Thanks for asking!
You've reached a big milestone along the path of a successful
business. Let's see if we can provide the background needed to make
the choices that best fit your individual work and situation. I've
drawn upon my own experiences, and those of colleagues, as
consultants, and working web design/programming specialists to offer
you pricing "best practices."
I completely understand your desire to keep the actual URL and other
specific identifying information to yourself at this time. Without
solid numbers for so many of the variables, I'm going to outline
various pricing methods and formulas that'll assist you in determining
costs, then armed with that knowledge, you'll be able to figure out
how to set a price that is profitable for you, and within the
customers means and willingness to pay. The win/win scenario is that
of you feeling well compensated for your work, and the customer
feeling that their money is well spent.
I will also attempt to address your second clarification after I've
discussed rate setting. You need a basic understanding of minimum
pricing before you can determine the Value Pricing of your product.
THE RETROACTIVE BID
*******************
To sell a website as simply a product, you'd need to have firm
figures, rather than estimates, of traffic, advertising space, and the
rate that can be commanded for that space, based upon willingness of
advertisers to actually pay those rates. In other words, you'd need a
completed product with verifiable statistics. You'd need to be able to
demonstrate search engine placement, perhaps. Without those statistics
or demonstrations, you'd actually be selling a templated website.
Templated websites range in price from $299 to several thousand
dollars. I'm sure you believe your work has greater worth, and greater
value to the customer. So the question becomes: How can I maximize the
price?
You're actually in a very good position. The catbird seat. You've
completed the majority of a website, know the actual cost and time
figures, and have received a definite offer of interest for your
product and services. Figuring out how much to charge is not much
different than submitting an initial bid. Except instead of being
forced to guesstimate, you already know exact figures and time, and
just need to plug those values into the pricing formula you select.
You'll need to create a retroactive bid for the project.
COSTS AND PRICING
*****************
Let's start with a list of what you are actually selling. The exact
items, including your time. The list might look something like:
Original graphics (25 large, 50 medium, 150 small)*
Creation time (50 hours)
Royalty Free Images (10)
Cost per image $70
Time for image search/customizing
HTML/XML Code - 50 pages, 150 lines per page*
Coding time
Original Programming (PHP/MySQL/Perl/Java/Javascripting/C et.al)*
Coding time
Purchased CGIs - 5
Search and Installation time
Navigation Design*
Coding time
Website Installation and Testing
Testing time
Your own list may be longer or shorter, but do try make it fairly
complete. The items on this sample list that I've marked with an
asterisk are Intellectual Property items. You own the copyright. These
are items that should be specifically mentioned in any contract as
such. Be sure you understand exactly what you are selling or
licensing, and under what terms. Licensing for exclusive use commands
a higher price than simple licensing, whereby you may use the items
for future work. Selling of intellectual property commands a higher
price still. You'd selling the creation time, the right of the
customer to do as they please with the work, plus compensation for the
"expected life" of the product. The pricing logic and scale for these
determinations is similar to computer software. A custom tax
accounting program, for example, would be very expensive. If the
creator mass produces the tax program and sells it to many as Jack's
Tax, the price could be set much, much lower.
After you've completed your list, it's time to cost and price the
items. Items such as the CGIs and Royalty Free images are the easiest.
You know the cost, it's up to you to decide whether to take a standard
markup (50-100%) or to cost the times associated with the items
separately.
PRICING YOUR TIME
*****************
First, I'm going to send you off to read a relatively quick article
about Web Design pricing from A List Apart, Work for Hire, Setting
Fees and Getting Paid, by Scott Kramer. This article provides general
background on the fee setting process, with emphasis on Web Design.
A List Apart
Setting Fees and Getting Paid, by Scott Kramer
http://www.alistapart.com/stories/fee/
Next, it's time to figure a profitable hourly rate for your work.
The Advertising Agency Method:
------------------------------
Determine how many billable hours in a year.
Take an annual salary and add overhead
Add the PROFITABILITY FACTOR
Divide the salary + overhead + profit by billable hours.
We start with the number of billable hours in a year. To calculate
billable hours:
With a 40 hour work week, and 52 weeks per year, there are a possible
maximum of 2,080 Total hours per year.
Some adjustments need to be made however. Holidays, sicktime, and
dentist appointments happen. Since it's good to be paid for that time,
even though it's not billable, that likely proportion of time will
need to be factored into billable hours.
Traditionally, ad agencies use a figure of 1,600 as the standard
number of billable hours in a year. If you're self-employed and
consider yourself as chief cook, bottlewasher, and salesman, too, you
may want to reduce that number further.
Figuring Salary
---------------
Next, take the amount of money you expect to earn from web design work
this year, whatever you'd say your salary should be. I'm going to use
a figure of $10,000, not because it's at all accurate, but because it
makes the calculations easy.
The real costs of salary are not just the salary itself, but the
associated overhead incurred because of your work. Employer share of
payroll expenses, self-employment tax, health insurance, prorated
costs of computers and other hardware items needed for your work,
office equipment, and prorated cost of your office space. You need to
do this even if you are a one-person operation and self-employed,
working out of your garage. Otherwise, it's very likely you'll go
broke!
Accountants struggling to set overhead rates for advertising agency
salaries finally determined that a rule of thumb rate of 100% is
needed to fully cover all these expenses. Salary expense is equivalent
to overhead expense. In our example here, we now have a salary +
overtime rate of $20,000.
Now, we'll add in the Profitibility Factor. Most businesses aim for a
20% profit. We'll use that percentage to arrive at a salary + overhead
+ profit figure of $24,000.
To calculate, divide $24,000 by 1,600 billable hours, and you'll
arrive at an hourly rate of $15.00. Now you can see why $10,000 is
such a handy "guestimate" to use, because it gives us the billable
rate per 10,000. It's very easy to multiply in your head and come up
with figures that are more realistic. So if you make (or want to make)
$30,000 per year, simply multiply the hourly rate by 3, for $45.00.
The following Salary Guides will give you a much better idea of the
level of salary you can command for your skills.
Internet World Salary Survey - Design
http://www.internetworld.com/magazine.php?inc=070101/07.01.01feature2.html#design_1
Datamation: 2003 Looking Bright for IT Salaries
http://itmanagement.earthweb.com/itmgmtstaff/article.php/1567751
AIGA/Aquent Survey of Design Salaries 2000
http://www.aiga.org/content.cfm?contentalias=salarysurvey
A Day in the Life of A Designer 2001 - Web Design
http://graphicdesign.about.com/library/day/2001/blweb.htm
Now you have the basic method of rate setting in an business arena
very similar web design, but if you'd like additional background on
how various professional derive their rates, I can recommend the
article, The Geek's Guide to Internet Business Success - How to Set
Rates, by Bob Schmidt.
Provider Marketing Group
The Geek's Guide to Internet Business Success
How to Set Rates, by Bob Schmidt
http://www.provider.com/howtoset.htm
Now, back to the first set of website cost/price calculations. From
your listing of items for sale, you can now fill in the blanks for
hourly rates. Don't hesitate to establish a higher rate for more
complex tasks.
Original graphics (25 large, 50 medium, 150 small)*
Creation time (50 hours)
Royalty Free Images (10)
Cost per image $70
Time for image search/customizing
HTML/XML Code - 50 pages, 150 lines per page*
Coding time
Original Programming (PHP/MySQL/Perl/Java/Javascripting/C et.al)*
Coding time
Purchased CGI's - 5
Search and Installation time
Navigation Design*
Coding time
Website Installation and Testing
Testing time
Be sure to add in a reasonable number of hours for professional
consultation with the customer (not sales negotiations, but time
discussing the direction and specifics of the project itself.) You
should now have a profitable "Website Project Worth" figure. This is
your minimum value price.
Using this method, you should also be able to determine what price you
should charge for monthly maintenance. Monthly server costs, and/or
bandwidth charges will be determined by the what sort of hosting is
chosen. Dedicated hosting may be a less expensive, more reliable
option if high bandwidth is anticipated. If you are unfamiliar with
high volume websites, once you have better estimates of the space the
site will need, plus anticipated volume, you might consider posting a
new question asking for a features/benefits analysis, and specific
recommendations in your region, or you might speak with hosting
specialists at several of your local ISPs, or even consult nearby
server facilities.
PRICING STRATEGY
****************
Your long term business goals should determine your pricing approach
and strategy."If capturing market share is a priority, aggressive
pricing makes sense. However, if maximizing profitability is more
important, higher price and higher margin becomes the preferable
alternative. Apple Computer, for example, deliberately traded market
share for higher margin for most of its life, in contrast to Oracle
Corp., which heavily dealt on price to maintain dominant market share
and double revenue annually, as a precursor to going public."
As far as valuing your work, Shoestring Marketing advises: "Never
underestimate the value of value. Too many small businesses get
trapped into behavior that overstates price and understates value.
According to Bernhardt's formula, "Value equals what you get divided
by what you pay." Unfortunately, there is too much emphasis on the
"paying" and not enough on the "getting." Understand that only 20
percent of purchasers buy on price alone. With that in mind, smart
marketers will build tangible and definable value into their product
or service. More importantly, they'll take every opportunity to
repetitively communicate that value and ultimately capture it (or use
it as justification) in their pricing."
Setting Prices Can't Be Left to Guesswork
http://atlanta.bizjournals.com/atlanta/stories/1997/12/22/smallb2.html
Internet News discusses the concept of "Value Pricing" -- going beyond
the traditional cost/price estimation methods, to arrive at a "Value
Price." Beth Cox reviews the method and a recent study in an short
article entitled: 'Value Pricing' Key to Boosting Profits.
'Value Pricing' Key to Boosting Profits, by Beth Cox
http://www.internetnews.com/stats/article.php/1609251
In "Value Pricing - Fad or Fashion", David J. Staniforth discusses the
adjustments necessary in order to adapt the concept of "Value Pricing"
to businesses which rely primarily on billable hours. "The idea behind
Value Pricing is for your firm to have clients who are prepared to pay
a higher than average fee for your services, and only those clients
i.e. one hundred per cent of them delight in paying higher than you
would normally charge based upon the billable hour."
T. Bookman Limited
Value Pricing - Fad or Fashion, by David J. Staniforth
http://www.tbookman.co.uk/Value_Pricing.htm
To find an answer to your question, "What makes a marketing tool
valuable to a hospital and what are they willing to pay for it?"
you'll need think through your goals. Do you wish to be a web
designer or programmer, or do you wish to be an Application Service
Provider, offering websites as Marketing Tools. This choice will
determine how you'll price your products.
To determine the "value" of a tool to the organization, you'll need to
find out more about the organization itself. You'll need to ascertain
estimates of marketing budgets and current and historical
profitability. If your product were to increase profitability by 2
percent overall, it would be reasonable to charge a price in the range
of 5-10 percent of the net or gross increase, depending upon the
marketing budget. Once you are experienced in estimating such
statistics, you could possibly tie your pricing to gains. However,
until you have clear evidence of exactly what your product can do for
the customer, it's still a guessing game. Your pricing and marketing
of this initial project might even reflect the goal of executing your
first such project superbly, and gaining a reference and statistics
for future projects.
As the next step, I'm going to recommend that you print out your cost
figures, take a copy of your website, and make an appointment to talk
to a "professional mentor" at S.C.O.R.E., the Service Corps of Retired
Executives. Never fear, the service is free. You'll be matched to a
Counselor whose business skills closely match your needs and
requirements, and additionally, will be able to help you out
specifically, keeping your proprietary information confidential,
without fear of disclosure on a public website such as Google Answers.
S.C.O.R.E. offices are located in all cities, and most towns, nearly
400 offices nationwide, so the advisors are familiar with the local
businesscape. I've used S.C.O.R.E. mentoring myself, over 20 years
back, and credit the advice I received with the early success of my
own first consulting business.
S.C.O.R.E.
http://www.score.org/
You might also investigate the communities at A List Apart, and
CyberCrew for further assistance or "how to price" advice from some of
the Web's successful design practitioners.
A List Apart - For People Who Build Websites
http://www.alistapart.com/news.html
Cyber-Crew - A Community of Artists, Programmers, and Designers
http://www.cyber-crew.com/index.html
PRICING CAUTIONS
****************
Lastly, I'll offer links to two sites that outline the do's and
don't's of discussing specific pricing in public.
iBoost.com
Pricing Yourself to Get (and Stay) in Business
http://www.iboost.com/profit/articles/3084.htm
HTML Writers Guild Pricing FAQ
http://www.hwg.org/resources/faqs/priceFAQ.html
RESEARCH STRATEGY: Personal knowledge, bookmarks, and web searches
Google search terms:
"setting prices" "web design" OR "website"
website appraisals
"value pricing"
"calculating price" "web design" OR "marketing tool"
"application service provider"
I hope this information and recommendations provide the assistance
you're seeking to get your new site design off to a profitable start.
Should you have any questions about the material or links presented,
please, feel free to ask.
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