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How can I set you a price on my design work?

Adoption of a pricing policy

* Difference between Value and Price Valuation for hours
* * Matrix
daily rate
* Differentiation

activities

Difference between Value and Price

Never assume the price. Professionals often almost any profession have the bad habit of underestimating, however we must be careful because if we set prices too high not able to implement any business, but on the contrary, we put a price too low, we will want not getting any. How should we set a price for our services? We can not charge more than the competition if we can discover how truly come, or we can not overwhelm the market values \u200b\u200bbut we must bear in mind that what we collect will allow us to pay all of our enterprise plus a margin to make really keep us interested and still make the effort.

To set a consistent pricing policy we must first make clear a couple of basic concepts such as value and usefulness.

* Value for money: we must take into account that the price a customer pays for the same service is much higher than that paid as a consumer of two similar products, this is because the price information services is generally insufficient, difficult to compare because the services are substantially different as different professionals who provide and because the value of a service is higher than the price. From a marketing point of view of service, price and value have little to do, what we charge is remotely related to the value or put another way, the price is not based on value. Prices are based on costs and a profit margin. To which we must first know how much our service.

Usability: the profit margin or contribution margin is the percent that is added the costs and make up our financial reserves to meet to avoid driving too close to the precipice. A very high margin can keep us out of focus but a child is like driving an F1 car without a seat belt.

These two concepts allow us to determine our CiPEq (breakeven figure.) There are countless methods used to calculate costs and pricing, I propose three who seemed more serious and applicable for design studies, but first let's clarify what that is breakeven.

breakeven figure is one place where we are about to fall or to sustain us in the business. Thus there bear in mind that it is a place that we should stay away as much as possible to avoid failure, sometimes I hear "while at least cost zafemos we'll be okay, I agree with that," serious error, it will not spend much time for those who think that way painfully realize that being with the costs and revenues is not balanced enough. The costs are the goods and services we consume to provide our professional services and can be classified as follows:

* For area, we serve, for example, to compare investment areas
* By type of good consumed or provided , know us well when we reduce
* At end, turn are
or direct that apply directly to the cost of servuction
or indirect, are applied in ways that fairly distribute
* On time or quantity in turn are
or fixed, depend on
or variable time, dependent on the amount of benefits

To understand it's a breakeven figure is useful in the following scheme:

To express these concepts and formulas:

CiPEq = TCF / USP - UVC = TCF / MC = MC

PVU - CVU

CiPEq = breakeven figure
TCF = Total fixed costs
USP = Unit Price
UVC = unit selling cost
TCF = Total fixed cost = MC

Contribution margin Fixed costs are a little monster that we must be always under control, because will eat a significant amount of our monthly income and "exists" even though we do nothing.

OK, how cute! If No, go! Not that hard, if you can make a counter How can we not make us who we are creative? now see the methods to calculate our prices.

Then I transcribe the article I wrote about prices whose success motivated me to collect the remaining information to put together this course.

How can I set you a price on my design work?

past few years old when I raised this issue and started to ask some more experienced colleagues how they did them, I found answers (very common in our country): Cobra system according to the "digit swing" or "Masomenos" according to the size you suppose that is the company that requested the job, if you think big is more and if you like girl get less "or" according to the guy's face, at best me cases recommended "Call it a price to your working hours and charged according to the time you take the job."

While the latter was coming, did not seem very serious and left me almost as blank as ever. Resorted to other means, I looked as professional fees are quoted in other areas of services, asked how they design professionals in other countries and after walking a while, these were some of the methods I found, I hope they at least serve as a guide (using the example of my job, graphic designer). There are many theories and methods in this regard, this case will address three. How

first say as a rule as the following:

* Ours is an activity under "services", but deliver something tangible at the end of work (a record, an original or whatever) they are not a vehicle in which we shape our ideas or procedures.
* We must understand our business as a company, rather than work alone at home or have hired a personal study. In both cases economic principles are the same. Given that the purpose of any business is to generate profits for its shareholders through providing goods or services, charging a price that covers costs and generates a utility, thus fulfilling a practical function in society.
* Our activity should generate a profit, it seems so obvious, sometimes not so much, especially for young designers to make a mark neglect this aspect, a dues not paid giving away (or almost) work, this is only achieved prostitute the market and devalue the activity. So bread "maybe today" and hunger "safe" for tomorrow.
* The money that gets our company is not our money, is money from our company, to be understood as an entity apart from us, so it should pay us a salary, determined by us.
* The value of the company, after to assign them a salary, pay expenses and tax liabilities, must be reinvested in it. But the future costs of renovation will come from our pockets.
* We offer a service that can and should be measured in time. When analyzing the different ways of doing design work the only rule that can be universal is the time, so our prices should be calculated on the basis of hours of work. Rapid method

The "quick" is to calculate our fixed costs, the result intended to add it to our profit and divide that figure by the number of hours we estimate we will work in a year, that will give us an hourly rate. The multiplied by three and give us what we have to charge for every hour that we use on a project. I really do not recommend this method gives us a set number, with no flexibility and are unlikely to be adjusted to our company in particular.

Method

hours

In another formula, which I reached through the exchange of ideas in a forum designed with a Mexican designer named Jesus H. Gaytan Polanco, he referred me a more accurate method for pricing the working hours scheme is useful to divide our time into three categories:

* Hours Design. In this concept include the hours you spend meetings with clients, project research, documentation, customer support, visits and all the activity that allows us to determine a process, a premise or design guidance.
"Hours design" have the courage of the owner's salary divided 160, which are the average hours that are worked in a month.
* Hours Workshop. Here we include all the time dedicated to the development of proposals for design, creativity, sketching, testing, monitoring meetings / approval, correction and everything that helps us determine a sketch after approval.
"Hours workshop are fixed costs. The amount of rental space, plus salaries, depreciation, utilities average, etc..
* Hours Production. In this concept we determined the time we use to develop in final form elements that serve to give the client the work permanently. Are all wages, plus all the fixed costs plus variable costs (materials, gasoline, messaging and expenses that are unique to that particular project).

By way of example (and nothing but an example), suppose:

I fixed a salary of $ 1,500, which gives me results in a "design hours" of $ 9.37 (it should look like salaries actual market values, as if we worked for a company, or low).

Pay $ 400 rent a place, I have a part-time assistant who receives a salary of $ 400 monthly payment on the last team in installments of $ 250, spending on average $ 150 in services, total $ 1,200. Divided by 160 hours, give me a price of "hour workshop for $ 7.50.

also estimate that for the next project in particular I will spend $ 40 of gasoline, $ 150 in various work materials and about $ 50 more in expenses. To this I add the total of salaries and all of my charges, I get a figure of $ 2,940. Again I divided by 160, resulting in a "time production" of $ 18.37.

If the project in question I estimate that I will be consuming about 25 "design hours", plus 40 "hour workshop, plus 40" hours production "will be a total operating expenses of $ 1,269.25. It remains to add

markup, we recommend an average of 30% (never less than 20% and not more than 45%), so 1269.25 + 30% = $ 1,650. This is what I charge, in theory, to the customer.

The larger

our company, we will have more fixed costs, but shorter hours solve the work will consume us, however if you work alone at home, less cost but more hours to do (in serial form and not in parallel).

Matrix method based on daily rate

The third method, a much more complex, based on an array of daily rate, or calculate eight-hour days instead of hours in themselves, and continue to calculate the following steps:

* First we determine our salary. We said that although work alone, we must consider our own employees.
* Then what are my costs to maintain the business. All fixed costs estimated for one year.
* The sum of these two points gives us results in a breakeven figure.

This is the figure that is needed every year to keep walking with no margin business.

How many days in a year?

There are 52 weeks per year available for work. Of these, two weeks are for holidays, we are 50. Almost all missed work due to illness and other personal issues, suppose two weeks we are at it, we are on 48. The holidays take us about 4 weeks and 44 weeks remaining. We deal with five-day weeks, with less is difficult to sustain the business and more is difficult to sustain and support the family. Ie 44 (weeks) by 5 (days), there are available 220 days a year. Obviously all those hours at night and weekends spent working, we like do not exist.

* calculate a percentage of use. This is to determine what percentage of our time we can charge to keep and win. There are hours "dead" for meetings, presentations, more meetings and more talks. These, in this case, no charge. For graphic design a utilization rate around 60% seems appropriate.
* We need a profit margin. We discussed that over 40% going to put very high and less than 20% are brought together at the least unexpected. Identified three marginal rates in these percentages.

- With calculator in hand. We

each of the figures we obtained the corresponding lines, the wage in the A, B costs in the sum of both in the C, the number of days in the D, E put in the space of between 60% and more sides minus 10% (50 and 70). In item F located three margins, 20 (or near) for "low" and 40 (or near) for high, middle 30 seems the best, each of these percentages will subtract 100 (20-100 = 80) and put this number in the space immediately to the right and, importantly, add a decimal for each (0.80).

now use a formula to calculate the price matrix. For each of the quadrants of the matrix, we calculate the daily rate:

Daily Rate = Mi

breakeven figure

charged

Days x (100 - M%).

That is, for each pair of numbers and days of margin collected, first divide the line C (My balance point number) by the number of days charged. Now divide that by the number (100 - M%), as has already been divided by a fraction, the final figure will be higher than the middle.

now have the required daily rate to cover costs and produce the level of margin in the hypotheses of use. Type the number in the quadrant of the matrix that aligns with the pair of numbers and go to the next pair, until you complete the matrix. If we made no errors, we have nine daily rates, the lowest is in the right upper quadrant and the highest in the lower left.

Congratulations! Now we know what to charge. Rest a little.

must take into account the tax burden in this, since our country is enormous and disproportionate.

While these formulas are fairly simple to understand basic principles are based on management, allowing us to see real as if our performance is really a profitable business or not.

If the customer asks us to reduce our contribution, we have only two options, reduce the margin of profit, which is our discretion or reduce working hours risking offer a lower quality work. If our costs still remain high, we must reduce fixed costs, as our salary, our employees, rent, etc. If not, we risk not afford to make ends meet and we have not done any business.

Not to be driving too close to the cornice is desirable to have minimum reserves sufficient to cover three to six months of our fixed monthly costs.

We understand ours as any other business should generate profits and if we do not forge that character is better that we look for a job in relationship dependence.

Author: Alexander Bottini
http://www.udgba.com.ar/