Dear Design Doctor
I am a new web designer and need to know how much I can charge for my daily or hourly rate. Do I just charge what others are charging, or is there another way?
The Design Doctor is Patricia van den Akker, Director of The Design Trust:
“Web design is a very competitive area to work in, and indeed very often the price is set by your employer or agency you work for. The daily or hourly rate depends roughly on:
- what experience you need for the job and how unique your skill set is,
- where the work is e.g. London pays higher hourly rates,
- how long the work is for: if the work is for a longer period then often the daily rate goes down
- when the work is: for night or weekend work you get obviously paid more, or if there is an emergency or a speed job to be done
- the market rate
- your ability to negotiate
However, you might like to know the true value of your time and to calculate what your daily or hourly rate should be to enable you to work freelance.
1. Identify your annual expenditure
Firstly identify how much you spend annually on your business. As a freelance designer this will be pretty low in comparison to people who run a product based business and require a studio.
But what are your annual overheads e.g. your phone, travel, insurance, marketing?
Let’s say for this example this would be £ 3,500 p.a.
Then identify how much you would like as a salary. Be aware that you will need to deduct tax and National Insurance, so let’s say that you would like to earn £27,000. (This figure very much depends on where you are and what seniority you are within the business).
So you will want to earn £30,500 to cover your personal and business costs.
2. How many working hours can you invoice for?
This is tricky! You will have holidays and sickness, you will need to spend time on admin and marketing. There are slow periods in the year such as Christmas or the summer holidays (although you might actually get booked for that to cover holidays by employees!)
As a web designer I expect that you get fairly often regular bookings with the same clients for a longer period, so I would expect something like 60 – 70% of your hours to be billable throughout the year.
If you are a recent graduate than I would expect your billable hours to be far lower, and if you would work in other design sectors it would also be harder to find regular repeat business, so than you might be looking at 40 – 50%. This means that you get paid on average for only 2 days per week, other days you might work but don’t get paid.
So I would expect you to have something like the following annual billable hours:
48 weeks x 40hours x 60% = 1,152 hours p.a.
3. Calculate your hourly cost rate
Now divide your total annual expenses by your total hours invoiced and you get the hourly rate that you need to charge to break even. In our case that is £30,500K/1,152 = £28 p.h. or £212 p.d. for an 8-hour day.
A couple of notes on your hourly rate
Does that hourly rate sounds like a lot? Remember that you might have been earning far less than this in a PAYE job, but that this is the hourly rate from which your tax, National Insurance and all expenses will be deducted.
Also be aware that you actually need to get the work to get this hourly rate. If your billable hours are far less than anticipated than your annual income will decrease dramatically. However, when you become more known with potential clients or employers your billable hours percentage should naturally increase due to repeat work, which means that your annual income also will increase without having to change your hourly rate!
Your actual daily or hourly rate will depend on a variety of factors, incl. market, your expertise and experience, total work involved, budget. You can read more about this in another blog post about pricing your work.
Be flexible with your daily or hourly rate. For long-term fixed contracts decrease your hourly rate in return for a more steady stream of billable hours. Longer term (part-time or full-time) contracts provide stability and increase your % of billable hours in the year.
Get it in writing. Make sure that you get your hourly or daily rate confirmed in writing or in a contract.
Did you find this useful? Why not share it with a friend or colleague? How did you work out your hourly or daily design rate? Feel free to share below:
Good article. For those who sell their services (i.e. hourly billings) rather than products, I have three comments:
1. Your hourly rate: set it at the high end of the reasonable range for your experience level and market — even if no one would actually pay that rate right now. Why? Because it tells prospective clients that your work is valuable and should command respect. If you don’t value your work, why should anyone else? The “art of the deal” involves setting a high but still reasonable rate — then in the next breath discounting it as needed, to whatever the traffic will bear. “My regular rate is XXX, but in some cases I’m able to work within your budget. Let’s see what needs to be done.” The message: you value your work and expect others to, but you’re also a realist regarding specific projects and budgets.
2. Define the project (i.e., scope of work) with extreme care. Sometimes projects grow in unexpected ways and — because the scope of work was not well defined at the outset — the client does not realize that certain added work will incur added cost. In the military, they call it “mission creep”. If you have agreed to a flat rate (lump sum vs straight hourly billings) on the project, you could find yourself working many unbudgeted, unpaid hours. If it’s hourly billings, your client could experience “sticker shock” at the end, poisoning the relationship. Solution: define with care, and keep communicating.
3. Keep timesheets religiously. You cannot trust your own memory or perception. Without timesheets you will have no clue as to how much a project is actually costing you, in terms of your precious time. Different people have different timesheet methods. I keep timesheets to the nearest quarter hour and round up or round down to keep it fairly balanced. I don’t show my timesheets to clients. These sheets are my internal tool for tracking my “profit and loss” on each project. Timesheets are an absolute pain in the butt. I hate them, but cannot earn a living without them.
Hi Ari
Thanks for your extended comments and practical tips. Indeed I suggest that readers also check out the follow up blog post around ‘ways to price your products and services’, which touches on your points 1 and 2. I also would refer to the blog post on ‘writing a design brief and quote’ as that talks about ‘mission creep’. And indeed … without time sheets you don’t really know what you are doing, and they are a great tool in hindsight to use to calculate your real hours and will help you to get better in predicting future projects.
Thanks.
Patricia