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How much do you cost? Estimate the cost of your structure

April 16, 2012

A little math to help the designer

Figures and creativity usually don’t get along together too well. Too many times the financial of a graphic design firm is a mess,

Launching a firm nowadays or work as a free-lancer accounts also for a little bookkeeping.

I am not going into details on how to streamline the financial department of a firm, for this you would better ask a an accountant, but I will try to give you a little powerful tool to discover the cost of your structure.

THE EFFECTIVE COST OF YOUR STRUCTURE IMPACTS ON THE PRICE OF YOUR WORK!

This, from now on, should become the axiom of your business.

Learn to base your offer on precise evaluations and don’t lean on random choices.
Learn to keep an archive with a log of each project you had worked on – e,g, the amount of hours you dedicated to the project, the production details, etc.

But most of all: DISCOVER THE COST OF YOUR STRUCTURE.
It simpler than you might think, all comes in a little formula, a magic math formula that is going to change the way you are evaluating and offering your work and will help you not to sink.

FOLLOW THESE EASY STEPS;

  • indicate your fee on a yearly base – this is the money you want to bring home in a year
  • Sum all the professional expenses: lease, telephone, software and hardware, publicity costs, traveling and lodging expenses, employees, personal taxes, etc.
  • Calculate the number of working of days in a year – usually 220
  • Calculate the number of billing days – this data depends a lot on the way your work is organized, for a normal structure it is usually around the 65/70% of the working days, rate that sinks down to the 30/40% for a start-up.
  • Set your profit margin – once again for an average structure you can indicate the 90% and for a younger company the 60%

Done? Ok, here is the formula:
Fatto ciò, ecco la formuletta:

DAILY COST = COSTS/(BILLABLE DAYS x (MARGIN/100)

from this you can easily calculate your COST PER HOUR – for convenience I usually count six hours per working day.

And this is the final formula:

COST PER HOUR = DAILY COST/6

if you freelance, the effort is over, if you have employees instead, there is another little obstacle.
Share the cost of your structure among your employees.

This is how you do it.
You must calculate the different impact of the different designers, with their different hourly costs.

DESIGNER IMPACT= DESIGNER SALARY/WORKING DAYS/6

STRUCTURE IMPACT= COST PER HOUR – DESIGNER 1 IMPACT – DESIGNER 2 IMPACT – … DESIGNER N IMPACT

DESIGNERn COST PER HOUR = DESIGNERn IMPACT + (STRUCTURE IMPACT/ NUMBER OF DESIGNERS)

and this is all you need!!!

And now!?

And now you make sensible offers!

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