Best Practices

A challenge for web designers (and really anyone in a service industry) is determining what to charge for their time. What are customers willing to pay? What’s your competition charging? How much do you need to make to cover your expenses and earn a profit? People smarter than me have already covered the topic of determining what to charge for your service, so I’m not going to rehash it here. What I am going to talk about is what to do next with that information.

Billing By The Hour Or By The Project

For the sake of keeping the math simple, we’ll assume that you’ve determined an hour of your time is worth $100. You meet with a potential client and determine the project they’d like done would take about 80 hours of your time. At this point you have some choices:

1. Bill By The Hour. You tell the client that you charge $100/hour and you expect the project to take 80 hours. If everything goes according to plan, they’ll be spending $8,000. If the project takes longer than you expected, they’ll have to pay more. If the project gets done early, they get the pleasant surprise of not having to spend all of the money they had budgeted.
2. Bill By The Project. You tell the client that the project will cost $8,000. No matter how much time you end up spending, that’s the price the client will pay. If you are particularly efficient with your time and finish ahead of schedule, you enjoy some extra profit. If you fall behind, you’ll make less profit and could potentially lose money.
3. Hybrid. You tell the client that you expect the project to cost $8,000 with 80 hours of your time. If unforeseen complexities arise and you need to spend more than 80 hours, the additional time will be billed at $100/hour. If the project actually takes 85 hours to complete, the client will end up spending $8,500.

There are pros and cons to each of these approaches. I prefer to bill by the project, which works for me because I can come up with fairly accurate estimates of the time I’m going to need to spend on a project. Some people like to bill by the project and build in a large time cushion as a buffer against the unexpected. I think a modest buffer can be useful, but if you get too aggressive with it, the price you bid for the project is likely to be significantly higher than the competition.

If you use the hybrid approach, you can give the client a price based on what you truly think it will cost. You are protected from the unexpected by the ability to charge more if the road gets bumpy. Be aware that clients will expect an explanation of why your original estimate was off. If the reason was out of your control (for example the client does not provide the graphics or data they promised and you had to create them from scratch), most clients will understand. If the reason is just that you aren’t as efficient at making web sites as you led them to believe, don’t expect a lot of future business.

Single Bill Rate vs. Multiple Bill Rates

Unless you are very narrowly focused in your business, most projects you work on will consist of multiple tasks. It isn’t uncommon for me to find myself in charge of hosting, logo design, copywriting, website layout, database design, PHP programming, and search engine optimization on a single project.

Everybody has a niece who can create a website layout. In some cases the layout isn’t particularly attractive of useful, but it meets the technical definition of a website. Most of these nieces aren’t experienced database developers, though. Based on that fact, some decision makers would question that the time spent designing their layout is worth $100/hour while at the same time considering that price a bargain for building their database.

Using different bill rates for different types of work can allow you to charge competitive rates in those areas where there are low cost alternatives (i.e. brochure sites) while maximizing profit with higher rates on those skills that no one else seems to be offering.

You can also use pricing to control what kind of work is landing on your to-do lists. Depending on your talents and preferences, you’re likely to be better at some of these tasks than others. Maybe you can hammer out a robust, meaningful logo but fight tooth and nail to get a web site to appear on page 10 of Google’s search results. There’s no rule that says you need to have the same hourly rate for all the hats you wear as a web designer. Charge higher prices for the tasks you don’t enjoy. You won’t get asked to do it as often, and when someone really wants you to do it, it won’t be so unpleasant as you think about the extra money you’re pulling in.

In spite of those advantages, I personally use a flat bill rate for everything I do. Multiple bill rates means a moderate increase in the complexity of your invoicing and a significant increase in the complexity of your time tracking. As far as I’m concerned, it takes enough work just keeping track of where my time is being spent when I have multiple projects going. Since I could be working on search engine optimization, copywriting, and layout all at the same time, the idea of tracking how much time I spend on each individual task is overwhelming. I’d need to have a separate bill rate that I used for the time I spent keeping track of all my other bill rates.

In my opinion, the option of multiple bill rates doesn’t become practical or particularly useful until you’ve gotten large enough that you may have several employees working on the same project. Around that time, it starts to become absolutely necessary.

Sticking To Your Guns

You’ve crafted a detailed quote for the client, explaining how you can meet their needs and how much it will cost. The client likes everything you’re saying but wants to know if you can come down on your price. You really like this client and want to do the work, so what do you say?

First of all, don’t panic. Don’t assume that you won’t seal the deal without dropping your price (unless the client tells you exactly that). Some clients who plan on going with you anyway are just asking in the interest of getting the best possible deal. That being said, you may encounter clients who want to work with you, but truly can’t afford your services. It’s time for a judgment call. In some cases, you may decide it is worth it to offer a discount, but that should be the exception and not the rule. If you regularly find yourself dropping your price when a client asks, you probably aren’t putting enough time into coming up with a price in the first place. It also creates the impression that you’re gouging your customers. They come to feel that you’ll charge them whatever you can get away with and they will suspect that every quote you ever give them is inflated.