Whew, this is a hot topic. There are a lot of opinions, thoughts, and insight about how creative entrepreneurs should and shouldn’t be pricing themselves. Oftentimes I see people in Facebook groups asking, “What should I charge for this?” hoping that other creatives will give them guidance on a tricky subject. But here’s the very real truth; what one person is charging could be totally different from what you should be charging.
Just like shopping for jeans, pricing is never a “one size fits all” approach. We live in different areas of the world where the cost of living is unique, have distinct financial commitments, or may be supporting multiple people off of one income. And beyond those socioeconomic factors, we come from different backgrounds and varying years of experience. You never want to base your rates off of some arbitrary number you just happened to see in a Facebook Group. It may be waaay too low for what you need to live.
So that easy answer of, “You should charge $x amount” really doesn’t exist. It’s not something just anyone can answer for you and it certainly takes some work to figure out. But once you are crystal clear on this number, you’ll gain a lot more clarity in your business. And I’d be willing to bet you’ll find out that you have been undercharging for yourself.
This means adding up all of the expenses that you personally have (your rent/mortgage, bills, insurance, entertainment, taxes, etc.- anything that you need to spend money on in order to live). You’ll then want to create three tiers (good, better, best). They go like this:
Here are some examples:
You’ll want to do the same exercise that you did for your personal life, but now for your business expenses. Think of everything that it costs to run your business. It’s critical that you’re brutally honest with yourself in the entirety of this activity. Below are a few things that might be included in your cost of doing business: Website hosting, software subscriptions, taxes, marketing, team members, education, tools and resources, insurance, etc.
Come up with three tiers again:
These numbers could look something like:
Now, add the numbers from your personal life plus your business expenses, these will be the amounts that you will need to bring in.
Next, you need to figure out how many hours you will be working in a year. You can start by the earthly limits of a year. With 52 weeks in a year, let’s say you plan to take 6 weeks for vacation, sick time, emergencies. That leaves you with 46 weeks you plan to work. Maybe you plan to work about 40 hours per week so that’s 1,840 hours that will work in a year.
But you aren’t going to be doing billable work during all of those hours. No one is going to pay you to check your email, post on Instagram, write blog posts, or do podcast interviews. So you’ll want to subtract all of the unbillable time from those hours.
Let’s say you spend approximately half your time working on your own business and the other half of the time is spent on client work. (1,840/2= 920 billable hours in a year). Now you can take your good, better, and best numbers and divide them by this amount of hours to find your internal hourly rates:
Now that you know what you need to be making per hour to break even in your business, you can use these good, better, best rates to set the base pricing of your projects moving forward.
If you know that it takes about 20 hours to develop a brand identity for a client, that means that you CANNOT go below $1,200 or you will start to LOSE money. If you charged the project around $2,000 you would be around your “better” amount and 3,000 would be your “best” amount.
While I definitely don’t recommend charging your projects based on an hourly rate, using these numbers internally can help you guide and price the project accordingly. These numbers help to provide clarity in the minimums we must charge in order to survive. From there, we can adjust and adapt, but knowing that no-budge minimum number remains firm in our head and gives us a base to build upon.
It’s a smart idea to do this exercise so that you know exactly how low you can price things before you begin to lose money. Many designers are undercharging and leaving money on the table because they’ve never done an exercise like this. You’d be surprised at how quickly your expenses can add up and just how much money you need to charge in order to support your tech, education, team, and all of the resources that it takes to run a business.
As you dive into this exercise and start to map out your pricing, it’s critical to not base it on the numbers I have provided. These are merely arbitrary numbers that I used as examples and may not accurately reflect what you need to live or run your business.
Truly no one knows your numbers better than you — well maybe your accountant. But it’s so important for you as the business owner to take control of your finances and dig deep into your numbers. While it may seem boring or beyond your brain power as an artist, you do yourself a disservice to your creative abilities when you aren’t knee deep in your numbers. Knowing how to properly price yourself for profit is just as important as your creative capabilities.