13 Jul

Three Dirty Secrets of Pricing for Web Design, Graphic Design and Software Development

There is some risk in writing an article like this.  It discusses pricing for professional services; getting it wrong in either direction can cause problems for the supplier, customer or both, and the risk is that the problems and solutions outlined are misunderstood.  However, the principles I’ll describe below ultimately benefits the end customer, and so I hope it will educate and inform, and so in turn benefit more end customers.

This all starts with a few assumptions.  Based on 8 years of quoting for and delivering fixed-price creative work, I have found that customers who buy design (eg. web design, graphic design) or development (software development, web development) work for a fixed price think that most or all of the following are true:

  • the quote reflects a specific number of hours work
  • reducing the requirements will reduce the price
  • all of the hours charged for are spent actually doing the graphic design, programming, or whatever skilled work is being charged for
  • the price is equal to number of hours multiplied by a fixed hourly rate

Many web designers, graphic designers, developers and consultants start out in their business also believing that these things are true.  However, within 1-2 years it becomes obvious (usually when the bank account is empty) that these things are not true.

Let’s work through a few examples and find out where this model breaks down, and why so many creative professionals struggle to build a viable business.

Why Price is not related to Time

Meet Danny.  He’s a graphic designer who’s just bought a shiny Mac, picked up a 2nd hand copy of Photoshop from eBay, printed some business cards, and built himself a flashy website.  Let’s walk through a few example customers at various stages in the life of Danny’s small graphic design business. Read More

17 Apr

Web Designers, Marketers and Software Developers, how efficient is your business?

In this article, I’ll have a go at explaining a measure of business efficiency which I heard described by Nic Rixon (if you ever get a chance to see this guy, do it) in a business growth seminar, which he calls a “Run Rate”.  The term Run Rate is normally used to describe a company’s revenue extrapolated over time, but as I can’t find another term for this measure I’ll use Run Rate for now.

Imagine if everything was running at maximum efficiency.  If you charge by the hour, this means every employee who does chargeable hours is working all day every day.  Enough sales are being made to keep everyone busy, client expectations are managed so they don’t keep calling, maintenance is low because quality is high, cash flow is easy because prices are right, and staff are productive because they know what needs doing, and have the tools to do it.  Perhaps you’re purely selling time, in which case imagine you could work chargeable hours every day. What would your sales figure be?  Put a realistic number on it.

Now, what are your sales currently?  Take the past 6 months, for example.  Perhaps discount any abnormal windfalls or writeoffs, unless they happen regularly.  Divide that by the previous figure for the same time period.  For example, if you did £50,000 in the past 6 months, but you could potentially be doing £15,000 per month, then you could potentially have done £90,000 in the same time period.  £50,000 / £90,000 is 0.55, or 55%.

Read More

28 Mar

Selling a small Web Design or Software Business

How often have you seen “Dragon’s Den” hopefuls putting ridiculous values on their fledgeling business?  They are trying to put a real number on all the passion, blood, sweat and tears that have gone into fulfilling their dream.  They’re trying to turn something they’re 100% devoted to into a real number, and naturally the numbers that come out are enormous.  But as we’ve seen, that’s not the same value that others will apply to it.

“Value” is a relative term – it really means “Value to a specific person in a specific set of circumstances”.  Many years ago, after one of life’s inevitable down turns, I found myself completely skint; owing cash to a local thug and buying food with rubber cheques that, thanks to a wonderful invention called a cheque guarantee card, the bank would honour.  As you can imagine, a five pound note had far more value then compared to now.   Read More