you're not in the Red.

Few things I've learned:

- Never underestimate just to get the project.

- Always add your 25% profit margin at the end. You will surprised how much time tedious work and PITA's can take.

- When you end up with the projected profit, always add a symbolic gift for the client. We all Love gifts.

- Be expensive and act expensive. Clients will respect you more, when you respect yourself.

- Put everything in paper and have clients sign-off for each stage.

- Explain the Service Agreement in Detail.

- Don't leave room for surprises.

- Never work with clients who try to save 50 bux. Chances are that client will cost you 3x more.

- Be polite even when you feel like screaming.

- Think BIG!

- The Client is always right - at least make them feel they are.

- Never leave the project unfinished - it's bad Karma. No matter how PITA the client is, you owe it to the profession to finish the job the best you can.

- ...and last but not least ~ DO GREAT WORK and always leave with them wanting more.

Would anybody care to provide some real-life examples? Say, the latest project you estimated, whatever it might be…

Depending on the workflow tomorrow I will try and post one of our most recent projects (with numbers and everything).

You know what I just thought ~ We always say how Clients don't really know how much design is worth, but in reality we as colleagues and designers are never open to each other of how much we charge or how much we make. Would it be a good idea for all of us to reveal that? ~ Maybe that could shed some light in the whole profession. After all we should have some kind of licensing like architects do...I'm off on another subject right now......

On Jan.06.2005 at 10:39 PM
Andy’s comment is:

Great article and some informative comments.

I found some guidelines loosely based on the GAG guidelines and I have a couple of scenarios to discuss.

Example 1: Home page design plus second page adaptation - $500 to $4k

Now, is the 2nd page adaptation just ONE page...adding up to a two page site (which doesn't sound right to me) or is that 2nd page the template page for the content of the rest of the site which may end up being 5-7 pages?

Example 2: Ddditional linking pages following home page theme - $300 to $3k (this assumes that copy and photos are supplied by client)

I got lost with this idea. How would that work?

Another question: Hourly rates seem to be different for designers and senior designers. How do you determine if you're a designer or a senior designer? Can I base that on my level of expertise or can I base that solely on the fact that I've got a one man opperation?

On Jan.13.2005 at 02:17 PM
Tan’s comment is:

Sorry Andy, no simple answers to your pricing question — which points to the uselessness of GAG's pricing range absent of a thorough understanding of pricing methodologies.

>Hourly rates seem to be different for designers and senior designers. How do you determine if you're a designer or a senior designer?

Senior designers control and produce a project from beginning to end, including concept development, design, production management, as well as client interaction. The title alludes to the amount of responsibilities you manage, and theoretically, the high amount of work you can generate.

(Junior) Designers have less experience, lower proficiency, manage/produce less of the final product, and generally crank out less work within the same timeframe as a senior. Because of that, the hourly rates for a junior designer is lower — because the service is less.

So it's not just a matter of deciding on a title — it's all based on what/how much you do and the fair value for that service.

On Jan.13.2005 at 03:29 PM
Valon’s comment is:

Andy ~

I had the same questions and concerns when I first started out. What you have to do is figure out how long does it take for you to complete a job and all expenses that go with it.

I will give you a sample idea on how to look at your expenses and what to charge:

1. Figure out how much money you need to stay alive: Food, Bills, Rent...and other personal expenses.

2. As a freelancer you will have about 160 hours per month available (based on 8 hour days). Out of these hours you will be able to bill around 80 hours. (You can do more but you have to consider the time you spend/waste on writing up estimates and other hours that you cannot bill to clients.

--- so this is how it looks so far:

Your personal monthly expenses: $3,000.00

Your profit of 25%: $750.00

Total money you need to live and work: $3,750.00

$3,750.00 / 80 billable hours = $46.875

$46.875 is what your hourly rate is (based on the numbers above)...

This is just a simple estimate, if you would like me to help you out with numbers, let me know and I'll gladly help you out. I've been there not long ago and I know how frustrating it is.

The bottom line is this:

1. Find out your expenses

2. Find out how much profit you want to make

3. Take that total and divide it by 80 billable hours.

4. Make sure to mark-up all outside services (printing, illustration, photography) up to 20%. That's the time you will spend researching, art-directing.... even for stock-photography.

I hope I helped out a bit.

....GAG shouldn't be taken seriously!

On Jan.13.2005 at 03:40 PM
Rick Landers’s comment is:

If you are a member of AIGA you can access this link, I am not sure if you can access it without being a member. Last year AIGA did a really nice job of putting together some guidelines and ideas as part of their Design:Business Series to help with pricing as a studio and a freelance designer.


I have a PDF of this, but I cannot figure out how to attach it in this message. e-mail me if you would like.

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On Dec.03.2007 at 01:54 AM