Thoughts on branding, design, writing and life by Kevin Potts. Established 2003.

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.

commentary + criticism


wrote the following on Monday February 7, 2005

‘many articles and resources out there to help you with this…’ Where?

This is a very encouraging article for those of us trying to justify what seem like stratospheric rates to some clients (‘Why would you charge $1200 for a website when that other site online promises one for $50?’) ... so any help with those articles and resources would be wonderful.

Wesley Walser

wrote the following on Monday February 7, 2005

This is always a good thing to hear, especially from those who have been at it for a while. I do have a few questions, and please do approach them as if you are educating me on the matter at hand.

I am currently in college, pursuing a degree in Computer Science, and I have had the great opportunity to work several freelance jobs on the side.

When I got my first job I can remember the build up I had to having to ask for the fee that I wanted. I decided to charge by the hour, and I based my fee on what I though was appropriate. The person was paying for a professional level design (which I think I am capable of delivering), and it was going to be the front end of his company. However I am a teen, in college, who is not a professional. I don’t do this for a living, and I didn’t have an applicable portfolio to show the person to stick up for the quality of my work.

I am aware of the told that kids like me who undercharge have on the industry, and with such knowledge I didn’t want to undercharge for fear of becoming someone who decays the market. So I picked a number that I though, and still think would be good for a professional, and went down a bit to compensate for the facts that I stated above.

I have two actual questions, one of which I don’t particularly expect you to answer.

1. Is there anywhere that I can safely send a client where they can see what wed-design usually costs. I read blogs, and surf the internet all day long, and I have never come across any actual numbers. I have seen many articles like this one that say stuff about number, but never any actual numbers.

2. Without a place to see such numbers how am I suppose to know what to change. The “What do I change” question has always seemed taboo, and hence is never actually answered. I am in college with a very different lifestyle than most other designers out there. Much of my life is paid for by loans, grants, scholarships, and parents. I live in a dorm, and eat in a cafeteria. There is no way I cost what a normal professional costs (especially if they have a family) so figuring out what I need, and dividing it by whatever is completely void of any relevance as to what other professionals around my area charge. So… numbers? (This is the question that I don’t expect you to answer. If an e-mail correspondence works for you, that would be great, but what you charge is completely your business, and for some a very personal question, so please don’t feel obligated in the least.)

Owen Waring

wrote the following on Monday February 7, 2005

I just picked up the newest version of the AIGA’s Pricing and Ethical Guidebook It has some numbers with regards to web design. They are “soft” numbers, in that they all give price ranges with disclaimers about the subjective nature of pricing creative work, etc… (a perfectly valid point, btw) But at least they are numbers and they might give you a starting point for some of your pricing considerations.


wrote the following on Tuesday February 8, 2005

The AIGA book is an excellent place to start with pricing, and sets some vague, industry-standard guidelines. Also, The Business Side of Creativity is an excellent resource that says prices for freelance creatives should start at $75/hour. This article by Jeff Fisher has many more resources.

Numbers are a tricky, tricky thing and you’re really going to hate this answer, but … there is no “right” answer. Its different for every freelancer. Most I know have come to their price from trial and error to see what the market will bear for their expertise … I certainly have spent years coming to a comfortable number, and I will probably raise it before 2006.

I’m not going to tell you what I charge, and I’m not going to tell you what to charge, because arguments could be made any which way. I will however, throw some suggestions out. When I first started freelancing (while I was still in school), I worked for a small design studio and charged $15/hour. For students, I have heard the number $25/hour being tossed around, but I feel that is the upper limit. I would not, after all, expect to pay full price for a haircut from someone still in beauty school.

I have tried again and again to write a post on how to figure out what to charge, because it is by far the most frequently asked question by young designers. I’ve come to the conclusion that the answer is so nebulous and is boiled down from so many factors that I couldn’t even begin to offer the right formula.

Michael Tighe

wrote the following on Tuesday February 8, 2005

I agree totally with Kevin, under charging is a fast way to get into some serious debt issues – and never have a life.

2004 (Jan – Oct) I got tired of working for crap jobs and doing design on the side, so I made the switch – and did I ever learn a lot in those months.

The number one rule! Confidence. The difference (on a few contracts) between $2000 and $6000 in my bank accounts was organization, proper presentation, and Confidence in what I was doing (and charging). Wanna learn how to use Confidence well – literally watch the movie confidence, a great example of it – just nix the swearing out of your presentation.

Now the only problem I have is the restrictions of time itself – man it sucks that there is only 24hours in a day.

Wesley Walser

wrote the following on Tuesday February 8, 2005

Thanks for the resources guys, and Kevin the numbers that you gave for students are around what I charge, so looks like I did well with my figures.

I don’t expect my customers to pay full price for me, but I don’t want to take an adverse role on other designers around me.

Clara Teufel

wrote the following on Wednesday February 9, 2005

I am wondering what you think about having a pricing chart and sticking to it. I am struggling with the question of charging becuase I am newly out on my own, and my partner is always trying to get me to undersell the competition, which I understand isn’t a good idea, but he doesn’t get it. Is it a good practice to have a price list on your web site (for example, $200 for a logo, $200 for business cards, $800 for a 3-5 page html web site…)? I like to estimate each project seperatly, but people always want to know firm numbers in casual conversation.

Any thoughts?


wrote the following on Wednesday February 9, 2005

I think it is generally not a good idea to have a published price list. You may have a client that needs a logo that goes beyond your usual effort—for instance, a complex illustration that may take you many hours and quickly eat up your budget. The same with a website … a simple 3-5 page website often turns into more with scripts, testing, changes, etc.

I feel—and this is certainly open to argument—that it is best to bill by the hour. I simply provide clients an estimate up front—“this brochure will probably take 12 hours”—and draft a short contract that stipulates I will bill for the actual number of hours worked, even if that goes over the original estimate. (Sometimes it goes under, and I bill accordingly. I just sent an invoice for a job that fell over two hours under budget. Suffice to say the client was pleasantly surprised.)

All that being said, the prices you mentioned in your post are pretty low. I would do some research and try to find more industry standard estimate for those jobs. I find a good resource for honest answers is the HOW forum.

Ryan Brill

wrote the following on Thursday February 10, 2005

”...and that you’re acting more like a crack dealer than a creative professional.”

lol… I love it! :D

You hit this pretty much right on the head. Unfortunately, this is such a cut throat business – someone will always underbid you. I’ve found that the best way to combat this is professionalism. The people out there charging $500 for a $5000 job have very little business ethics, and are probably highly unlikely to use a formal work agreement or contract. By presenting yourself as a professional, people are much more comfortable working with you.

As far as the numbers people were asking for, it really does very too much to say much on this. It not only depends on your skill level, but also on how the work is being done. If you’re working as a sub-contractor, you can’t expect to make nearly as much as you could if the end client is your own.

“Is it a good practice to have a price list on your web site (for example, $200 for a logo, $200 for business cards, $800 for a 3-5 page html web site…”

Gosh, no! As Kevin said, there are far too many variables to be able to give set prices. When I was first starting out, I tried a price scheme like that, but now I don’t have any fixed rates (besides, of course, hourly rates). I take a look at the job as a whole, and bid it out. Trust me, it’s much better that way.

As far as them wanting to know firm numbers – that’s understandable. One way to do it, is to give them your hourly rates, and tell them that fixed rates (proposals) are bid out at those rates.


wrote the following on Friday February 11, 2005


I used to charge between $15-25/hour back when I was a student, depending on my skill level with the job at hand.


wrote the following on Monday March 7, 2005

I googled “invoices” and found your article on proper invoice practices. Impressed, I clicked on the link to your site and I need to make this a favorite so I can come back again and again.

I have a day job making documentaries for Oklahoma’s PBS affiliate, but I find myself doing more and more freelance work for an old friend’s production company. I started off just writing a television spot here and there. Afterward, the company would ask for an invoice. I was totally clueless and just typed something out. I had no idea what to include on that document, so…here I am months later and I’m finally looking into getting serious about this “extra” work.

I read your article about undercharging with great interest. Some of the projects that my friend and I handle jointly, we bill separately. The larger the project I handle, the more shy I get about the total cost. I want to scale back on my charges so that the client won’t have a stroke when he or she sees the total cost.

My friend says I’m underselling my services, but I want to get the client. As it is I didn’t get him anyway. At least not yet.

I don’t need special advice, I just wanted to let you know that your website promises to be a great help to me.

Susan Miller