How Do Designers Determine Price?

Web designers use this basic formula to calculate their fee:
Price = Hourly Rate x Estimated Labor Hours x Safety Margin

Let’s break this down.

Hourly Rate

Rates are determined by the market. Web designers base theirs rates on some combination of what their monthly nut is, what the prevailing rate is, and how much demand there is for their services.

Estimated Labor Hours

Web designers estimate labor hours by itemizing the number of tasks they expect to perform, assigning a time to each task, and totaling up the hours.

For development work, designers track their time as they work, and use their records to estimate average times allotted to each task. These averages change over time. For instance, when social media was getting started, it took a long time to create custom links for every service. Now it’s practically automatic, and probably won’t even appear as a line item. On the other hand, while contact forms have gotten easier to build, testing them takes more time than it used to, because web hosts have added more security to their email systems.

Bigger sites are generally more expensive that smaller sites, but there is a certain economy of scale to building websites. You have to do the same setup (acquire a URL & web host; install CMS & theme, etc.) for an 8-page site as for a 90-page site. And number of pages isn’t always the key variable. It takes longer to set up an e-commerce store than to add a slideshow. That’s one of the reasons that pricing can’t simply be per page.

Creative work is also based on estimated hours … sort of. A copy writer, for instance, might charge $500 per page, knowing from past experience that it typically takes up to 5 hours. But writers and artists spend a lot of time staring at the walls, going for walks, tearing up drafts, etc. No client in their right mind wants to pay for that on a per hour basis. Therefore most writers and artists bill by at a fixed rate. That way, if it takes the writer one hour of perfect flow or ten hours of hair-pulling frustration, the client’s bill is the same.

Safety Margin%? What the %#$%&! is the Safety Margin?

⊕“Wait a minute,” you say, “I think I’ve discovered an inconsistency. If you track your time, then the overage should be tracked too — so you’re just inflating your price!” Good catch. But wrong. We often intentionally  don’t track overages to a specific category because we don’t want one-offs to screw up our task averages. Just because one client’s aforementioned legal team decided they needed changes on every page doesn’t mean that we should assume that’s going to happen with all our clients going forward. The margin of error comes from comparing total hours worked with hours worked per category. Here’s a secret of the service industry: everybody includes a safety margin. They do it for the same reason that hotels jack up your bill a little to cover for people stealing towels. Certain types of problems, while seemingly random, occur with predictable regularity.  (Nobody is dumb enough to line item this, by the way. They just multiply estimated labor hours by their safety margin before sending the estimate along.*)

There’s no predicting where the problems will come from, but they always come. Legal needs to append new edits for the whole site? Server error corrupts the client’s headshots? Google changes access procedures to its API library? Something unanticipated is going to happen. Knowing that, we anticipate it. That gives designers the flexibility to say, “We’ll take care of it,” when the inevitable occurs.

Before you burst a blood vessel, think of what would happen if designers didn’t add in a safety margin. Instead of giving you an estimate they could stick to, they’d have to bill you for every minor glitch. “You’re really going to charge us for these edits?” “Don’t servers corrupt files all this time?” “Doesn’t Google change things every couple of weeks?” “WHY DIDN”T YOU INCLUDE THIS IN THE FIRST PLACE?” The entire process would be a series of escalating arguments, and you’d end up paying well over estimate anyway.

But we’re smart clients! We won’t create hassles! How can we avoid that safety margin?

Ok, you got us. There is a trick.

If you develop a continuing relationship with a designer, there will be less trial and error in the process. The designer will learn your likes and dislikes, and grow to understand your business. Tasks will take less time. That extra amount will eventually disappear. Long-term clients get the best rates.

But I’ve seen some really cheap offers for sites!

There are deals to be had, some good. But be wary of bargain basement prices. Your site is an investment, and it’s not just a one-time expense. You’re going to want a continuing relationship your your designer. There are at least two ways that barrel-scraping prices work against this.

Anybody who has hired a contractor knows the worst-case scenario: midway through the job that started off cheaply, you are hit with a bill for an “unanticipated” (but completely predictable) problem, and you either have to pay it or you lose all the money you’ve spent so far. The last thing you want is to be forced to be in a continuing relationship with this guy.

Fortunately, I think this is a rare occurence with designers. More often, when something unexpected comes up, they swallow the extra expense. But those who don’t end budgeting in a safety margin end up putting themselves out of business after a couple of jobs. We have done a lot of work over the years from companies (some pretty big) whose website was built by somebody’s nephew – it’s always somebody’s nephew, unless it’s somebody’s cousin – who built the site for a song but who is no longer returning their phone calls. That’s because said nephew couldn’t make a living giving away his work. And now our client has to hire us to do a brand-new site from scratch because said nephew had the only password.

As with every business expense, you’re calculating risk versus return. For the amount of money you’re putting into your site, you want to work with someone with a track record and an expectation of stability.