By: Matt Mickiewicz

August 29th, 2001

Reader Rating: 8.5

You've used every trick in the book to get visitors to your site, encourage enquiries from prospects, and land that sale... but it's no good if you sell your services for next to nothing. If you're a freelance Web designer, or you own a Web design shop, your business survival may rest on the development of an appropriate pricing model. Here's how.

Responsible Pricing

The first thing that you should be aware of is that the discussion of pricing with your competitors is illegal in the US and Canada. Yes, you heard me right. It's called price fixing, and it's a federal offence.

But if you can't discuss price with your peers, how can you develop a pricing plan that's reasonable and appropriate to your market space? The answer lies in salary surveys. These frequently-published marketplace snapshots can be the most accurate guide for your own price structure.

How Much Should I Charge?

1. Find the salary for your position at Dice.com [1] and Salary.com [2].
2. Divide the salary by the total number of billable hours you work annually. This means you need to subtract vacations, holidays, weekends, and the time you spend on sales. Essentially, if you aren't doing direct work for a client, it you shouldn't count it as "billable" time. Usually the number of billable hours will fall somewhere between 1200 and 1600 hours per year.
3. Add overhead to this hourly rate. If you're a freelancer, multiply it by 1.5. If you're a Web design shop that rents or leases office space, multiply by 2. This covers overhead such as computer equipment, insurance, office space, health insurance, and other unavoidable expenses.
4. Include a profit margin. The percentage that business owners typically add as profit, is usually 15% to 25% of the total rate.

Real World Pricing

Let’s walk through an example to see exactly how this would work. You’re a Graphic Designer in LA who works around 1400 billable hours annually. According to Salary.com, the median salary is $69,574 per year for a Level III Designer who has a degree and four or more years of experience.

Dividing by $69,574 by 1400 gives you $50 per hour. Assuming that you work out of your home, you multiply by 1.5 to get $75 per hour. Now throw in a 20% profit margin, and you get a final rate of $90 per hour.

If you do this calculation for the salaries that you find on Dice.com and Salary.com, you should get a very solid range for pricing your work.

Now, if you're new to the business, you might want to start your rates at the lower end of the spectrum. To do this, simply take the lower number that Salary.com provides. In this case it would be $62,156 per year ($80 per hour). Once you have so many clients that you don't have enough time to take on any more, raise your prices. Supply and demand is beautiful thing.

Other Considerations

Newcomers to the freelance world should also create a solid set of templates for generating proposals for clients, and a legally binding contract that's written by a lawyer in your country of residence.

ProposalKit.com [3] offers pre-written contracts for Canada, the US and the UK, in addition to a wealth of templates. Considering that a good lawyer will set you back $200 per hour, the price is well worth it.

[1] http://marketing.dice.com/rateresults/
[2] http://www.salary.com
[3] http://www.proposalkit.com/kits.htm