Web design agencies will typically charge for their services by the hour. Although quite often a fixed price will be quoted for projects, this price will still be determined by an hourly rate.
Some smaller agencies will have a standard hourly rate, whereas other agencies will charge rates that correspond to the different role ( e.g. Junior Developer or Senior Developer.) It’s a good idea to have different rates for different roles, because it will make costing jobs easier as your company grows and also allow you to be more competitive on jobs that do not require a more senior role.
How much do you need to earn?
It is important to make sure you consider your overheads when determining your charge out rates. Sounds obvious, but you’ll be amazed at how many agencies just make up a figure which ‘sounds about right’ and which is based purely on what other local agencies appear to be charging.
If you’re running a serious business, you need to know exactly what it costs to put a bum on a seat. So let’s work it out…
You need to consider the following costs:
- Bonuses and benefits, e.g. medical insurance
- Payroll costs
- Office set-up (space, desk, computer, software)
- Internet and telephone
- Line manager resources
It is typical for an agency to achieve 70% productivity on average. If we assume 23 working days in a month, that means they’ll be productive for 16 days, which leaves seven days you will not be able to bill for. Yikes! Of course this percentage varies dependant on the role and the business, but it must be considered, as 100% productivity simply doesn’t happen.
Add up all these costs up for one month, then divide by 16 and you’ll have your breakeven daily rate.
What profit level are you aiming for?
So we now know how much you need to cover your costs, which is a great start, but it doesn’t answer our question.
We need to determine how much profit we want to aim for. Typically, agencies will aim for a profit margin of around 20% , but some agencies manage to achieve a lot more, maybe even 40%!
Let’s assume we want to aim for 20%, so take your breakeven rate and multiply it by 1.2. This is your charge out rate!
How much does the competition charge?
We now have a charge out rate, but how do we compare? We know we can’t charge any less since we’ve done the maths, but could we get away with charging more?
Research what your competition is charging and decide whether you want to up your price to increase your profit margins, or perhaps stay as you are and undercut the competition to win more work.
How many hours are in a day?
Quite often you’ll be quoting for jobs in hours rather than days, so this begs the question, ‘How many hours are in a work day?’
Typically an agency will assign either 7 or 8 hours in a day. It’s up to you to decide what works best for your agency, but be consistent.
What is your value?
Your value is also very influential to your charge out rate. Can you produce things better or faster? If so, you’re more valuable and your price should reflect that. Of course you’ll also have to communicate this through your marketing!
For example, if you’re a specialist iOS developer and your skills are that much better than the competition, you should still be in demand even if you are more expensive. People always want the best and they’ll find the money to afford you.
Also consider supply and demand. If you’ve got more enquiries and work than you can possibly deal with, you’re obviously not charging enough.
Make sure you’re charging enough, so that you can enjoy work without stressing about profit levels.