The Penalty of Undercharging
The first rule of service providers—don’t undercharge.
I have a friend who has given her two weeks notice and is striking out on her own. She is leaving her fulltime design position for a magazine to pursue her dream of painting murals and other fine art for a living.
Awhile ago, when we were discussing the idea, I gave her the one critical piece of advice I give everyone who approaches me with the idea of striking it on their own: don’t undercharge. This golden rule is just as applicable to mural painters as it is to designers, architects, lawyers and fishing boat captains.
I wrote about this before in my article for A List Apart, and even then cited it as the most important thing to remember:
If there’s one thing to remember from this article, it should be this point. Proper pricing is the one thing that keeps the business alive, on multiple levels. When you charge appropriate amounts for the work, the client will feel like they hired the right people; when you undercharge, the client will know this and take advantage of you by demanding similar rates in the future.
This is the mistake of many first time sole proprieters: before they start, they calculate what they need to make in a week, and then divide that by 40 to figure their rate. But the fact is that even a fulltime freelancer with a full queue of projects will never bill all of those 40 hours. In reality, a 40-hour week in the office would result in maybe 25-30 hours of actual billable time. Before long, that conveniently low rate that your clients are loving is sending you into debt.
When I first started freelancing, I billed way too low … dispicably, sinfully, dismally low. I immediately cornered myself into a financial straight jacket and smart clients ate me alive—they took advantage of my sub-market prices, and I was forced to work obscene hours to make ends meet.
It has taken me years to not only raise my base rate, but become more business savvy about things like charging for overtime, enforcing kill fees and managing scope creep. Although I no longer freelance fulltime, my rates are as high as ever to make the business of upset clients, emergency weekend projects and collection calls worth my time.
The other big mistake I see from designers, especially kids right out of school, is “discounts” for new clients to win their business. From my standpoint, this tactic has several long-term outcomes, none of them too savory.
- You continue to work with the client, but always at the “discounted” rate. These billed hours don’t produce nearly the same return as more recent clients who you bill appropriately.
- You raise the rate on the client on the next project. If the client was unaware that he was receiving a discount for the initial project, he will not react favorably.
- You only do one project for the client, and never hear from him again. However, a year later, you get a phone call from a prospect who was referred to you by that first client, and he is expecting that same rate. Somewhat awkward situation.
So, if you must “discount” (can you hear the derisive sneer in my voice?), make sure the client understands it’s a cheap, short-term, market-harming, one-time discount to win their business, and that you’re acting more like a crack dealer than a creative professional.
As a service provider, you can not be afraid to charge proper rates. The client is in the market to buy your time and expertise, and they will buy for a fair price. If they balk, they might be honestly ignorant of what design services cost—I have had to educate more than one client on why I charge what I charge, and what they are getting for their money. There are many articles and resources out there to help you with this.
It’s not a difficult thing to understand, but it is a difficult thing for some professionals to exercise because it takes conviction and a certain resistance to client whining. But stick to your guns, and your clients will respect your business prowess.