One of the most common questions I get from young designers who are either freelancing or starting a firm is: "What should I charge for my design services?" Today we'll cover one aspect of my pricing model. I like to call it the Responsive Pricing System.
The Responsive Pricing System
When I started Go Media, it was just me. I had a set list of prices I wanted to charge, but I was frequently desperate for money. When times got lean, I dropped my prices to secure enough work to pay my rent. In effect, I had a responsive pricing system. When I was slow, my rates went down. When I was busy, they went up.
As Go Media grew and I had other members in the company selling with me, our pricing became very rigid. Under any circumstances, we charged exactly XX dollars an hour.
Here's why we learned that being extremely rigid on your pricing can be a problem:
If your pricing is too low, you'll soon find yourself swamped. Despite being swamped, your pricing remains low, which means the work piles up. When the work is piled up, you start falling behind. You're not capturing the maximum amount of profit for the time you're working. The quality of your work suffers and clients start to leave.
If your pricing is too high, then you'll be too slow. While you're capturing good money for the hours your staff is working on paying projects, they're also sitting idle some portion of each day. That's also leaving money on the table.
What you're shooting for is to keep your staff as busy as possible while collecting as much money as possible. You accomplish this by having your price points respond to the current situation.
It works like this. If our staff is booked solid for:
- 12 weeks or more, we offer no discounts and will only sell projects that are worth $5,000 or more.
- Between 8-12 weeks then we're willing to discount our rates by 20% and we'll take any project worth $2,500 or more.
- Between 4-8 weeks, we're willing to discount our rates up to 40% and will take any project worth $1,000 or more.
- Less than four weeks, we're willing to discount our rates up to 50% and ￼take any project worth $500 or more.
*Note: these are example metrics only. You will have to experiment with discount rates, minimums and time ranges that work for your particular situation.
This formalized responsive pricing system allows us to always stay busy and ensures that we're capturing as much money as possible.
- First, don't share this information with your potential clients. This is for your eyes only.
- Always present your potential clients with your full retail rates first. Only AFTER they tell you that they cannot afford your normal rates do you start to negotiate down.
- Ask for their budget upfront. If you know what they can afford, you'll tailor your solution to their price.
- Follow up. The simple act of following up with clients after you've sent them a proposal can frequently spark a conversation that will lead to a negotiation.
- Be enthusiastic about the project. Sometimes, if a customer knows you really want their project badly, they'll assume that you'll be willing to come down on price.
- Keep your retail rates high enough that they will allow you enough profit margin to quickly grow your company.
- Keep a system in place for knowing how far out your team is booked. This is one of the fundamental metrics that drives this system.
- Lastly, the minimum order portion of this system does not apply to existing customers. Obviously, a current client who calls with a need, even a very small need, should be taken care of immediately.
This blogger graduated from Goldman Sachs' 10,000 Small Businesses program. Goldman Sachs is a partner of the What Is Working: Small Businesses section.