One day at our modest design agency, we raised our rates.
Like, astronomically. I’m talking about a 500% increase, out of the clear blue.
And it was scary as hell. But guess what? It worked.
This is our story.
Our initial business plan for Madtown was based on a simple numbers game, as it is for most young design agencies.
We figured that if we charged $2k/website and designed five or six of them a month, we’d be running one hell of a successful design agency. Plus, we could charge each client $25/month for hosting, giving us ongoing residual income. We even had a plan for growth, which involved hiring a business developer and paying him 25% commissions.
In our first few years, we got a lot of business, but not as much as we’d anticipated. We strategized, we planned Adwords budgets, we came up with all kinds of nifty little ways to boost our income. But we were never truly profitable.
It wasn’t an SEO problem, if that’s what you’re thinking. We ranked first for all of our keywords for several years. It didn’t matter–we were still unable to achieve the workload volume our entire business plan hinged on.
Before the start of 2012, our team sat down to talk about what it would take to turn Madtown into a profitable design agency. And that’s when we took the biggest risk in our business’s young life. We raised our rates. A lot.
Around the time of our life-altering strategy session, I came across a blog post by Blair Enns, from his website Win Without Pitching. If you’re a young designer or a small design agency, Enns’ manifesto
is a must read. But this particular post specifically discussed premium pricing and how it improves commitment with clients.
When you’re doing websites at $2k a pop, you don’t get much commitment from your clients. They’re just not financially invested enough to be emotionally invested. They’re flaky, they beat you up over price, and they make it clear that you’re low on their priority list.
They also don’t see you as a big-time designer, so they’re more likely to walk all over you. These are the clients who request 1,000 changes to their sites, including changes that make no business sense or that completely reverse a previously requested change. You know them: the clients who suck.
After reading Enns’ manifesto and thoughts on premium pricing, I brought his ideas to our team, and we made the change the very next day. From that moment forward, we were charging $10k minimum on all of our projects.
I know this is a very scary proposition for most. Like I said, we were scared as hell. I mean, we had families, bills, and business expenses to take care of, just like everyone else.
But we did it anyway. And it worked.
How We Pulled It Off
We knew we weren’t going to be able to raise our rates that significantly without changing a thing about our services. To get the $10k clients we wanted, we had to up our value.
We realized that, in today’s business environment, designers aren’t just being hired to design–they’re being hired to bring new perspective to business problems. Businesses don’t just need new websites–they need new strategy, delivered through their websites.
And there was our value.
Instead of just making cool-looking websites, we started tackling business problems. We created an entire diagnostic progress, through which we’d learn as much as we could about a business and then present a plan outlining how that business could overcome its problems and move forward. We started charging $5k as a flat fee for this service.
In addition to giving us a foothold into a more premium market, this new service allowed us to take the time to get to know and understand our clients’ businesses. It also got our clients more invested in the process, which resulted in smoother, more successful projects.
Here are some other things we did:
- Defined and implemented a design process, start to finish, that we followed with every client.
- Focused on working with only a small number of clients each year.
- Stopped writing proposals. We haven’t created a proposal in almost two years now, and the amount of time and energy we’ve saved is astronomical.
- Started building our expertise in thought leadership and contributing regularly to the market conversation online.
- Eliminated all the clients who did not fit our new pricing model. (If they didn’t value our expertise, they had to go.)
- Identified any deficiencies in our expertise and resolved them immediately.
- Stopped letting clients dictate our process or design choices.
I know. At this point you’re thinking, “That actually worked?”
And the answer is yes. Within the first two weeks, we secured a project worth not just $10k, but $20k–our largest ever. We were also saving tons of time and money by not writing proposals or pitches, chasing after businesses we never had a chance of getting under our previous business model. (One of our huge lessons learned was that if someone really wanted to work with us, they wouldn’t bother with the proposal writing process. And there was no need to waste our time on people who didn’t really want to work with us.)
By the end of 2012, Madtown’s revenues were up over 100%, and we’re going strong into 2013.
More Money, More Pressure, Better Results
It’s basic human nature: someone who’s paid more has more incentive to perform at a higher level.
The designers who are willing to slash their prices to win clients are only in it for the money. Whether their clients grow as successful businesses isn’t really on their radar.
But when we charge a premium, it’s not about the money anymore. It’s about creating something great for our clients–something that will transform their businesses.
Now that I’m paid a rate I’m happy with, I feel more pressure to perform exceptionally well for my clients and make sure they are getting real results.
Save Yourself: Raise Your Rates
Looking back, I don’t understand how any designer can get away with charging $1-2k for a website.
If a typical project takes 100-200 hours, that’s only $10-$20 an hour. When you’re working for yourself, you can’t just charge the hourly rate you might get if you worked for someone else. You have to charge enough to take care of expenses, education, and healthcare, grow the business, and make a profit.
Profits are the true validation that your business is successful. If you’re only making enough to break even each month, you’re just one bad client away from going broke.
So please: take a leap of faith and raise your rates.
Of course, you can only raise your rates successfully if you are willing to turn down business. And yes, it’s definitely scary, but the rewards are plentiful.
These days, I turn down 90% of our potential business. Even if people can meet our minimum financial requirement, I’ll turn them away if they seem difficult to work with. In web design, as in so many other businesses, the best results come from an exchange of services between two parties that are well matched. As much as I want to be the right fit for my clients, I also want them to be the right fit for me.
Give your design company the best shot at success by charging what it takes to do it right. Ditch the disrespectful, cheapskate clients who pay you unsustainable rates, and you’ll discover a whole new sense of satisfaction in your work. You’ll also discover that, suddenly, you’re doing the best work of your career.