business - Which is a better design pricing model?

I'm curious which pricing model other feel best fits freelance design, in what situations, and why.

I am not seeking dollar values.

There are a few basic pricing models a freelancer can use:

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  Time-based pricing. This is where you calculate every minute you work on a project and break that down to your hourly rate and charge whatever the formula states you should. There are several questions here at GD.SE which refer to time-pricing models, with some excellent answers, such as: Graphic Design Pricing / What price should I charge for design services? / Pricing for Website Design (Graphics Only) This model can be accurate provided a client is aware each and every minute you work costs more. Therefore each revision will increase fees. Some clients are fine with this, some freak out because they didn't understand the pricing structure.

  
  


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  Per-service or fixed fee pricing. Sometimes known as project-based pricing. This is where you calculate a price for each and every service you offer and essentially work off of a price sheet. This way you know a brochure costs $XXX every time, a 3-page web site costs $XXX every time, etc. This model does not allow for alterations should project scope become an issue. So it can result in those difficult conversations with clients telling them to stop with revisions or pay more.

  
  



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  Value-based pricing. This model doesn't adhere to any set pricing or per hour structure. Value based pricing prices services according to their perceived value or importance to the client. This one is a bit tricky. Essentially it's the old "If you charge more, clients think you are worth it." model. You can often use this model to increase revenue without increasing workload. This is why "Name Brand" items cost more than generic items - a perceived value when in reality the items or workload are / is the same.

  
  

There are others such as licensing, use-based, royalties, etc. but I feel those are special circumstances which don't generally apply to most work. If you feel they do, please explain why.

It is also possible to use a combination of price models or hybrid model. For example, you may figure a job cost using time-based pricing but then add additional fees for value-based pricing.

It is also feasible that different services or projects are priced differently. For example:

• sales piece creation fees are a hybrid calculation using time-based and value-based figures to arrive at final fees. Then, additional edits to that sales piece at a later date are strictly time-based priced. Poor Practice? After all , if it's a sales piece each and every copy seen by end users has potential to generate revenue for the client. So, is it more appropriate to use some value-based pricing for the edits?


• Web site creation fees are calculated using hybrid fees from time-based, per-service, and value-based figures. When an additional page is requested a year later, fees are based solely upon fixed fee rates for an additional page. Is this adequate? What if the additional page requires different services? Still a fixed fee then?

Obviously, all price models must cover your overhead at a minimum.

I am not seeking dollar values.

Which pricing model do you feel best fits freelance design services?

When do you feel it's appropriate to use the different price models, if you do?

Edit: I realize that in the end, most deliver what could be seen at fixed-fee pricing to their clients. This is just naturally what any hard quote appears to be. I'm not really thinking in terms of what a designer delivers to the client as the pricing. What I'm curious about is how you get to that figure the client sees.

I do realize this is a complex matter and few scenarios fit nicely into a specific category. Just looking for some general input from others in the industry.

Answer

I always sit down and estimate my time (and any subcontractors I plan to use) based on three points.

1. Project type. Brochures aren't that tough, but an identity program can be.


2. Brand / industry / competition. A local restaurant doesn't need the same level of creative development as a national eComm site.


3. Client expectations. Some clients don't care about the competition, they want exceptional quality... or down and dirty.

Then I factor in two important things before submitting a quote. Either point can move the fee up or down.

1. My desire to do the job.


2. How easy the client is to work with.

As others have said, fixed fees for fixed project types means you aren't taking the client's specific needs into account. This isn't a commodity, every project is slightly different. If you aren't pricing it that way, someone is probably losing money.

Of course, after you've been doing this a while you'll be able to estimate off the cuff with surprising accuracy. Especially with clients you know well.

The co-founder of FreshBooks and former design agency guy Mike McDerment wrote up a great little piece for Six Revisions aptly named How I Earned A Lot More on Projects by Changing My Pricing Strategy.

His basic approach to the pricing model seems to be similar to what I've outlined. The article itself focuses on the client relations aspect of the proposal. Here are his high points.

1. Don’t Present Price Up Front


2. Find Out What the Client Really Wants


3. Position the Price as an Investment, Not an Expense



4. Present Several Options (this is an interesting approach, sort of pre-negotiating)

The upside to this model is that you get to know your business very well. If you put dollars against your time and track the actual outcome you'll find yourself working smarter. Either that, or you have to be really awesome so you can charge an obscene amount to cover you inefficiency.

The client also knows up front exactly what to expect. To that end, you have to be very explicit about the process and what will be provided when. If something deviates from the plan because the client changes the spec, you send an amendment for the additional cost. If the deviation is the designer's fault, you eat it.

I once got a quote request for a project I could execute better and faster than my competition. The client knew I was the right guy for the job and was in a crunch to get me. Trouble was that I knew the client was difficult and untrustworthy and I was too busy for the project.

Following my Reality Check calculation I padded my quote by 30% and subcontracted most of the work. The client unsurprisingly tried to pull a fast one on me to squeeze out a little more for their money. I feigned compromise and still walked away with an extra 15% in my pocket for the irritation.