How to Quote Without Going Broke

View Comments by on 6 March 2014

I receive a lot of emails from new freelancers wondering how to cost projects profitably, how to set healthy margins... you know, all the stuff we don’t get taught in design school! 

Sometimes we get too busy to handle a job ourselves, so we hire a design contractor to handle it for us. 

That’s a great position to be in, but not if you’re not charging enough.

So I want to start by saying, even if you completely outsource a design job to someone else, their hourly rate is not your only cost

You can’t just add a margin to their hourly rate and pass that over to your client.

You need to factor in all your costs of doing business first, and here’s how.

First, I’d suggest setting up an Excel spreadsheet and plugging in all your fixed costs. Include rent, electricity, software, hardware, insurance, furniture, accountant's fees, advertising costs, etc. Now, divide that down to a weekly cost, then down to an hourly cost. Got it? Now, divide that figure by the number of staff you have (even if they work externally) and don’t forget to include yourself!

You’ve now got the amount it costs for you to keep each bum on their seat; it’s how much it costs to keep your doors open before you've even started a job.

But there's more.

Now it’s time to factor in the specific job costs. It's critical you work out your true cost of each staff member when quoting jobs; it's often higher than you think.

So go back to that spreadsheet of yours the true cost of each individual staff member including all annual leave, superannuation and sick leave. Divide that down to an hourly cost.

You now have your true cost of each staff member. And here’s what you do with it.

Hourly cost of bums on seats + hourly cost of your staff member = your true cost for each project hour.

Now all you do is multiply the amount of expected project hours (judging this takes a bit of practice) by your true hourly cost.

You’ve now got your complete cost of doing the job… and guess what? It’s finally time to add on your profit margin!

Your profit margin could be anywhere from 30% – 50% depending on the job and depending on what others in your area charge.

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Remember, it’s not always what it costs; it’s what it is worth.

Want to look at a real example?

Let’s say you're paying your external designers $30 per hour, and your fixed costs work out to be $20 per hour. Therefore your true total cost is $50 per hour. Personally, I would add a 50% margin, and charge the job out at $100 per hour (actually I’d charge $99 as it sounds a lot cheaper!).

Now here’s the scary part… remember how I said you can’t just add the margin to your contractor’s rate? Well, let’s look at what would happen if you hadn’t understood all the costs that go into running your business.

Let’s say you’d just added a 50% margin to your flat hourly designer freelance rate of $30 per hour. You’d have charged the job at $60 per hour, right? But, as you can now see, based on my profit projections you'd have undercharged by $40 per hour... and you'd have missed out on all that profit margin you deserve.

So don’t shortcut the quoting and price-setting stage. You’re in business and you deserve to be profitable, so go get that moola!

P.S. I go into this in a lot more detail in my ProPartner Program. As a member you get access to all kinds of goodies like ready-made-for-you profit scenario spreadsheets, business templates and more. Find out how it works now!

What do you think? Share your comments below.


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