What would happen if you increase your hourly rate?
What would happen if you increased your sell rate, just by a little?
How much would it take to make a noticeable difference to your bottom line?
And would clients notice?
This article explores the numbers…
Would a small increase to a sell hourly rate make a difference?
Yes: an incremental increase to your sell rate will result in a noticeable difference to your bottom line.
Would it make a difference to your client? Probably not, but every client is different.
We done a few calculations for you to consider.
First, here’s our assumptions:
- We’re using an hourly sell rate of $180, you can adjust to suit your sell rate.
- Billable hours per year 1288*
- Sell rate is not your billing rate**
If you increase your rate by 7%
A 7% increase to a $180 sell rate is $12:60 making a new hourly sell rate of $192.60 per hour.
It’s an increase of $63 for a 5-hour project.
And an additional $126 for a 10-hour project.
A $25,000 project would become a $26,750 project.
The difference to the client is negligible but the increase to your annual bottom line would be $16,228.
If you increase your rate by 20%
Sounds outlandish?
A 20% increase means a sell rate of $180 increases to $216 per hour – an extra $36 per hour.
A 5-hour project sell rate was $900 now $1080.
A 10-hour project sell rate was $1800 now $2160.
Realistically, would either of these increases mean you would lose the project? Probably not – you may have to qualify the cost, but it’s a conversation worth having anyway.
And the extra revenue from increasing your rate means you can afford to lose the bottom-rung clients.
The increase to your bottom line over a year? $46,368.
So what?
What would happen if you increased your sell rate?
Immediately your profit increases, but better than that, you get options.
Increasing your hourly sell rate delivers options.
- the option to ‘lose’ those clients always looking for the least expensive estimate
- the option to work less hours while still earning the same money
- the option to turn the increased profits into higher wages.
Let’s be clear: increasing your sell rate isn’t the only way to increase profits, there are a variety of levers you can manipulate. But knowing you are commanding a higher fee is motivational. It makes it easier to go that extra mile.
Footnotes:
*1288 hours is based on 52 week x 5 days per week less 4 weeks annual leave, 10 days public holidays x 70% productivity. For more detail download our DBC Hourly Cost Rate factsheet.
** Remember this is the rate you use to estimate the number of hours needed to deliver a result. Your billed or estimated rate should include a contingency margin plus a profit (or value-add) margin. This sell rate is used to assess studio profitability.
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Carol Mackay
Design Business Council : business advice for creatives.
We help designers build better, stronger, more sustainable, businesses.
Design Business Review is Australia’s only online design management magazine. It’s professional development information written specifically for Australian designers by Australian designers. Best of all, it’s free.
Want more?
More information about decision-making:
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- Dealing with price sensitive clients
- How to help clients make decisions
- One what basis are you making this decision?
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About Carol
After 30+ years running a design studio, I accumulated a pretty special network of fellow designers. One thing most have in common: a need for more information about the ‘business’ side of design. Most are impatient with any task competing for time spent doing what they love – designing so they wanted more info about how to work more efficiently and effectively.
Not me. I love that intersection between design and business. I built a career working with Ombudsman schemes, the Emergency Services sector and the Courts. My special power has always been an ability to use design to translate the difficult to understand or the unpalatable message.
I now use exactly the same skills with creative business owners. I translate the indigestible into bite-sized chunks of information. I share insights, introduce tools and embed processes to help others build confidence business decision-making skills. More confidence makes it easier to grasp opportunities. More confidence makes it easier to recognise a good client from the bad.
Outside DBC I have mentored with Womentor, AGDA and most recently with The Aunties.
And I’m a proud board member of Never Not Creative.
Always happy to chat, I can be contacted here.
