Ahhh, pricing. It’s one of the least understood aspects of your business strategy as a creative. However, it’s also one of the most important, because if you’re not making a profit, you don’t have a business—you have a costly hobby. And aside from figuring out how much to charge, one of the other key decisions in pricing your creative services is which fee structure to use. There are several ways to calculate your total fee for each client, and each one has pros and cons to consider.
Perhaps the easiest and quickest way to price your services is to base your prices on the number of hours you work. This is often the default payment structure, as we’ve all been taught from our first jobs as teenagers that time and money are connected—the more hours you work, the more you get paid. The benefit to charging by the hour is that it’s easy for your clients to understand.
However, there are a lot of inherent negatives. First, when you charge by the hour, you force your client to focus on time rather than on all the other ways that you bring value to them (such as your experience, expertise, creativity, process, etc.). Your worth is in the problem that you’re solving for your client, NOT the number of hours it takes you to solve it. In addition, when you charge by the hour, you aren’t rewarded for efficiency. Most people want their problem solved as quickly as possible, and your ability to do that is valuable! But if you’re being paid by the hour, your efficiency won’t be rewarded.
Next, you can price your services based on a flat fee. The largest pro to this pricing structure is that since you choose a flat fee base on your costs and the money you need to make, you are assured a profit. It’s also often very easy to sell a flat fee to a client because it’s so transparent—the client knows exactly how much they will pay, and you as the business owner know exactly what you will make. This fee structure works well for business owners who offer the exact same service, every time—you know your costs, you know your value, you know your time involvement, and it’s easy to replicate for each client.
However, if there is any variability in the service that you offer (meaning that the process might be different, the time involved may be different, or the amount of energy or the difficulty involved in the project might vary), you won’t always be paid fairly if you stick to a flat fee structure.
Which brings us to the third and most-often-overlooked payment structure: percentage-based. Charging based on a percentage of the overall project spend works extremely well for service-based business owners whose services vary from client to client or project to project, such as event planners or interior designers. This strategy assures that if the project scope changes, you will be paid accordingly.
The downside to this fee structure is that it can be difficult to sell to a potential client because it’s not as common. If you aren’t experienced at selling, it can be hard to communicate how it works.
Finally, it’s entirely possible to combine two or more of these fee structures if your services don’t fit neatly into one category. Many creatives begin with a flat fee for a specific service, but combine it with an hourly structure for work that goes beyond the initial scope. Other creatives use a flat fee combined with a percentage fee if one aspect of their services is easily replicated (such as event management), but another aspect is not (design). Take some time to consider the pros and cons of each payment structure before deciding how to price your services, so you can be sure that you’re doing what’s best for your unique business.