Today we’re going to talk about the cycle of undercharging in your web design business. It’s a situation that many creatives find themselves in when they start their businesses, and I’m here to help you break that cycle, become far more profitable, and actually enjoy what you’re doing again.
Before I get started, I want to mention that if this is a topic you’re interested in and you want to learn more, you should definitely come join us at secretweapon.club, where you’ll find a lot of amazing resources, along with a link to join the Well-Paid Web Designer Facebook group, which I think you’ll absolutely love, and we’d all love to have you there!
Undercharging is something that I struggled with for a long time. I was caught on a hamster wheel of consistently undercharging for projects when I was asked for a quote because I was worried that I wouldn’t get the job in the first place. So I’d drastically undercut my rates, and then I’d try to make up for it with the next job, and the next job, and the next job… you get the picture. If you’re here, you probably have all too much familiarity with that picture yourself.
That cycle of undercharging and then trying to play catch up is just no fun. I was constantly over-scheduled, and I wasn’t making enough money. I was horribly in debt, and the whole thing just repeated itself. The key part of all this is that I wasn’t being realistic about what I really needed to make in my business in order to not only break even, but to be profitable.
So first things first, I want you to be profitable. I don’t want you to just break even—that’s not enough. We don’t want to be treading water, we want to be taking broad strokes to reach our destination. And speaking of broad, that’s the first thing we need to address.
It’s time to get a little more specific about what more money means. For years, I just had “make more money” as a goal. And that’s too broad—how do you define “more money” in a way that is measurable and therefore achievable?
What’s more money for you? What’s more money for me? Those numbers are probably different. We’re not being specific enough when we just say “more.” So the first step you need to take is to be really specific with your numbers. Then I’ll walk you through the process of finding out how much you actually need to charge for the projects you’re quoting, so that you can actually reach that point of profitability in your web design business.
So go get some paper, a notebook, open a spreadsheet—whatever your tool of choice, and then come back and we’ll get started with some number crunching.
Step 1: List Your Current Expenses
If you’ve ever set up your budget, you’ve done this before. Write down everything you need to pay every month in order to survive. We’re starting out with the practical basics: list your rent, utilities, phone, internet, groceries, transportation, school fees, and any other regular monthly expenses. This is just what you need to live each month.
Next, list your business expenses. What are you paying for tools and platforms? What are your hosting fees? Include all your ongoing software costs. What do you have to set aside for taxes? It can be hard to determine what is a business expense and what is personal, but in either case make sure all these expenses show up on these lists.
Be as specific as possible with the dollar amounts that you spend every month so that you can actually look at that total number. This first step is key to breaking the undercharging cycle. When I first did this exercise, I was amazed at how much money I actually needed to survive, and it was a lot more than what I was paying myself.
This is what I like to call the break even number. If you make this much every single month, you’ll be able to maintain yourself where you are. That’s not even making much profit. So let’s move on to the next step.
Step 2: Dream Big
Here’s where we start to plan for profitability. Go though the same process of listing expenses, but this time, dream big. What do you want to be able to afford on a monthly basis? Maybe you want to save $1,000 a month for retirement, or sign your kids up for the classes they’ve been bugging you about. Maybe you want to upgrade your grocery budget and buy more organic. List all these as if they were your real monthly expenses.
Do the same with your business expenses. Maybe you want to hire a virtual assistant, an accountant, or a business advisor. Maybe there’s a conference you want to start attending every year. Dream big, and list everything that you want to achieve with your business someday, again, broken down into monthly expenses.
This is often a pretty fun exercise, and it gives you a profitability number. You have your break even number and now your profitability number. The first one is simply being practical and maintaining your life as it is now. The second is what you need to start living the life you really want. There’s no right or wrong answer here, but you need both of these numbers in order to break through the undercharging cycle and start building your business into profitability.
When I first did this, as I mentioned, I was surprised by how much money I actually needed to survive. And then when I went through that dreaming exercise and put down exactly what I wanted, it turned out that what I actually needed to have that dream life was a lot less than I thought it would be. I wanted a big acreage, vacations, and lots of other things, and the actual cost was a lot less than I was expecting once I actually took the time to list it all out.
These two numbers are going to help us immensely when we go into the next step of the process. Before we get into that, I want to recommend again that you hop over to secretweapon.club. You can grab a free copy of the audiobook version of the Secret Weapon book, where you can learn a lot more about all this, all for free. So definitely go check that one out.
Step 3: Creating Your Rates
You have your two numbers. You know how much you need to make every single month, both to break even and to be super-profitable and have that life you really want. Now it’s time to really determine how much you need to charge for every hour of your time in order to hit those targets.
Often we’re undercharging because we’re not really accurate about both how long a project takes and how much we need to be earning on that project in order to break even or be profitable. So I want you to take a really honest look at your time.
I like to look at my time on a weekly basis, because I have kind of an odd schedule. Being a mom and working from home, some days I have two hours of work time and other days I have eight. It varies based on whether the kids are in school or not, or if it’s a weekend, and lots of other things. I also always want to have a margin so that I’m not working every single minute that I possibly can, because I need to take time for me. I’ve talked a bit about scheduling so that you have time for yourself, because self-care is important.
So take a look at your schedule: how many hours every week do you actually have for client projects right now? Remember that you also have to make the distinction between working on your business and actual billable hours. When you look at your time, remember that an hour is an hour, however you’re spending it, and so when some of that time is not being spent on billable client work, you need to account for that in what you’re charging.
When I first did this exercise, I had about 16 or 18 hours a week where I could honestly say I could sit down to work—kid-free time with no distractions. It was a couple hours in an evening here, a couple hours first thing in the morning there, and I was grabbing those little pockets of time wherever I could. I’m a bit more stable now, but it can take some time to get there. Now my kids are in school full-time so I have larger pockets of time that I can count on. I think I have like 26 or 28 hours a week that I can conceivably work.
Once you have that number of weekly hours, it’s just a matter of some simple math. Convert those weekly hours to monthly hours, and then divide your break even number and your profitability number by your monthly hours. Those numbers are your minimum, break even hourly wage and your ideal hourly wage.
Looking at these numbers, you’ll find a lot more conviction for your pricing. When it’s laid out on paper or screen, right there in black and white, you’ll see $80 an hour to break even, or $127 an hour for profitability. It becomes so much more easier to look at your pricing and ask yourself if you’re actually making that on a project. When you put together a quote for a project, you have real numbers that you can use.
If you have a project’s going to take you 10 hours a week, then you have to be charging at least $X for those 10 hours so that you can break even. Your pricing will become more consistent, and you’ll be able to develop your quotes with conviction.
Once you’re basing your quotes on your break even amount, you’ve broken the cycle of undercharging. And then once you’re there, your next goal is to start moving toward that profitability number. It’s not all or nothing—you can increase your rates as you gain new clients, or whatever works for you. That number gives you a goal to work towards.
Conclusion: Breaking the Undercharging Cycle
Your break even number is your starting point, and your profitability number is your end goal. The major takeaway here is that you need to be very specific and clear about these numbers. Go through the process of listing both your current expenses and your goal expenses. Then take an honest look at the time you have to spend on your business. Once you have these numbers, you will be able to set your rates where they need to be in order to at least break even, and eventually build toward your dream life.
If you’re sick of undercharging and overworking and want to break through that cycle, I hope you found this helpful, and if you want to learn more, I hope you’ll come join us at secretweapon.club. I have lots of free resources there, and you can also join the Well-Paid Web Designer Facebook group. It’s an amazing community, and I want you to be a part of it, so that you can start making these changes in your web design business.