How do web designers calculate their quotes?

[jeckvishva]

I'm a college student with several years of experience in HTML/CSS/JS/PHP/MySQL. I'm a few courses away from getting my degree in web design and I plan to continue on after as well.

I'm the kind of person that likes to lead. I thrive for that type of challenge and I believe that running my own company is what will bring the best out of me. With that said, I am doing tons of research on starting up my own business.

My question for anyone that is able to answer is... How do web design companies figure their quotes? I don't want to end up charging too low, or too high. I've googled this question for a while now, but I get answers such as think of how many pages it'll need, will it need any back end programming, etc.. but nothing ever explains how the actual cost comes into play.

Any answers at all about this will be appreciated, preferably from freelance designers or companies. Thanks

[shadowbox]

A good place to start would be the sticky at the top of this forum. Have a read and fire away with some specific questions that we may be able to help with.

[johntabita]

The first thing you need to ask yourself is "What am I selling?" Are you selling HTML/CSS/JS/PHP/MySQL? If so, then figure out how much you want to make per hour and multiply that times the number of hours you estimate the job will take.

On the other hand, if you believe you're in the business of producing results, then figure out how much it's worth to your client to produce that result. It's still only math, but using a different set of figures.

Let me use an actual scenario. I was once approached by someone who made a variety of custom spices and wanted an e-commerce website and SEO. Let's pretend his average sale is $16, that there are 45,000 searches/month for his keywords, and I quoted him $5,500 (just making up some random figures here). I would present it to him like so:

"If I can get just 1 percent of those people to your site, and 10 percent of that traffic converts to a sale, that's $720/month. That means you'll see a return on your investment in just over 7 months."

I'm not guaranteeing a certain amount of sales per month, but I'm painting a picture of what's possible, especially if we can get top search ranking.

You see, price outside of the context of return value is completely meaningless. Suppose you presented it to him like this instead:

"Well, Mr. Prospect, it's going to take me 110 hours to build your site and optimize it for the search engines. At my standard rate of $50/hour, that means the price will be $5,500."

Scenario #2 focuses on what he's going to have to give. But scenario #1 is about what he'll get.

Hope that helps.

[Sagewing]

Ahh.. value based pricing Yes, the whole concept is pretty tired and doesn't have many real-world success stories because professional services are rarely priced in the form of 'results' or 'value'.

Say you were an SEO professional and you were very confident in your work. Say you were to tell me that you could produce 1 million dollars of revenue if I gave you $100,000 that would be an awesome deal, right? Anyone would jump at that chance, because the value I would receive is so much higher than what I would pay, right?

Well, maybe not. Because the value of something doesn't determine it's price. It's the market that determines it's price, and if there is another SEO who prices by the hour, they might bid the same project for $10,000 and that would be the offer to go with.

And there is almost always another vendor waiting to bid on your jobs. I would strongly avoid value based pricing unless what you provide is so unique and irreplaceable that your offering is indisputable. Otherwise, you are just ignoring the fact that there is real competition in the space.

[LiquidReflex]

I agree with Sagewing on this, Value Based Pricing doesn't quite have the pull it used to. There was a time when businesses were all about the end value, but today most everything is about cost. Sure, they could make up the cost after X days/months but strictly basing your quote based on what they "could" make off it is probably going to put you in a bad position to win the job. There will be other bids coming in and they are looking to get the contract, which means bidding on what price they can do it at for THEIR books, not what the CLIENT could afford.

Now I will say that using the Value strategy can be a positive part of selling your rate after you've calculated it out. If you figure out your hourly rate and come up with your total, if the Client questions the price, that's when you can show them how it would only take X months to re-coop that and more. Use it as a reassuring point for your number, not the basis for how you come up with it.

Aside from that, calculate out each "part" of the job by estimating time it would take to complete, times that by your hourly rate. Then add up all the parts to get the project total. Then I usually add about 10-15% to account for communication, overages and other fluctuations that may not be anticipated. That gives you your quote.

The benefit to calculating a project based on individual parts is that as you track your actual time, you can adjust those numbers for the next project that may have a similar process. If you design a website, there's always the planning / approval stage. Track how long that takes on average and adjust as you go. If you just track the overall time for the project, the next time you estimate, you may be under estimating one of the steps constantly and thus underbidding. The more you know, the more accurate you can bid.

Good luck!

[shadowbox]

I agree that value pricing can only really work if you somehow convince the client you are offering something completely unique compared to the competition. In web development this is pretty hard to do; if the guy next to you is offering the same stuff for 1/10th of the price, you are going to have to be one fantastic salesmen to pull off a value-based quote.The classic value-based pricing examples involve salesmen who were offering something no one else could offer - like solutions to specific and unique problems that have other companies scratching their heads.

Ultimately in an area like web development, your pricing is dictated by the market - you have to charge prices in a comparable ballpark to the companies you (and your potential clients) perceive as the competition, so look for a way you can differentiate yourself beyond pricing, such as better service, guarantees, better portfolio, better testimonials, etc.

Hate to say it, but a bit of 'mystery shopping' will do wonders.