Why creative freelancers should be charging more than agencies
August 8th, 2011 § 6 Comments
When it comes to your pricing, it’s hard to know where your freelance creative business should fall. Particularly when you’re a freelancer competing with agencies who have tons of employees, swanky offices, regular company happy hours, and all the other little things that make them seem so glamorous. Would you be surprised if I said you should be charging just as much, if not more, than those fancy pants agencies?! Gasp.
Let me explain.
If you think about it, an hour of your time, at your hourly rate covers the time it takes you to work through a problem plus what it costs you to run your teeny little business, right? So, for our sake, let’s say your hourly rate as a freelancer is $100 per hour and $10 of that goes towards costs for running your business, and $90 is time working directly on a project. To contrast, if an agency charges the same $100, it gets divided differently because they are structured differently. For our example, let’s say that $80 of that $100 hourly rate goes straight to overhead costs such as salaries, office space, benefits, etc. and $20 is time working directly on a project. That means, for the same $100, a client can choose to spend it with you and get 90% of your attention, or with an agency and get 20% of their attention.
So for a client to get the same level of expertise from an agency that they get from a freelancer, they need to spend 10 times as much money.
Knowing this, most freelancers will price their services way too low, assuming their customers can’t afford rates similar to an agency, and if they could, they would just rather go to an agency. This way of thinking could be keeping you from finding better qualified, and more enjoyable projects. While larger agencies have their place in the market, they’re not meant to be seen as the “premium” in creative services. Rather, they have more capacity and broader specialties, making them a better fit for some clients, not just clients with big budgets.
By pricing your services based on your expertise instead of what you think your clients can afford, you’ll probably find that your clients can still manage to afford you. Why? When you attract your clients based on your experience, portfolio, reputation, and years of experience, your price becomes less of an issue. When you win business based on price, you’re in a losing battle and you’ll find yourself with unfulfilling projects that aren’t well-suited for you because you’ve given the client all of the control.
It’s time to stop thinking of your freelance business as being a cheaper alternative to big agencies, and start thinking of it being a different option with its own, unique set of benefits. Once you can wrap your head around this concept, you’ll begin to wonder how you could be charging anything but what your expertise is truly worth.
Freelancers, what do you have to say about this?
my problem is this:
I am one guy. I know others that might be two or three.
I cannot compete in a services level at Campbell Fisher, Mindspace, or forty. Tell me how one guy with “90%” attention can simultaneously manage marketing expertise, brand development, the ninety+ killer details on the video production, the short, medium, and long term deadlines and goals, keep the photoshoot that has to happen at the same time that the copywriter needs to discuss the web content, and least of all, manage the messages, phonecalls, iterations, and emails?
I would never think to charge the same rate (or more) as a full service industry, especially when a big agency is theoretically hiring a seasoned expert in each of the above skill sets
I think the thesis is flawed.
Yes, agencies have businesses to run, too. But does a client want their hard earned money going towards running that business or direct work on their project? The reason for the post was not to discuss costs of operating a business. Of course agencies have way more moving parts that require cash flow to keep functioning. However, a client coming to an agency with $100 and a freelancer with another $100 will get very different things. A freelancer can accomplish much more for less money because there isn’t as much overhead, so that doesn’t mean a freelancer should just charge less for the same amount of work. In fact, specializing and efficiency are generally associated with a higher price tag. Ultimately, it boils down to expertise. People want to pay for your time/ideas/expertise/etc.
Freelancers don’t do everything, and for good reason, they’re usually pretty darn good at a few select things. And the right clients aren’t interested in their money being used a for a secretary fielding phone calls and an expensive lobby fountain, they want their money to go directly into their projects, and who does that better than a freelancer? Should you charge more for that advantage? Heck yeah!
Kim,
1. correlating the impetus of a client’s purchase to either be towards paying for ‘the building’ or paying for the work is a fallacy. The driving reason most business chose a contractor is to produce work that accomplishes the goal, that’s a given.
“But does a client want their hard earned money going towards running that business or direct work on their project?”
Kim, a customer’s hard earned money IS going to help run the business because the employees will be directly working on their project. You made a distinction without a difference.
My point is NOT to imply that the specialists need to get paid, it’s that the larger agency HAS the specialists who’s ongoing employment indicates the execution of their skills in a focused process. One freelancer (or small business owner) cannot be equal to five specialists. If one person has a job to answer a phone for an hour, they cannot handle as many calls in that same hour as five people collectively.
The business wants results. If they know specialists are focused, they will know they have to pay for it.
2. “A freelancer can accomplish much more for less money because there isn’t as much overhead, so that doesn’t mean a freelancer should just charge less for the same amount of work”
Another distinction without a difference. But this one does have some room for clarification. In the same sentence, you said a freelance can do more, but then said they are doing the same amount of work. The overhead you mention might include a production room, video production, a place for photo shoots, etc. If a freelance is hired to handle all of that, and can handle it, sure, charge for it. Those charges will probably include the freelancer hiring specialists in those fields, and it evens out.
3. “In fact, specializing and efficiency are generally associated with a higher price tag. Ultimately, it boils down to expertise. People want to pay for your time/ideas/expertise/etc. ”
I’m not sure if you are detailing this as a negative or not. I assume not. But if you want stark definitions, I’d say that whatever they pay for, in the end, they pay for the final product’s ability to accomplish something.
I’m sure there are a few rare professionals who can work a wide birth of specialties, but I still don’t think a freelancer can expect to make the same as a larger business. There are exceptions to everything, however. I do illustration that apparently few others can provide. I can charge a premium for my specialty. If they want the art to become a brand, marketed, and produced online, I’ll probably go talk to James (and then the price goes up because I just hired a group of specialists from a bigger business).
Great topic!
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Hi Kim,
Interesting. Super controversial post. It was enough to push me to comment. I have two points.
1) Contractors should charge as much as they can while still getting business.
2) The price premium paid for agency work is paid for more reasons than swanky offices.
Point number one is pretty self-explanatory and hopefully we agree on this one. Regarding number two, I’d like to point out that one of the benefits of an agency is the coordination of multiple participants/roles to deliver a product in a consistent way. Further, agencies typically have a reputation and a bank account to protect and if they screw something up they have an extremely strong incentive to “make it right”. A contractor can just close up shop tomorrow and suing an independent contractor is a waste of lawyers fees.
As a fun mental exercise, imagine if you wanted to run a project to create an online experience. If you do it by assembling a team of independent contractors you will need to find, screen, negotiate, and hire at least three different specialists (market analyst, designer, developer, copywriter, etc.). You need to bring them together, establish joint expectations about how they will work together, play referee as they frustrate and disappoint each other in a dozen minor ways, and somehow get this group to produce a cohesive final product. As a fun further exercise, imagine that you change the project scope partway through and you are now renegotiating three different contracts.
With all that said, I think I agree that independent contractors may be scared to charge their real value.
David,
Great points and I definitely agree with you. Agencies will always make more sense when it comes to large, multifaceted, and multidisciplinary projects, no doubt about that. For the types of clients many freelancers/contractors work with, those just aren’t their needs and require much more focused, specialized deliverables, which, in almost every other industry, means a higher price. The point is that clients shouldn’t *not* choose agencies because they’re the more expensive option. They should examine their needs and determine whether an agency or a contractor makes sense for them based on their specific project, not just because a freelancer is a cheaper alternative. A bold proposition, I know, but that’s another blog post for another day. It’s simply about understanding one another, agencies can do things freelancers can’t, and freelancers can do things agencies can’t, doesn’t make one have a more valuable than the other.