The Process of Setting Fees

Week 3 - For today class, I submitted my homework exercise and learned about how to calculate designer's fee.

THE PROCESS OF SETTING FEES
THERE ARE THREE fundamental conditions to consider during the process of setting fees:
1. OVERHEAD
The cost of staying in the business
2. VARIABLE COSTS
Best estimate of the nature and complexity of the proposed project
3. MARKET CONDITIONS
Knowing the intrinsic value of the final product

OVERHEAD AND SETTING THE HOURLY RATE

Included in the overhead category are:

1. Rent
2. Utilities
3. Equipment leases

4. Office supplies
5. Business insurance
6. Salaries
7. Taxes and benefits
8. Accounting and legal services
9. Cost of nonbillable time devoted to self-promotion and administrative chores

Include profit in this equation; a healthy business should aim to generate about 20 percent of annual profit after all expenses have been paid.

You should be able to bill out at least 50 to 80 percent of your time. If you find you have less time than this for project work, take a hard look at your daily activities and see how you can gain some efficiencies and free up more time for billable activities.

To calculate the hourly rate:

Annual Overhead (including salary + profit) / Annual Billable Hours = Hourly Rate

MATERIALS

1. Supplies that are routinely a part of the studio’s activities are part of the overhead.
2. Show evidence of the purchase of materials that are billable back to projects.
3. Code all invoices with the project number and keep a set of copies to back up bills to clients.
4. Appoint a person in charge to order general supplies and shared equipment.
5. Individual requisition is for what a person needs for his/her own project.
6. There has to be a purchase order system for items over some specified amount and a trusted staff person should be authorized to approve these orders.

SERVICES

1. All outside services need to be documented.
   
2. Services include: retouching, illustration and photography, model making, outputting, slide production,
   independent contractors, freelance personnel.

3. A written record of what is being requested, such as: when; what price; and for illustration, photography, and copywriting, under what kind of terms (copyright, usage right, credit lines, etc.).
   
4. Purchase order system for outside services. HOWEVER, remember that a purchase order is a legal commitment to pay, DON’T ISSUE any purchase orders if you are only intending to evaluate a product or service.
   
5. Include standardized terms and conditions that are part of each purchase order regarding such issues as ownership, copyright, payment terms, confidentiality, and any other items you consider important to the protection of your interests.
   
6. Included in payment terms can be the payment schedule, which is generally one-third in advance to begin work, one-third upon approval of design drawings, and one-third upon completion.

PROJECT ESTIMATING!

1. Difference between good and bad estimate = Difference between profit and loss
   
2. Key to an accurate estimate: thorough understanding of the project specifications as well as the
   production process.
   
3. Make sure you have an opportunity to see firsthand what the project looks like, either from prior
   examples, or competitive ones.
   
4. Knowing what is being requested and how to produce it, and build in a certain amount of safety, you have
   an excellent chance of setting an accurate fee.
   
5. Most professionals break down a project into phases:
   
   1. Preproduction for initial client briefings
      
   2. Competitive research
      
   3. Concept development
      
   4. Design development (begins with refinements to the concepts sketches based on client input,
      followed by the application of the approved concept toe the project’s main components
      
   5. Production of finished art and design
      
   6. Printing and/or fabrication of all the project elements
      
6. Phases are further classified into tasks, which then can be analyzed in terms of duration.
   
7. Know approximately how long it takes to do specific tasks and adding on just enough to allow for hitches
   and breakdowns in the process.
   
8. Certain contingencies such as delayed client approvals can be covered in the project agreement, but
   delayed delivery of outside elements, such as photography or copy, is the designer’s headache and
   requires an allowance to be built into the production process.
   
9. Once you have outlined all of the elements and their production requirements, attach to each step the
   number of different personnel, their hourly rates, and how long it will take each of them to carry out the
   necessary steps.
   

10.Some firms calculate rates per each individual, other firms have a tiered system of rates.
11.A tiered system is preferred, especially in instances where it is necessary to reveal to clients what the
firm’s hourly rates are. In this way, you also avoid revealing salary information to anyone within your
organization, as well as to your clients.
12.Add up the personnel hours/days, making sure to account for time elements they are supposed to
provide.
13.Count in responsibilities for art direction, print supervision and fabrication of three-dimensional elements.
Multiply the final total by approximately 15 percent of contingencies.
14.For well-defined projects of a simple nature, the contingency allowance can be smaller; for large,
complicated, vaguely defined projects, the contingency allowance should be greater.
15.You now have your design fee 

OUT-OF-POCKET EXPENSES

1. Estimate all of the out-of-pocket expenses that are reimbursable. These items are usually standard, but with some clients they may have to be negotiated.
   
2. Generally, the following items are included in this category:
   a. Outside services:
      i. illustration
      ii. photography
      iii. copywriting
      iv. prototyping
      v. outputting
   b. Delivery services
   c. Models
   d. Props
   e. Unique references
   
3. Most often, these are expenses of:! a. Researching
   b. Bidding
   c. Supervising
   d. Laying out and carrying out their costs
   
4. Some designers mark up printing and fabrication. Others prefer to have clients pay for them directly. This is a negotiable matter. In the event the client is going to pay directly but the designer is still responsible for supervision, the fee for supervision needs to be built into the estimate.

CHANGES AND ADDITIONS!

1. The tiered system of staff rates is especially useful when clients request changes and additions to their original project specifications.
   
2. Changes and additions should be considered separately in the project agreement.
   
3. A brief statement, which describes what is considered outside of the project’s scope of work, followed by
   tiered rates will take care of this thorny, but frequent, contingency.
   
4. It is especially useful to document such additions and changes in advance of doing them and have the client sign off, in writing if possible.

MARKET CONDITIONS!

1. Aside from the actual time and expense it takes to create something, there is another critical factor to consider: the inherent worth of that particular item.
   
2. Inherent worth isn’t the same as actual cost and has to do with how much someone is willing to pay to have something, or its market value.
   
3. Example: an annual report for Fortune 500 corporation is going to have a much greater inherent worth than an in-house newsletter for a small regional trade association. Because it has a more urgent need to communicate effectively with a greater number of people and because it has far more money to pay for what it wants. There is no social or moral value involved.
   
4. Value has to do with distribution, exposure, and the kind of industry being served.
   
5. Advertising and corporate clients tend to pay the higher rates, but they are also the most sought after and, usually, the most demanding to service.

USAGE RIGHTS!

1. Always remember to consider future uses of your work.
2. Collateral items should carry your credit line.
3. The prospect of building future “passive” income is not only attractive financially, but important in terms of professional prestige. 
4. Corporate identity is a nonissue. Annual reports and time or event-based materials have limited life spans. On the other hand, cover designs for books, posters, product literature, advertisements, and other items which may be expanded in terms of media, print-run, and time, should be considered as more open- ended opportunities for future use and future income.
5. Limit usage rights and pricing to only those media and applications that the client is requesting, and reserve all other rights. And always do so in writing.
6. A complete buy out requires a significantly higher fee.
7. Consider what the compensation might be for future uses of the design.
8.  In the event you are sharing copyrights with other artists for the same item, try to coordinate your efforts.Either make sure you own all rights to the various design elements, or carry separate agreements that specify future compensation for them.
9. Avoid making the client have to think about negotiating with a group of different artists for one design.

NEGOTIATIONS!

1. It is usually best to find out directly from clients how much they have budgeted for the project.
   
2. This information is helpful for the designer to gauge the client’s expectations.
   
3. There may be an opportunity to expand a project, or if necessary, to walk away from it in the event the
   designer believes it is not possible to do justice to it for the level of remuneration.
   
4. In the course of normal operations, you will be negotiating with clients, employers, partners, suppliers,
   landlords, among many others.
   
5. The goal of productive negotiations: both parties must feel that they have gotten a fair value and can
   proceed in good faith. Good relations rarely follow horrible negotiations.
   
6. As long as you know your upper and lower ranges, finding the comfortable medium is a matter of building
   your case to support your demands.
   
7. Be prepared, know what you are talking about, and never feel obliged to commit to a number on the spot if your are not sure it is the right number.

Exercise

My fee /hours estimation

( Annual Overhead : Annual Billable Hours ) x 3 = Fee / hours
( Rp. 2.000.000,00 : 160 ) x 3 = Rp. 37.500,00 / hours

Cost Estimation Practice 

Partner : Nadia Larashari

Product : Jam

Logo + Packaging

Deliverables
- Flavors : strawberry , pineapple , srikaya & water melon & orange ( 300 gr )
- Sticker 5 cm x 20
- the top / lid is logo-press
- simple design , want to look neat , rich and elegant
- Target : Family B - A

Limitaion :
Budget : 100.000.000

Company :
- Big Company
- National Company

Estimated Time : 1 month ( logo ) 2 months ( packaging )

Creative Brief & Research
( logo & packaging - 2 weeks  )                 :   Rp. 15.000.000,00

Concept Development
( brainstorm, moodboard, clarification , identity )   :  Rp. 25.000.000,00

Design Development
( look & feel development , layouting , aesthetic , revision )    : Rp. 30.000.000,00

Sub total : Rp 70.000.000,00


Partner : Risqullah Syahrir

Product : Packaging Chocolate

Deliverables
- Flavors : ( S, M, L ) 100% dark chocolate , 80% dark chocolate , wine chocolate
- 9 Designs
- Contemporer
- target market : Adult ( A - B )
- Competitors : Lindt , Noka, Godiva & toblerone

Company
- New national company

Limitation : Budget : Rp. 50.000.000 ,00
Estimated Time : 1 month

Creative Brief & Research
( packaging )                               :      Rp. 5.000.000,00

Concept Development
( brainstorm, moodboard, clarification , mindmap)   :  Rp. 15.000.000,00

Design Development
( mock up, layouting , aesthetic , revision )    :    Rp.  25.000.000,00

Sub Total : Rp 45.000.000,00

Exercise 2

Studio Research 

Fullfilisme

PT. FullFill Artplikasi

+62 21 7591 6655 

+62 21 7591 6677 

info@fullfillisme.com 

Jl. RS Fatmawati Raya No. 4H-I 

Jakarta 12430 - INDONESIA

Fullfillisme established in 2009. They refuse to be called a company because they are a workgroup, a bunch of creative minds and souls of varying backgrounds fused together to create the right perception and image. Their benchmark of a design done well is not only measured by how accurately they stick to your brief and how happy you are with it. But more importantly, how proud they are of the work they’ve done for you.

I attracted to  this company because their work and how they work in group happily. I think work together with them will be fun because they also use illustration and painting. And they use interesting approaches for their projects.

Flux

Jl. Hawai 2 no 8C, Lingkar Luar Barat,    

 Puri Kembangan

(021) 70805617

info@flux-design.us

flux-design.us

Flux is one of good design company. I attracted to this company because of they have a nice portfolio and they work in team and they feel like comfortable working together and produce good work. they do strong research and concept, we can see it from their portfolio, they have reasons in everything they put on their design.

Analyse the personal qualities required to achieve success and what makes a good designer aside from having top-notch quality and skills

I think beside a good quality and skills , a good designer should have a good personality that means he/she has to be humbly and good in communication, in organization and socialization. A good designer also need to consider about their healthy. In addition, It will be better if he/she has an initiative, good ethic and courtesy.

Identify and map your personal qualities, skills, and talents relating to your career opportunities that can help you to achieve your career plan.

For me I think my manual skills and knowledge , such as sketching, drawing, painting, hardcover, softcover,  and binding , etc is good and my technical skill, such as color theory, composition, typography choices, and hierarchy ,etc is good enough but I still need to practice more about that. My Software technic and skills, such as illustrator, photoshop, indesign, flash, muse cc and dreamweaver , etc is pretty good. My communication skill is a bit lacking especially for verbal, but i think my ethic and respectfull is good.