How much you should charge your clients can often be a difficult situation for a new agency. Making sure you charge the right amount is crucial in making sure you are paid fairly for your time and being able to cover the overheads of the agency.

What’s your survival budget?

To work out your survival budget, you need to calculate the bare minimum you need to be able to eat and pay the rent/bills and then adding the business overheads onto that, for example telephone bills and rent for space or desk.

Your time is important

You are in the service industry and so you will be charging for the time you put into each project. If you don’t work this out correctly you’ll be making a loss, since the cost per hour you charge will pay for the above.

Once you’ve worked out your survival budget, you’ll need to work out your hourly rate bearing in mind this rate has to be sensible and a reflection of your work. Your hourly rate should be worked out based on the number of hours you want to dedicate to your company. For example, if we use the standard hours you would work for a company, which will be eight hours a day five days a week, with a four week holiday; that gives you 1,920 hours worth of work.

However, it is very unlikely that you will be working on projects for 1,920 hours.   A majority of your time will be spent on day-to-day running of your business, such as finding clients, paperwork, finance, marketing, planning and development etc. So on average 40% of your time should be spent doing this work. If you work this out your left with 1,152 hours that can be dedicated to client work.

Now you’ve worked out how many hours you can dedicate to actual client work and your survival budget you need for the year, you can use this to work out the minimum you need to charge per hour. For example if your expected salary is £25,000 per year and your overheads are £10,000 per year, which means you need £35,000 per year in order for you to survive. Dividing £35,000 (salary) by 1,152 (hours dedicated to clients) means you will have to charge around £30 per hour in order to reach your financial objectives.

In the beginning 

You’ve worked out your hourly rate but you’re a start-up. Realistically as a new company it is often hard to justify your hourly charge especially if it’s above £20, unless you have a large successful portfolio. At times you may have to negotiate your hourly rate to bring in some work, often you find people say stick to your hourly rate but if you need to bring in some work to build a portfolio you may have to bite the bullet at times. Once you’ve built a portfolio you can justify your prices, at that time you can stick to your price.

You need to bear in mind that at the beginning you won’t be operating at full capacity, so you want to think of ways that you can save money. For example, working from home meaning you won’t have to pay office rent for a while and meeting clients in coffee shops or their offices. By doing this you won’t be paying out money you don’t have, plus you’ll be able to save the money you make to be able to afford an office when necessary or put it towards marketing.

Using your time right

Keeping timesheets will help you estimate how long a job will take so you can give quotes more accurately to future clients. This way you can give a rough idea of many hours it will take to get the job done, and a way of justifying your quote given to the client. Keeping a timesheet will really help provide an accurate estimation of the number of hours a job will take.

Also by doing this you can show when a project is going to run over budget, and if clients begin to ask for things that weren’t in the original proposal you can go back to them showing by doing these extra things you will run over the time and budget agreed. If there, happy to continue and pay for the extra work then that’s fine, but at least you’ve kept a track of the work you’ve done for them with the initial budget.

Breaking it down in stages

By keeping a track of the work using timesheets you can break the project into smaller milestones and how long each milestone takes. This makes it easier to invoice your client. Breaking the project down into the following stages makes it easier to track your time management skills and also invoicing clients – design concept, development, implementation and launch. Not only will you be able to track how long each phase will take you but when one phase is completed you can invoice your client for the work that way you will make sure you’re always getting paid from the client for your work. There’s always a risk as a designer that the client won’t be happy with your work but they should pay you for the hours you’ve undertaken whether that project goes live or not, since they’ve employed your services and trust to develop a project their decision is based on the initial meeting, portfolio and reviews so they can see the type of personality you have and the style of work you produce. Even worse, when you complete a project and client doesn’t pay on completion or don’t pay at all. To protect yourself, your reputation and the relationship between you and the client it is easier to create this breakdown and invoice accordingly.

Finally

Make sure you enjoy working on projects and learn to say no when it’s a project that you will not enjoy or is unrealistic either financially or expectations. Negotiating prices lower in order to build your portfolio is a good idea, however be wary that this is a competitive industry and you will always find others who charge less or clients looking for quotes elsewhere for comparison. The key is to explain why you can afford to charge the hourly rate, either it’s a niche market you operate in or the skills and service you provide is of a high quality and stick to this. It’s okay if a client turns you down on other reasons as long as it is not based on why you’ve charge your hourly rate.

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