Charging Hourly or Flat Rates - Is Graphic Design a Service or a Product?

The topic of "hourly rates vs. flate rates" in graphic design has been talked about by everyone and their grandmother over the past years, so rather than re-cover a tired topic in the general sense, we're going to look at it from a different perspective and examine the underlying issue that sways people one way or another.

What it comes down to is whether or not you consider your finished work to have value on its own, apart from the labor you put in to create it.

Is Graphic Design a Service or a Product?

The answer may seem simple. People pay you to spend time working on a design, so it must be a service. Right?

What if you were able to put your designs on paper (or screen) without ever lifting a finger? Should you still get paid? After all, you didn't spend any time working.

One of the biggest arguments for charging clients per project is that they are not only paying for your time, but for the final product as well.

It makes perfect sense. Everything that is sold — or paid for — in our society incorporates the cost of both the product, and the labor required to produce that product. Why should it be any different in the creative industry?

How Money is Made

Plumber

• Charges a flat price for parts
• Charges an hourly fee for labor

Taxi Cab Driver

• Charges a flat rate per mile

Cashier

• Gets paid an hourly rate

Photographer

• Charges different rates, i.e. $80 for a 1 hour portrait session and $2,500 for a 6 hour wedding
• Charges flat rates for prints
• Charges variable rates for licensing and usage

Retail Stores

• Charges a flat price per product

There are a lot of different ways to make (or lose) a buck. But, when it comes down to it, people are getting paid for both the work they put in, and the final product they — or the companies they represent — offer.

Can't I Just Increase My Hourly Rate?

The problem with trying to build in the value of a product into a single hourly rate is that the value of every project is different. A small, 1-page website for a new startup is not going to be nearly as valuable to the company as a full blown e-commerce solution is for a $50 million-a-year retailer.

Of course the smaller website is not going to take nearly as long to build, but look at it this way:

• Company A: Sells 10 different $2 eBooks on their website at a rate of 10 eBooks per day, equaling $7,300 per year.
• Company B: Sells 10 different $500 cameras at a rate of 50 cameras per day, equaling $9,125,000 per year.

That's an astronomically huge difference. The two websites could theoretically take the same amount of work to complete, but it's clear that a website is much more valuable to Company B.

This is one reason why companies hire people full time as web designers.

Employee or Contractor?

A business can pay an employee $50,000 a year and still come out ahead because their website is that valuable to the company. They would rather pay an employee solely for their time, because they know the value of the product the employee created is exponentially larger than the hourly cost they are paying.

Make sense?

Let's take a look at some numbers:

• Company A: Pays a full-time employee $25/hr. The employee works 40 hours a week, but only spends 5 hours a week (260 hours per year) on the company website, the rest of their time is spent doing minimum-wage-type tasks. The company essentially pays them $52,000/yr for only $6,500 of web design work.
• Company B: Contracts a web designer at $40/hr to work on their website. It takes the same 260 total hours of work, costing the company $10,400.

At first glance it seems like everyone wins. Company B saves $41,600 and you as a freelancer make $10,400.

What we're ignoring is the fact that the value of the website far exceeds the price of $10,400.

People — including other businesses — may be just as happy to pay $100 for a product or service that usually sells for $50. As the person selling that product, wouldn't you rather make $100?

Let me be clear. I'm not advocating that you take advantage of people who don't know any better. But, to a certain extent, you should charge the maximum agreeable amount a client is willing to pay.

A lot of people would be appalled at that statement, but they are the ones who will never make any money as a graphic designer.

Compensation for the Intangibles

Creative Directors get paid more than an entry-level web designer, yet the designer does most of the work. If they were each being paid for the hours they put into the project, it would make sense that the entry-level worker should be paid more, right?

The Creative Director is being paid for his/her experience, ideas, and knowledge rather than the time they spend on any given project. They also receive bonuses proportional to the size of the client they are servicing.

In essence, they are paid hourly, as well as a fee that is based on the value of the product they produce.

Let's say you designed a business card template in your spare time, just for fun. A year later you meet a client, they see the design, and they absolutely love it. Shouldn't you charge them for the use of your design? The answer is clearly yes.

They aren't paying you hourly for your design because you did the work on your own time. But, there is an inherent value to the final design, and as a designer, you should be compensated for it.

When you come up with a great idea, the idea doesn't cease to exist once you stop working on the project. Your knowledge and experience lives on throughout the life of your work, and even beyond.

There is no reason why you shouldn't be compensated for your ideas. You might even think of it as payment in advance for the future effectiveness of your work.

Is Web Design a Service or a Product?

The answer is both.

Creating a design without charging for the finished product is like constructing a house without being paid for materials.

If you want to become a successful graphic designer, then you have to treat what you do as more than a service.

You work in the creative field, and there is value in what you create.

What do you think, is graphic design a service or product? How do you charge your clients and why? What is the benefit of the way you do things?

Let us know in the comments or on Facebook.