The 50/25/25 Rule for Pricing Your Brand and Web Design Services
Most creatives struggle with setting the right price to charge their clients. Should you charge by the hour? If so, how much? Should you charge a project rate? What do you do when the project inevitably goes wildly out of scope?
Most creatives who offer branding or design services have no idea how to go about pricing their work, so they tend to rely on these three factors:
What their competitors are charging
What they think they can get someone to pay
Their own money issues
I talk often about how using all of these strategies (especially the third one) is keeping your business stagnant. You may not even be aware that you’re doing it.
Today I want to share the solution to pricing.
It’s called the 50/25/25 Formula to Profit and Freedom™, and it’s based on the idea that a business can succeed only at certain price points based on what it takes to run the business. In other words, your pricing must first be based on what you need to charge to run a healthy business.
A healthy service business, such as a small branding agency, requires three things:
Time to work for paying clients
Time to work on your business
Time for you to lead a healthy, balanced life (a business cannot thrive without a thriving leader)
And that’s where the 50/25/25 formula comes into play. It divides your time as follows:
A maximum of 50% is spent working with paying clients
A minimum of 25% is set aside to work on building your business
The final 25% is available for you to do whatever you please
Yes, that’s right. I recommend planning for a full 25% of your time being available for you—for vacation, for personal projects, for unexpected events and emergencies. A full three months out of the year is really not that much when you spread it out (and the goal is to increase this amount as you build your business, but I’ll get to that in a minute).
Let's start with the time scheduled to work on your business.
In the beginning of their journey, most people work on their business only enough to get clients. Their goal is to find clients, then work with as many as possible. When they are booked, they forget about looking for clients because they are busy doing the work. But as those projects conclude, they start to get worried, and all of a sudden they are in hunting mode again, in a desperate race against the clock looking for their next client.
So many agencies are familiar with this feast-or-famine cycle.
Is it possible to avoid it altogether?
Yes!
By consistently scheduling business-building strategies so you are…
farming instead of hunting.
It’s why you should devote at least 25% of your time to working on your business—specifically, but not limited to, marketing and sales. No business can sustain itself without the lifeblood of marketing and sales. Without sales, there is no business. Without marketing, there are no sales. Doesn’t matter if your marketing is networking, telling your friends what you do, or launching a full-blown social media campaign: These things require time, and you need to build that time into your pricing model.
Half your time is allotted for client work. That means all the revenue you need to support your business and your life has to come from a maximum of 80 client project hours a month.
Now that we understand the ratio, we need to do some simple math to come up with your price. But we need a few more numbers to figure it out: (1) the revenue you need to cover your lifestyle, your business, and your taxes; and (2) the amount of time your average project takes to complete.
This exercise can be scary for creatives, so I made it simple:
You just plug in your figures and it spits out your price.
But I’ll try to explain the basics here as well.
Once you calculate how much money you need to bring in during a given month to cover all your expenses and you know the average number of hours a typical client project takes, you can:
Divide 80 (that’s two 40-hour workweeks) by #2, the hours you spend on a typical client project. This is the number of clients you need per month on average.
Then divide #1, the amount of money you need, by the number of clients you need.
This number is the price you need to charge!
It’s really that simple.
Of course, if you’re charging nowhere near this amount, that’s where a whole bunch of other strategies come in (like implementing a model such as the no BS Agency mode, which you can download here).
But now you know what you need to charge to have a sustainable, healthy business, and all you have to do is put a plan in place to get to that number.
Don’t worry about what other people are charging. Don’t worry about what people can pay. Focus on making your offering worth that price point.
Another trick? If the price point is just way too high and you can’t even imagine charging this much, there is a second strategy: Work on changing #2, the amount of time your average project takes to complete.
If you’ve downloaded the calculator, you can see that if you shave a few hours from your project, the price you need to charge will go down. In fact, if you can find a way to shrink your projects down to just 50% of the current time, the price you need to charge will also be halved. And that number may be more doable for you right now.
It’s a process to shrink the time you spend delivering a project or increase the price you can charge. This process is the foundation of my completely different No BS Agency model for my business: to cut out all the BS that was making projects take forever, while at the same time strategically and systematically increasing prices.
Which brings me back to the last 25%, which belongs to you.
I will admit in the beginning, I did not take this 25% for myself. I reinvested it into my business-building efforts. I wanted to get there faster. And I enjoyed the work, so it wasn’t really a sacrifice.
And because I was essentially spending 50% of my time with paying clients, and 50% of my time building my business, I was able to raise my prices so much that within a year I was making all the money I needed in 30% of my time instead of 50%. And then $20%.
In fact, if I was still living at the income level I was when I started this method of pricing with my No BS Agency model (as you make more money, your lifestyle tends to increase with it), I would need to work a mere 8% of my time with clients, or just 1 month out of the year. So 8/25/67, with 67% of my time just for me!
I made it possible by consistently investing effort into building my business and my authority online. And it’s possible for any small branding agency to do the same thing. Keep your eye on the prize, use the 50/25/25 rule as a guideline to price your services, and refer back to it as you grow. I have my students in the No BS Agency Mastery Program use more in-depth version, the Freedom Calculator Monthly, because it is your roadmap to a more and more profitable business, which will lead to a more and more flexible lifestyle full of freedom.
So what are you waiting for? Start calculating!