It’s all over the news; countries are entering or on the brink of recession. We’ve teamed up with Candy Phelps to explore essential financial skills freelancers and agency owners should flex during these times.
In this episode we break down how to calculate your rates and price for projects.
Questions we cover
- How does price change between a freelancer, an agency with staff, and someone who uses contractors?
- What are the various price schemes, and how do you choose one?
- What variables influence your price and market position?
- Should our price or packaging alter during times of economic downturn or figurative “famine”?
- How can you know if you’re charging too little or too much?
During the course of interviewing Candy, here are some of my key takeaways:
- Decide on your pricing structure—for example, hourly or per project.
- It’s simple math, but knowing your pricing lets you calculate a fair hourly rate or project estimate.
- With experience and great reviews, you can start to charge more.
- Time how long things take in order to get better at estimating the price.
In the episode, Candy mentioned her quote builder. You can access this to download or make a copy of by clicking here.
Connect with Candy
- Managing your personal finances – click here
- Managing your agency finances – click here
- How to create a buyer experience – click here
Lee: Welcome to Trailblazer FM. This is your host, Lee Matthew Jackson. And today, my co-host is Candy Phelps. We’re gonna be looking at how to price for web design. Hey, Candy, how are you doing?
Candy: I’m doing excellent. How are you, Lee?
Lee: I’m doing great. It’s been a long time since we last spoke. So it’s really good to catch up. Anyway, folks, today, we’re gonna be looking at pricing for web design, and I know personally over the years, I have compared myself to other people, that’s been how I’ve priced my services, and that’s essentially become a race to the bottom, or it’s become a massive issue for me because I’ve under-priced and I’m having to over-deliver, therefore I’m not profitable. So we’re really lucky to have Candy here who’s gonna help us whether you’re a freelancer or you’re an agency, wherever you are in your WordPress work, she’s gonna help us understand how we can price our web design projects. So I guess that leads us, Candy, to the first question on how is pricing different for a freelancer versus an agency who’s got employees or maybe even someone who’s using contractors?
Candy: Thanks, Lee. I think there’s a lot of things that you can talk about pricing. And in general, if you’re Googling about what to charge, everyone always just says it depends, right, and unfortunately, that is the case. But you could at least put yourself into one of three buckets, are you a solopreneur doing all the work yourself? Are you an agency who has employees and overhead, maybe you have an office, maybe you’re paying health insurance for somebody, or are you maybe a freelancer who then outsources to contractors? So those are three very different business models and require different pricing and different thought processes. So I think for agencies, typically they’re a little further in their business and they’re maybe a little more refined with their financing, but obviously you have to factor in way more cost for just that overhead. If you’re paying health insurance for people, that’s gotta come from the customers and price. So agencies are always gonna be charging more. In Madison in the US, we know a lot of agencies around here, who’re charging $20,000, is their minimum WordPress project, and it’s not that the websites are that much better or that much more powerful than what a lot of freelancers are building.
Candy: It’s literally just ’cause that’s how they have to make a living and keep the lights on, so agencies are gonna always charge more. So if you’re a freelancer trying to compete against agencies, it could be a little confusing ’cause you know maybe that agency is charging 150 or 180 bucks an hour, but that doesn’t mean that that agency owner is making 180 bucks an hour. So it’s a different thought process, and I think that it’s important to think about yourself and compare yourself to who is like you, not like anybody building WordPress sites. With contractors, I think a good rule of thumb that I’ve always used is to charge at least twice what the contractor is charging you. So early in my career, I was charging 50 bucks an hour and found somebody who would do stuff for 40 bucks an hour, and I thought, Oh, well, here, I could make 10 an hour on that person. That does not work. You’ll spend so much time project managing that person and double-checking work or doing whatever that there has to be more of a margin than a couple bucks an hour, so I’ve just kind of applied that two times rule of thumb. And then with freelancers, the great thing about freelancing is that your revenue is actually a lot closer to your take-home pay or what your annual salary is gonna be, so it’s a lot easier to price as a freelancer than it is when you’re trying to factor in other people’s work or a bunch of overhead.
Lee: So true. So what different types of pricing models are there and how on earth would we choose one?
Candy: Well, I think there’s a lot of different ways you can price your business and maybe freelancers get kinda hung up on that hourly rate, but there’s kind of two main common ways to price, especially for freelancers, but also for agencies. The fixed project rate is pretty standard, so giving somebody a price that you’re gonna build a website for, so that’s really common. This is good for folks who are good at scoping, so if you are experienced and you have been tracking your time and you know how many hours it takes you to build X type of website, this is a good way to do it because fixed project rates are much easier to sell to a customer. On the other hand, the hourly rate just charging for every hour that it takes you to build that website, that’s more beneficial for you as a freelancer, you protect yourself from that project scope creep, but it’s a lot harder to sell. You really have to have a good trusting relationship with a customer because most small businesses, especially, wanna know how much is the website gonna cost, so it’s harder to sell. But whether you’re doing hourly rate billing or fixed rate projects, you still need to know what to charge hourly for.
Candy: So there’s a few things you can do. The thing that’s crazy about web design is just it’s the Wild West’ If you go on Upwork, you can see $7 an hour rates for people building WordPress websites, and then… I know for sure there’s agencies charging 185 an hour, so that range is extraordinary, and so then it’s like, Well, where do I fit in in that range? So there’s a lot of factors that we can talk about later. But in a very simple way, there’s a couple of ways you can figure out your hourly rate, just working backwards from what you need to make. And in the last episode, we talked about budgeting, and talked about figuring out your personal expenses and your personal finances, so once you’ve done that, you know what’s the minimum you need to make or what’s the amount that you’re trying to make, and start with that number. So let’s just say, for easy math, it’s $50,000 a year.
Candy: So if you work 40 hours a week, there’s 2080 working hours per year, let’s say you wanna take two weeks off, so let’s just round it down to 2000 working hours a year. Then the trick for figuring out your hourly rate is figuring out how many billable hours you’re working a week, so not how many hours you’re working, but how many of those are actually working on client projects that are paying you, because that was a very shocking thing to me when I started tracking my time, was how much of my time was just spent emailing people all day, or doing sales meetings or marketing activities, or social media or whatever that is. And for me, it was actually only 15 hours a week that I was actually doing project work. But if you figure like say 20, maybe half your time is spent doing billable work and half of the time is spent doing those other activities, then you just take that $50,000 a year divided by the 1000 billable hours that you’re gonna do this year, and you have a $50 an hour rate. So it’s pretty easy, it’s just simple math, but thinking about it, then that way you can work backwards and try to figure out a good hourly rate for yourself.
Candy: So a couple other models that are maybe a little less popular are website as a service. I don’t actually know anyone who’s doing this, except that we had a customer ask us for this because their last vendor did this kind of model, but essentially you build a website either for free or for a very low price. And then how you make the money is you basically rope that customer into a one or two-year contract, so it’s not just website maintenance contract that we’re all familiar with, but this is a heavier charge, maybe it’s 500 bucks a month or even more than that, but it’s more than you would charge for website maintenance, but over time, basically you’re just charging them and charging them every month, and then you offer to redesign their website for free every year or every two years, or whatever that contract length is. So it’s a different way to think about it. So we actually took one of these projects on just as an experiment, and at first, it was great because it’s like you’re getting regular recurring revenue off of it, but then it was a real bummer when we had to redesign the website for free, and this was a massive website, 300 pages or something.
Candy: So it’s a different way to build your business, but it’s a good way if recurring income is important for you. It’s much more predictable, and it may be an easier sell, depending on that price point, if somebody doesn’t have $20,000 for you to rebuild their massive website, but they do have $500 a month that they can keep putting into that pot, it might be an easier way to sell, and it’s definitely a great way to set your business up for sale later if you have all of these customers that are paying basically retainer prices every single month. Then there’s a couple other things that people do, the value-based pricing a lot of people like to talk about. This is basically charging the customer more if they’re a big fancy customer versus if it’s like a solopreneur business owner. I like to call this the Robin Hood model.
Candy: So it’s like if it’s a corporate customer, it doesn’t really matter if you’re doing the same number of hours, maybe you’re spending 50 hours of work on that project, you’re gonna put an extra zero on the price tag because of who they are and because the value you’re bringing to their organization versus a small business, and their smaller revenue and in their smaller budget, you might charge way less for the same project. And then finally the day rate billing, this is what we do at our agency, and I think this is an awesome way to bill because you’re essentially billing by the hour or by the day, but when you work in real time with customers, you can basically… They’re more likely to trust you because they see you doing that work, and because you’re making progress so quickly that it’s actually a lot easier to sell like, we’re gonna charge you $2000 for this day of work than it is if you broke that up into hours over the span of a couple of weeks or months.
Lee: So what we’re doing over at Event Engine, and I don’t know what model this would be called, is we’ve built a platform based on WordPress in the events industry. It is specifically for conference organizers. We’ve built a whole load of pre-made templates that they can use and done a whole lot of training, documentation, etcetera, and then they pay us monthly to use that platform. So essentially, we did all of the work upfront, and we are now, I guess, would it be a software or a platform as a service, so you don’t have to do design anymore, we’re just doing the support and training people as we onboard new clients. We’ve actually gone as well for a more enterprise model where it’s a higher subscription fee because we will provide that one-on-one training with teams within these big corporates. So these are big professional conference organizers with teams of 20, 30 or 100 people, etcetera. So it’s very different from, I guess, from what you’ve described, but I guess it just go to show, doesn’t it, how flexible we can be, all of us, as WordPress agencies. There’s all sorts of different ways that we can approach the pricing model. What factors do you think impact your pricing and your position in the market?
Candy: Well, there’s a lot of things that would impact your hourly rate, so it’s not just, Well, you wanna make $100,000 a year, so that’s how you figure out your hourly rate, you also have to be able to convincingly sell that hourly rate to other people and fill those 20 hours available work a week or whatever it is that is the formula you figured. So a lot of that will depend on where you’re getting your leads from, so if you’re going on Fiverr getting leads, that hourly rate, there’s no way it’s gonna be as high as if you’re getting those leads from personal referrals or networking where you have that know, like and trust factor. Or, let’s say you’re white-labeling and you’re actually a contractor getting all of the work from an agency, you don’t need to charge as much per hour because you’ll be able to do way more billable hours if you don’t have to go hustling to get that work. So you could actually maybe be doing 30 hours of billable week, or even 40 hours of billable week, so that rate can flux based on how much billable work you’re able to get and then just who that audience is that you’re trying to sell it to.
Candy: Obviously, your skills and experience are gonna factor in. If you’re a brand new web design… If you’re a brand new web design freelancer, you’re probably not gonna charge as much as somebody who’s been doing it for 10 or 15 years. I Googled some things, and it looks like an average rate for web designers is $75 an hour, but again, if we’re just starting, I saw some things that said $35 an hour is what you might charge, so those… Again, there’s gonna be a lot of factors. If you live in New York City, you might not be able to survive on 35 bucks an hour. But if you live in rural Wyoming, that might be a fortune, ’cause you can buy a house really cheaply or maybe you just have fewer expenses. And then of course, if you have an amazing reputation or fancy past clients, if you have those logos on your website from people or customers that other people have heard about or that they want to emulate, you’ll be able to charge more just based on that past experience and just the work that you’ve done, whether it’s having good testimonials or having great reviews. And then there’s brand and brand awareness.
Candy: So this is something that I think a lot of web designers know a lot about branding, but I like to think about a restaurant. If you see a Chinese food restaurant in a strip mall and it’s just got a very generic-looking sign out front that just says like China walk, that’s one kind of brand expectation that you’re setting, it’s like, Hey, that looks like cheap Chinese food. But if you go to a fancy-looking free-standing building made out of brick with like gold leafing and cool lion sculptures out front, and it also says the China walk, you might think, Well, that looks like a fancy Chinese restaurant. So if freelancers, or agencies, think about their brand, what are you putting out there in the world, and how does that set those customer expectations? If your own website looks bad, which we’ve all had the shoemaker shoe situation, they might not be willing to pay as much as if your own website looks amazing or you’ve done a bunch of branding work around to the point where people have heard of your business or are seeing you around. So that definitely impacts what you are gonna be able to sell.
Lee: I’m not gonna lie. All I can think of is Chinese food right now.
Candy: Me too, I’m hungry.
Lee: I’m starving. Folks, if you’re listening to this episode and you ended up going out to a restaurant this evening because of this episode, please head on over to the website and let us know in the comments. That would be hilarious. So one thing that’s on my mind right now, and you can’t escape it on the news is this up and coming tough economic times, the dooms, the recession, the big reset, all sorts of stuff. It’s all over YouTube, it’s all over the news. There’s a cost of living crisis, etcetera, we’re talking here about creating a pricing plan as it were, how do we price our websites. Do you think though that our prices, our packages should change when the going gets rough? Are they fluid or is it is… It is what it is?
Candy: Well, it’s a really good question, and I’m not sure I have a definitive answer for it. I can tell you some of my experiences are… When I was first starting freelancing, it was the first recession in 2008, and I actually think because I was charging so little compared to what a lot of people were charging, that I was able to get customers more readily because it was an economic recession and because my pricing was probably under-priced. So it does work. If you’re having trouble getting work, lowering your prices might not be a bad idea, but there is definitely risk there. So you have to think about how you’re getting your customers. If you’re on Fiverr, it’s easy enough to change your hourly rate or whatever.
Candy: But if you’re in a community where people talk and people know what people are paying for websites, it could be a little dangerous to charge one company $15,000 for a website, and then a month later you’re charging some other company $5000 for a similar site. It just creates some customer service issues if people are aware of what the pricing is, and if you’re wildly going up and down. And also, thinking about this recession, which is a little bit different than maybe anything we’ve seen before or that they’re predicting anyway, is that we’re also in this massive inflation time, so some people are maybe backing off of marketing projects, but you can’t necessarily lower your prices if you’re not gonna be able to make a living on that new hourly rate or those lower prices.
Candy: So if you’ve done your budgeting and you have a cushion, I would say just stick it out. Just keep doing what you’re doing, push a little harder if you need to, maybe do more sales activities or marketing activities and try to keep your pricing the same. But if you’re struggling and people are, especially if you’re getting that feedback, that they can’t afford the projects, you know, you could consider doing a discount where you tell people well, we normally charge this, but here is this discount and here’s why I’m giving it to you, so that they know the next time, maybe it won’t be so cheap.
Lee: I think this leads then into our final question, which is perfect. How do you know if you’re charging too little or too much? And I’ll just add to that the amount of times I have had a bit of a panic attack when I am committing to putting my prices on my website.
Candy: Yeah, putting your pricing on a website is a big question, and that is tricky, like raising and lowering your prices if it’s been public information is a little bit trickier. If you don’t show anybody your pricing, then it’s a little easier to do the fluctuating or the testing and experimenting.
Candy: But I think some signs that you’re charging too little are, one, if you can’t make a living, like if you’re doing the work, it’s not like you’re not busy, but if you’re working 40 hours a week and you’re struggling, and especially if you’re getting a lot of clients. When I was really under-charging, I had clients coming out of my ears, and I could not keep up with the work because I was under-charging. And as you mentioned earlier, when you under-charge, you still have that… You’re setting the expectations of what you’re still delivering, so you’re working twice as hard for half the money, and that can quickly pile up and become a real business problem because you think you’re doing good business because you have a lot of customers. But if you actually can’t make a living, then you’re under-charging. If you have a lot of customers, you’re maxed out, you probably need to raise your prices. If you’re charging too much, I have seen this with really brand new freelancers who come out of the gate and with a $125 an hour hourly rate, and their skills are actually just not as high as you would see for somebody who’s been doing it for 10 years, and I think you will know that if you’re just not getting the work, if you’re not getting hired.
Candy: And for us, when we have those sales meetings, we always ask people what their budgets are, or if they say no, thank you, we’re not gonna work with you, we try to say why, why did you work with somebody else? And you can get that feedback if somebody says they just can’t afford it, just ’cause one person can’t afford it doesn’t mean you change your prices, but if you are hearing that a lot, that might be an indicator that you might need to lower your price or you just need to change who you’re marketing to, find a different audience, go somewhere else to look for clients who have a bigger budget.
Lee: That was ridiculously helpful. Thank you so much. Folks, we are trying to end every single episode with one small thing that you can do to get started on the path. And in this case, it’s your pricing, so what’s that one thing, that one small thing you recommend our audience do?
Candy: I think just starting to time yourself every minute that you’re working, not just the project time, ’cause a lot of people will have their… They know how much it took them to build the website, but really breaking that down to each aspect of the website, how much time did you spend on project management, how much time did you spend on design, how much time did you spend configuring WordPress plug-ins, really break it down task by task, and if you are already doing that, that’s amazing, but actually then going back through your Toggl reports or whatever app you’re using to time and analyzing that and start building yourself a little model for how you could price your future projects. So we have a spreadsheet that we’ll have in the show notes that you can use. It was something that we built to… Before we were doing one-day websites and just try to get a handle on like how long does it take us to build a typical WordPress website? And that could be really helpful to see what other people are saying. Is it 30-40 hours, is it 50-70 hours? Whatever that might be. But you need to know how long it’s taking you and what parts of it are taking what amounts of time. So just starting to time track is super easy to do. Toggl is free, and getting that information is so valuable.
Lee: There also two episodes, folks that I recommend you check out that we’ve done, there’s… Season 27 episode 7 is How to Work Out Your Hourly Rate, and that’s how we worked out our hourly rate, very, very, in fact, almost exactly the same as you described earlier, especially understanding the billable hours. That was the big shock for us as well, realizing that actually maybe you only have 15 actually billable hours in a 40-hour week, and then you have to take time off for holiday as well, that amount of hours you have becomes very, very small. And then also there is another episode, which is season 38 episode four where I actually break down an average UK agency, this was in 2021, so it’s fairly recent, and what it costs to run that web design agency, including access to a breakdown. I have my Airtable, where you can see each and every cost. I think we did that based on a five-person agency with all of the relevant costs, so that again, helps you to understand how much you might wanna turn over or how much you might wanna price projects for. Don’t forget as well, folks, to check out that spreadsheet. It will be available in the show notes that Candy is making available to you most generously. So thank you again so much. And folks, all that’s left for us to do is wave good bye, which you can’t see. It’s a podcast, damn it. And we’ll see you in the next episode.