There are several factors used by marketing companies and freelancers to determine an hourly rate that you should be aware of if you’re considering hiring an agency or marketing professional. These include your needs, industry standards, and the marketplace. Most agencies evaluate all three factors before deciding upon an hourly rate.
For freelancers, many experts recommend calculating your needs based rate by dividing your monthly living expenses by 160 (the number of billable hours in a typical month) and then multiplying the result by 3 to cover taxes as well as profits for savings and reinvesting into businesses.
In 2016, Chelsea Campagna obtained a Bachelor’s degree in Graphic Design and Fine Arts from the Savannah College of Art and Design (SCAD), a prestigious arts school in Savannah, Georgia. Chelsea has recently moved to Seminole Heights, a trendy neighborhood in Tampa, FL. Chelsea has a lot of friends who earn a living as freelancers. Since work-life balance is important to her, Chelsea has decided to try it out for a few years. To calculate her hourly rate, Chelsea determines that her living expenses are $4,000 a month. Dividing this by 160, Chelsea arrives at an hourly rate of $25. Realizing that she needs to reserve money for self-employment taxes, her savings, and for those times that she doesn’t have projects, she multiplies the result by 3. Thus, Chelsea arrives at her published rate of $75.
Calculating a needs based hourly rate for marketing agency is similar to the method used to compute a freelancer’s rate. However, instead of looking at personal expenses, you look at the direct labor costs as well as your overhead. You then divide your total monthly expenses by the number of billable hours. The result is your break-even rate. Because a company must make a profit, you need to add a profit percentage.
Total Marketing Services is a 5-year-old boutique marketing agency in Tampa, Florida. They employ a graphic designer, a web developer, a social media marketer, a digital marketing specialist and an administrative bookkeeper. The bookkeeper’s salary and all expenses not related to delivering services to clients are considered overhead while all salaries related to providing services to clients are considered direct labor. Adding these together, Total Marketing Services determines that their total monthly expenditures are $40,970. Their monthly billable hours are 516. This makes their break-even rate $79.40 and adding 20% brings their published rate to $95.28. Most likely, Total Marketing Services would round the rate up to an even $100.
Calculating industry norms for both freelancers and agencies rely on accessing industry data. The first place to look are salary studies that are published regularly by job boards such as Indeed, by industry associations such as AIGA, and by the U.S. Department of Labor’s Bureau of Labor Statistics. For agencies, most banks can provide industry norms in regards to gross margin, profit margin, and overhead rates. All of this data can be used to determine what the industry standard rates are.
Chelsea examined AIGA’s annual survey and determined that her rate of $75 was below the industry norm of $80 for graphic design services. Accordingly, Chelsea chose to raise her published rate to $80.
After reviewing industry norms with their bank, Total Marketing Services has determined that their overhead rate is higher than the industry norms. They have decided to lower their published rate to $90 and work on getting their overhead under control.
Depending on the approach taken, marketplace rates may be the simplest or most complex to calculate. Competitor research and experience are two of the most common ways to determine what peers are charging. You can also ask your peers and discuss pricing in industry groups such as AIGA or the Advertising Federation. Some freelancers and agencies also subscribe to the Graphic Artist’s Guild Handbook of Pricing and Ethical Guidelines. This book provides average pricing for many different types of projects.
Chelsea was hired to develop a logo for a local coffee roaster opening in Seminole Heights. She consulted the Graphic Artist’s Guild Handbook of Pricing and Ethical Guidelines and learned that the typical price for a logo design project similar to the one she is undertaking is $1,500. Using her published rate of $90 and estimating that it will take her 25 hours, she realizes that her price would be $2,250. Since she is significantly over the handbooks price, she has determined to reduce her price which effectively lowers her hourly rate. She also commits to invest in more training and tools to lessen the number of hours that a project takes her. This will allow her to work toward charging her published rate.
Total Marketing Services routinely analyses their competitor’s pricing strategies and has determined that their published rate of $90 is below the rates of their nearest competitor’s rate of $125. Total Marketing Services decides to raise their published rate to $125 as their long term strategy is to win business on quality and reputation and not on price. They have deemed that being the low-cost provider is detrimental to their agencies brand image and their growth goals.
By considering all of these factors, a freelancer or agency can calculate an hourly rate that is both reasonable and competitive. This rate then becomes what is referred to as the ‘published rate’ and is the basis for project price calculations as well as hourly pricing.
What if my freelancer or agency’s price seems too low?
Sometimes an agency or a freelancer will offer a discounted rate. There could be some reasons for this. One of the most common is when the provider is new and has yet to develop their portfolio. They might be offering a cheaper hourly rate to help build up their expertise as well as their exposure. Exposure is not the only reason an agency may offer a discounted hourly rate. Although we have been in business for more than 18 years, we still offer a discounted rate to non-profit clients. We find that non-profits have limited budgets and the goodwill our discount buys us is often worth more than the reduced revenue. We recommend asking your provider if any discounts have been applied and if not, are any available.
In some cases, a discounted rate is not offered, yet the hourly rate is still under market. One situation that could lead to this occurring is that a provider does not know what to charge as they lack the professional experience to understand their costs, their needs, or industry standards. We recommend that clients evaluate a range of agencies or freelancers to recognize better when a provider appears to be unreasonably low priced. Comparing service providers is more complicated when the hourly rate is unknown. Do not be afraid to ask what hourly rate was used to calculate a price. Most professionals are happy to share their published rates with potential clients.
As you can see, there’s a lot that goes into determining an hourly “published rate” and factors ranging from a freelancer’s personal expenses to an agencies business strategy can have an impact on the selected rate. Although it is only one of the two factors used to determine many marketing project costs and retainers, it is important to understand how your freelancer or agency has calculated their published rate.
To discuss how much digital marketing services costs with an award-winning digital marketing agency in Tampa, contact the team at Absolute Marketing Solutions today and get started on your strategy to elevate your business online.