Ben Bleikamp's blog about technology and college

The economics of web design pricing

I’ve always been a fan of economics. I took my first microeconomics class in college and thought that be able to prove just about anything using a few graphs was the coolest thing in the world. The real life applications of economics is incredible, the uses extend past simple supply and demand situations - but today we’re going to talk about simple supply and demand.

Recently I’ve been put in the situation of having to turn down potential clients. It’s difficult for me to do because most of the people that email me asking about my availability to work on projects are genuinely nice people with pretty cool projects. But I’m too busy. School, design work, friends…I only have so much time in a day. Even if I was working 50 hours a week on design I would be too busy to accept more work, at the very least I’d be planning 2 months ahead of time and at this rate that would fill up relatively quickly.

I’m not complaining. But how do you know when to up your prices?

If you look at it like an economist it would seem that if demand is too high to meet then your prices are too low. So is it time to start upping your price? You would lose a few clients, sure. But the increase in your rates would make up for the lost clients because the people that continue to pay you are paying more.

Is it fair? Sure. It’s economics. There is no room for emotions in graphs. So lets look at a graph.

My assumptions:

• Supply is inelastic. The number of billable hours I have in a given week does not vary unless I experience a “shock” to my time - i.e. starting school again.
• Demand is elastic. If I charge too much, demand would eventually hit 0.
• I will continue getting clients at my current rate. A risky assumption, but for the sake of this post, we’ll go ahead and say it’s true.

Sorry for the ugly graph. I’ll do my best to explain it.

The orange lines indicate the supply, demand, and price for my design services from this summer. The light blue lines indicate the supply, demand, and price for my design services now. The pink line indicates the price of my design services assuming the increase in demand occurs but I maintain the same hours I had devoted towards design in the summer.

The previous “supply” (or my billable hours) was 50 hours per week. The demand curve was downward sloping, approaching 0. The price this summer for my design services hovered in the $60-$80/hour range. I did not fill up my billable hours, so it fluctuated a bit depending on the project and the client.

The new “supply” is 25 hours per week. The demand for my services has increased, which is compensated for in the graph by a shifting of the demand curve to the right. I have not changed my prices, but according to this graph I could.

Obviously this graph is not to scale, if it was I would be able to get an estimate for what I should actually charge. Is it fair to past clients to change prices? Is it logical to assume that future clients would be willing to pay a premium price to secure a spot on my schedule? Maybe, maybe not. I’m not taking this graph literally, but it does illustrate my point that if you’re a freelancer doing anything and are finding that your schedule is packed, maybe it’s time to up the prices - you’ll get more free time to yourself and maintain the same standard of living, or maybe even increase your standard of living.

Common sense and industry knowledge tell me that my prices are fair and that most people that are at my skill and experience levels are charging similar rates. If anything I might be a little bit on the high end for some projects. So am I upping my prices anytime soon? No. But if I feel like I’m getting too many work requests I might start quoting new clients higher - it will limit the number of new clients I take on and increase the benefit of new clients if I do get one.

I love economics.