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How To Work Out What To Charge Clients: The Honest Version

Have you ever read a post that has left you feeling wholly inadequate because you know you can’t live up to the high standards they lay out? Well, that is how I feel when I read posts about how much to charge my clients.

When Smashing Magazine asked me to write an article sharing my thoughts on pricing my services, I agreed without much thought. But now I sit down to write it, and I’m faced with a conundrum. Do I write about how you should price projects or do I tell you the truth about the unorthodox approach I take?

I have read many posts about the pricing of a project. From value-based pricing1, to billing around Agile cycles2. These are all great approaches I aspire to, but have somehow never managed to implement. I suspect I am not alone.

So instead of intimidating you with complex value-based pricing formulas or boring you to death with project Gantt charts, I am going to share with you the rather inelegant approach I take to the subject. Inelegant it may be, but it has allowed me to run a lucrative business for the last 15 years.

It begins by knowing the minimum you have to charge per hour.

Working With Difficult Clients Link

Unfortunately, there are clients who do not quite respect the work that you do, but there are a number of ways you can deal with them. Read more →3

Calculate Your Minimum Rate Link

Okay, so this is the one bit of the process I have made an effort to approach professionally. It is important to know the minimum you have to charge per day to live. That isn’t going to be the rate I charge my clients. It is just the rate I am not willing to go below.

You have to know your minimum charge-out rate otherwise you could easily work on projects that lose you money.4
You have to know your minimum charge-out rate otherwise you could easily work on projects that lose you money. (Large preview5)

So how do we calculate that rate? Fortunately, it isn’t rocket science. Just follow these steps:

1. Establish a minimum salary Link

Start with the minimum wage you would like to take out of the business. How much do you want to earn a year? Remember, this is the minimum figure you could survive on. We will increase that number later.

2. Add costs Link

Next, calculate your costs including reoccurring costs such as software services, rent, etc. But also include a budget for one-off costs such as that shiny new Mac you want. Work out how much this all comes to a year.

3. Remember to save Link

Don’t forget to plan for the future. Set aside some money each month for pension and savings. Calculate the total over a year and add it to your costs and salary.

4. Don’t ignore your tax! Link

The figure you now have tells you how much money you must earn before tax. Now, add to that total the tax you would have to pay on that revenue. That will give you the minimum figure you need to earn over the year.

5. Calculate the number of working days Link

Before we can work out how much to charge per day, we first need to know how many days a year you work. To do that you follow these steps:

  1. Subtract weekends which immediately brings you down to 260 working days per year.
  2. Take off public holidays from your yearly total.
  3. Don’t forget you will need some vacation time.

So in my case, it is 260 working days minus ten public holidays and 20 days vacation time.

It is easy to forget not all of your time will be chargeable.6

It is easy to forget not all of your time will be chargeable. (Large preview7)

6. Be realistic about your chargeable time Link

Unfortunately, we still cannot take our target revenue and divided by 230 days. That is because you will not be able to charge out every hour you work.

There are many other factors to consider. You will spend time marketing, writing proposals, doing admin, and managing your finances. None of these is chargeable. Realistically you can’t expect to charge yourself out more than about 60% of the time.

All of this work will leave you with a minimum daily rate. Now we need to calculate how long our project will take. That is where you will begin to see my rather ad-hoc approach.

Take A Guess At How Long It Will Take Link

Sam Barnes wrote a brilliant post8 on calculating the time a project will take, as did Peter Mouland9. I recommend you read these because, to be honest with you, I just guess.

It's embarrassing but true. When it comes to estimating how long a project will take, I make an educated guess.10

It’s embarrassing but true. When it comes to estimating how long a project will take, I make an educated guess. (Large preview11)

Sure, if it is a big project I break it down a bit and try to price each part separately. But mainly it is a gut feel for how long things will take. I guess I have the advantage of doing this job for over 20 years, so the chances are I have done a similar project before. But I don’t want to lie to you and pretend I have some clever system. I don’t.

I found that for me, spending hours calculating how long things would take wasn’t worth it. Whether I was bad at it or whether I am just unlucky, but there always seemed to be a curve ball that ended up making my carefully crafted figure inaccurate. I appear to do just as well taking an educated guess.

I make my best guess and times it by my minimum rate per day, and that gives me my minimum price. But this is not what I charge. In fact, if a client can only pay my minimum price then I walk away in most cases. After all, my calculation for the length of the project isn’t exactly accurate, so I need to ensure I have a markup.

Markup Your Minimum Price Link

My minimum price tells me if the project is viable, but it isn’t an amount the client will ever see. I decide on that pricing using three very professional (sarcasm) factors that I outline below.

Factor in the “can I be bothered” equation Link

You know what it is like, some projects get you excited and some you couldn’t care less if you do. So why not factor that into your pricing? Projects that sound awesome and you desperately want to win, will hardly be marked up at all. Projects that look as dull as ditchwater gets a hefty wedge added on top of the minimum rate.

My rates reflect my level of interest in the project. The more interested, the lower my price will be.12

My rates reflect my level of interest in the project. The more interested, the lower my price will be. (Large preview13)

That makes a lot of sense if you think about it. It encourages more of the kind of work you want to be known for and that you love. It might seem unfair, but if the client doesn’t want to pay your premium to do a tedious project, he can always go elsewhere.

Remember “the client is an ass” tax Link

Next up we have “the client is an ass” tax. Always, always, take every opportunity you can to speak to the client before pricing their project. Ask lots of questions and get them talking. Do your best to ascertain what kind of client they are likely to be.

If you think they are going to be difficult to work with, charge them more. Again this makes sense. Demanding clients require you to put in more effort to deliver and so should be charged a premium for that extra effort.

If you think a client is going to be challenging, make sure you charge accordingly.14

If you think a client is going to be challenging, make sure you charge accordingly. (Large preview15)

Add the “what can I get away with” markup Link

Finally, we come to the most interesting one – what can I get away with charging? I work with a huge range of clients. Some are multinational conglomerates, and others are small charities or public sector organizations.

In theory, you could argue that I should charge all of those clients the same, but I don’t. The multinational will pay more because they have more. I never got on with value based pricing, but I do recognize I have value and that my value is proportional to the organization. The larger the organization, the more they can do with the value I bring and so the more I am going to charge them for it.

Value is relative. What is expensive to one client will not be to another and cost is often equated to expertise.16

Value is relative. What is expensive to one client will not be to another and cost is often equated to expertise. (Large preview17)

There is a related factor here too. People often equate value with how much they pay. Therefore the more I charge them, the more they value what I produce. They take me more seriously if they are paying top dollar for me.

But what people perceive as expensive varies based on their situation. My charge out rate would seem cheap to a large multinational and costly to that smaller charity. Hence, I change my rates depending on the client.

It is important to note that none of the factors I use to decide on a price reflects how desperate I am for work. I don’t charge less if I need the work and neither do I charge more if I am busy. That just feels like a slippery slope to me and stinks of desperation.

If times are tough, I would prefer to put my energies into sales and marketing rather than working on a project that I might not even break even on.

Am I Unprofessional? Link

I am conscious that this post may reflect poorly on me. I nearly didn’t write it for fear it would seem unprofessional. But I know I am not alone in taking this kind of approach. We just don’t talk about it.

In truth pricing projects is almost impossible to do accurately or in an entirely ‘fair’ way. There are just too many variables, too many things that can go wrong. All we can do is take our best guess.

Also at the end of the day, pricing is about supply and demand. Pricing isn’t a matter of calculating a rate based on hours spent or return generated. It’s your time, and if people are willing to pay, you can charge whatever you like.

(vf, il)

Footnotes Link

  1. 1 https://www.smashingmagazine.com/2009/07/quality-price-ratio-in-web-design-pricing-design-work/
  2. 2 https://www.smashingmagazine.com/2013/01/guarantee-income-with-agile-billing/
  3. 3 https://www.smashingmagazine.com/2010/04/dealing-with-clients-who-refuse-to-pay/
  4. 4 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-02-large-opt.jpg
  5. 5 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-02-large-opt.jpg
  6. 6 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-01-large-opt.jpg
  7. 7 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-01-large-opt.jpg
  8. 8 https://www.smashingmagazine.com/2009/06/effective-strategy-to-estimate-time-for-your-design-projects/
  9. 9 https://medium.com/@petermouland/scoring-story-points-for-the-team-c3d3fc8bb324
  10. 10 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-03-large-opt.jpg
  11. 11 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-03-large-opt.jpg
  12. 12 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-04-large-opt.jpg
  13. 13 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-04-large-opt.jpg
  14. 14 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-05-large-opt.jpg
  15. 15 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-05-large-opt.jpg
  16. 16 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-06-large-opt.jpg
  17. 17 https://www.smashingmagazine.com/wp-content/uploads/2017/08/charging-clients-sm-009-06-large-opt.jpg

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Paul Boag is the author of The User Experience Revolution and a leader in digital strategy with over 20 years experience. Through consultancy, speaking, writing, training and mentoring he passionately promotes digital best practice.

  1. 1

    I don’t think this is unprofessional at all. In fact, I think this defines professional, in a real sense. No matter the size of the business (one person or one thousand people), pricing does indeed take all these factors into account. It really does come down to what you value your services at and what you value the opportunity at. My company loves doing “price to win” – something that more times than not drops more work we can handle into our laps (and not pleasantly). In my opinion, we don’t factor in a lot of Paul’s insights about “do you really want this work” and “what price would it take”.

    Accurately and fairly pricing work is so important and I hope everyone that reads this article takes Paul’s advice (even just a little bit!). Otherwise, our industry is creating a race to the bottom where services will become a complete commodity at unrealistically low prices.

    Thank you for the article, Paul!

    19
    • 2

      Winning the work no matter what the price is such a false economy. As I said in the post you are better off spending the time on these loss-making projects investing in your sales and marketing activities. I honestly don’t understand why agencies take this attitude.

      16
  2. 3

    This sound familiar….especially REMEMBER “THE CLIENT IS AN ASS” TAX.

    13
    • 4

      I know it was a bit flippant but we really should be charging more for clients that take more time and effort to manage. It is simply unfair that good clients end up paying a premium to cover our loss-making projects caused by unreasonable clients.

      14
    • 5

      The “PITA” fee we call it…Pain In The Ass!

      8
  3. 6

    Thank you for the article Paul. This is very similar to how I price my services. I actually had a client tell me that I should charge more and to fire a client that didn’t recognize the value of what I am providing.
    Very well written and thought out.

    2
  4. 7

    Thank you for this great article, it will help me a lot to figure how to rate my services !

    However, what do you say to a client if he ask for details about the pricing or when you’re explaining a quote ? You answer “I guessed” ?

    0
    • 8

      I turn it around and asked them why they want to break down? If they are saying there is some element of the project that they might possibly want to leave out I am happy to quote separately for that specific item.

      As for the word “guessed” is that not just another word for estimate :-)

      6
  5. 9

    Indeed you are speaking the truth, and thanks for that. Over the past few years, I’ve had a better time with providing an estimate, but stating very plainly from the beginning that I charge by the hour. If the client insists on a fixed price or quote, I walk. I track my work to the minute, with no 15 minute minimums or the like, and provide time reports with every invoice. I then invoice every two weeks, net 15, regardless of the length of the project. If a client balks at an invoice, I know right away that they don’t value my work, and I may leave the project if I can’t work it out. I never charge a kill fee, but do insist on being paid for the work I did. It’s simple and has proven to be the only way I can make a living in freelance web work.

    0
    • 10

      Many people criticise charging by the hour in this way and instead encourage people to adopt value-based pricing. Personally, I don’t have a problem with that approach as long as the hourly rate varies dependent upon the factors I outlined in my post. A pain in the ass client should have a high hourly rate, while projects you really want to work on could be charged at a lower rate.

      4
      • 11

        Yes, I do modify my rate depending on all the factors you expertly outline! I must admit that I am so dependent on holy because I now never have to deal with scope creep, etc. If they want changes or new features, I just say, “sure!”

        Thanks!

        1
      • 12

        Michał Sadowski

        August 9, 2017 10:57 am

        It is value-based pricing. Your work has an inherent value. Each hour you spend working has a value. Your life has a value.
        This whole “value-based pricing” shtick is based on a terrifying conception that only capital has a value and work (and, by extension, the worker) in itself is worthless.

        4
  6. 13

    A lot of times working in this industry make us want to think logically and be fair about everything. I’m glad you wrote this article. It takes some discipline to take a moment and decide how to move forward with clients and projects but this article has some good tips on how to do that! I wish I read this when I was starting out.

    4
    • 14

      I wish I had known it when I started out! I spent far too long trying to be “fair and accurate” about everything when in truth I believe that it is impossible.

      3
      • 15

        I was just telling my wife about this article saying the same thing “Man I wish I read this 11 years ago when I started consulting!” I really enjoyed the article and it has some invaluable insight for those who are struggling with how to price out projects. Thanks for a great laugh to start the day with a heaping helping of honesty!

        2
  7. 16

    Hey Paul, this post is not unprofessional at all – it is spot on and exactly what has supported me for 10 years. I think more designers starting out need to get comfortable with this method of evaluation early so they don’t miss out on great opportunities just because a calculator somewhere told them they should charge 60$ per hour.

    6
  8. 17

    This was super helpful!! Thanks! :)

    1
  9. 18

    Michael Waara

    August 8, 2017 11:44 pm

    As I am just getting started doing some freelance work, this article was super helpful! The only thing I would like to ask is this: since I am somewhat new to the freelance dev sector, how should my rates change because of my lack of experience? Again, thanks for a great read.

    0
  10. 19

    Rajesh Maharjan Kathmandu Nepal

    August 9, 2017 5:41 am

    Yes, well said. You should charge as you spent on the project. All you need is calculation.

    0
  11. 20

    LMAO. This is what I’ve been doing to calculate my prize (to hourly and project based), INCLUDING ‘the client is an ass and I have to nod all in the right places’ extras (that I can get away with).

    Of course I add local and international pricing as well (coz local always wants cheaper, cheap, cheapest prize) and I have to compensate for that.

    Not every client I can do this tho. That’s why I have a ‘basic’ price and go weight in what I charge for which project and which client.

    1
  12. 21

    Well spoken, the same approach here too, thank you.
    The hardest part to learn was the – took me a few years to get it “right”…

    Plus two extras:
    – 1st rule of thumb – minimum wage was always my age – started at 28,-€, 42,-€ now…
    – from time to time there are those projects for small business partners with limited budget in desperate need for a solution.
    In any of those cases, an open-minded, honest way of communication ist funamental! I then calculate the (realistic) minimum requirements from their side with the minimum from my side – if it fits into their budget – I present this exact calculation and accept. (and still do some extra work ;-)
    It almost never went wrong with this approach, most of them got close long-term partners/costumers, never needed a and all follow-ups where paid pretty well.

    3
  13. 22

    Jason Timmins

    August 9, 2017 11:17 am

    That’s a very honest article.

    How do you deal with clients coming back (straight-away or months after) asking for little changes, tweaks and, especially, “this doesn’t work like I said?” My clients seem to expect this for free, forever.

    3
  14. 23

    Paul,
    A well written article.

    You broke down exactly how I did my tech consulting /support business for over 35 years and over 1600 clients. In my journey, I saw many competitors come and go. The primary reason those who failed is they didn’t take into account the real cost of doing business and not charging accordingly.

    One thing to add, put a value on your free time and this job will no longer be work. (Don’t get burned out).

    As I’m writing this, the previous reply from Jason about clients coming back, have your clients sign-off on the project in writing. In that sign-off, state that you will be available and that there may be additional charge.

    Remember, this work agreement is between two businesses so they should understand that.

    1
  15. 24

    One thing you did not cover is the “Friends and Family” clause. I am a designer with a wealth of experience but not a lot of business knowledge. Jump starting my “side work to self-employment” path has led to a lot of work being done for friends and family. I find that they often just avoid the payment discussion all together… as a result their work often gets pushed to the back-burner. How do you approach pricing for people whom you don’t want to gouge, but still know that you are providing them with a valuable service?

    3
  16. 25

    Not unprofessional, pragmatic !

    Charging those with the ability to pay more is exactly what they did to be in the position they are in now.

    Value is a subjective thing, so setting it should be also.

    Thanks for sharing.

    1
  17. 26

    Paul:
    One thing my father taught me very early is that no one ever claimed life would be “fair”. A lesson I tried to pass on to my own children. I like that you have heavily discounted or eliminated “fairness” from the calculations. Fairness is a touchy-feely thing that has no equation to calculate. This is business and really does boil down to supply and demand. If a company needs something for their business but aren’t in a position to pay a legitimate price for their needs, then they ought not be in business or find some other way to conduct their business.

    I am going to save this off as a reminder if I ever get to the point of doing my business full time.

    1
  18. 27

    The best clients want you to be successful and profitable. They won’t pick the cheapest price. They look for the best value and they’ll endeavour to keep you busy with their work and make it worth your while so you keep them as your priority.

    Of course you have to be good to warrant the best clients but when you love what you do you are usually one of the best in your field.

    This is a nice win/win scenario. It doesn’t come overnight but never forget the classic Tortoise and the Hare story.

    0
  19. 28

    I like this post.

    I have immediately gotten into finding my minimum wage required for the amount of work that I do.

    Now I can confidently say that I am willing to do **whatever it takes** to reach the minimum monthly wage required for the work that I do. Of course, this is taking into account my growth in my company and through myself since you did include the ‘monthly savings’ portion too.

    So taking this into account I’d call what I found out through your post the ‘minimum monthly growth wage’ required for me by setting a *bar* to excel at what I do both personally and professionally!

    Thank you for improving my life — literally!

    This is similar to a talk on John Sonmez’s guide as a simple programmer. I think you should check him out since he’s released the career guide for software developers ‘ginormous book about everything for a software developer career’. Just a thought I’d share to you guys who’ve read this post!

    Kind regards,

    Mic Sumner

    1
  20. 29

    Very good article. We charge high from client, but we never pay well to our resources. That issue also need to be raise…. All benefit is for middle man not for the resource he/she is working on the task/project.

    At the end if we are charging high we need to pay well to our resource if charging low then according to that we need to deal with our resources.

    6
  21. 30

    One more thing charge in dollars/pounds. But we try to pay our resources in pennies. In most cases middle man tries to get benefits as much as he/she can. In front of their resource mostly people lies I have a low budget for this project n blaa blaa. Behind the screen nothing like that.

    7
  22. 31

    The client is an ass tax can be a negative tax, too. One thing that surprised me more than anything, when I was quoting my own work, running my own software consulting business, was how nice some of them could be. Sometimes, I had a lot of trouble picking my favorites. I didn’t have that many different clients, but many of the ones I had sure seemed extra nice. So don’t worry too much about getting out there. Look forward to meeting some great people.

    -6
    • 32

      If client is an ass then I’m sure you’re bigger ass who don’t respect for client. Client is always right because he is giving business to us. That’s not fair if a person giving us business after that we think wrong bad about him/her. You’re totally wrong I don’t agree with you.

      5
  23. 33

    Very good article indeed. I price my projects the same way. What I “love” about some clients is when they ask you to make a discount “only this time” because they’ll provide you with more projects in the future. In those situations, I usually walk away, but if I really like the project i tell them to pay me in full now and “next time” I’ll make the discount. :))

    1
  24. 34

    You speak out of my heart! I do my business in a equal way for now about over 10 years and i’m shure, that we are on a absolutely professional way with that!

    0
  25. 35

    Charge by the biscuit. I eat more biscuits if the work is hard, if it is for a bigger client – get more expensive biscuits ;)

    Nice article – charging for projects always been an opaque art form – good to see some honesty. It’s telling that you were nervous about posting but you can see from the responses it was just what people needed.

    3
  26. 36

    Thanks a lot for this wonderful eye opener. A lot of mumbo jumbo has been said about this particular issue but you sir put the icing on the cake. Thank you.

    0
  27. 37

    Annabel Knight

    August 15, 2017 4:39 pm

    I like this for the calculation of minimum, but you’re leaving money on the table if you don’t calculate the value to the client of what you’re doing. If a better website will increase their sales by 10%, and they currently bill $1MM a year, then you can say “this work will increase your bottom line $100K a year–my charge is $33K, which will give you a four-month breakeven.” (Assuming, of course, that this number is larger than the price you would have asked otherwise.)

    For me, the definitive posting on “how much should I charge” will always be Patrick McKenzie’s “Salary Negotiation”: http://www.kalzumeus.com/2012/01/23/salary-negotiation/

    Here’s a slightly different slant on it: Patrick McKenzie + Ramit Sethi:
    https://www.kalzumeus.com/2012/09/21/ramit-sethi-and-patrick-mckenzie-on-why-your-customers-would-be-happier-if-you-charged-more

    -1
  28. 38

    Annabel Knight

    August 15, 2017 4:42 pm

    To the person who says “the client is always right [even if he is an ass], because he is giving work to us” — you, sir, are welcome to those clients.

    2
  29. 39

    Finaly! I have read a few articles on the subject, trying to be better at creating estimates etc but i allways end up with the fact… this is not how i work. You nailed it for me!

    0
  30. 40

    Great article Paul, although I have to raise a small point regarding tax as it might mislead people.

    As a very simple example using a 20% flat rate tax. (i.e. not based on current HMRC rules) example if you calculated your required earnings as £20,000 and were expecting the tax to be £4,000, you couldn’t just add on £4,000 and say that you needed to earn £24,000 as the extra £4,000 would itself be taxed (£800) as earnings!

    To get £20,000 (NET) in the above case you would need to earn £25,000 so that the £5,000 tax (20%) leaves you with your target “take home” pay.

    It would read better as

    “The total you require will be your NET figure (after tax). Use an online calculator and try different gross salary (i.e. before tax) values until you the NET figure matches what you wish to earn. Online calculators will work for the vast majority of people with simple working arrangements, if in doubt any accountant would be able to calculate this in a few minutes.”

    Wouldn’t want anyone to have nasty surprises! ;-)

    0
  31. 41

    Or there’s another way: Raise your price until 20% of your customers tell you it’s too high. Then you know you’re properly priced.

    1
  32. 42

    Thank you for this fresh look at an area we all have struggled with as freelancers! Your 3 factors for how much to markup your minimum price make plenty of sense.

    -2
  33. 43

    Im a student and also work freelance as a web developer so an article like this is really interesting, thank you.

    I have had trouble before with scope creep & clients assuming im actually a wizard and can magically do way more work in the same timescale. Clearly i need to re-evaluate how i price projects. ^_^

    0
  34. 44

    I definitely cannot say that I disagree with this article. You really brought up some excellent points that I didn’t even think of, and a couple were ones that I thought about doing but wasn’t sure if that was an acceptable “standard” or not. Thanks a lot for the insight. :)

    0

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