What percentage is fair for me as a graphic design subcontractor?

Question

I work for a small (1 family) art company as a "computer artist". I have worked there part time for about 7 years. I believe they charge clients over $100 per hour for designs. At one point I charged them $25/hr but awhile ago they said they could only afford $20 and I gave in. By my calculations then they are getting over 80% of the profit from my work. I don't know how accurate this is though. It is complicated because I do a subset of all the kinds of artwork that they produce and I think they just charge flat rates that are supposed to work out to $100-$200/hr. Anyway, even if my estimates are way off, I think I am really being underpaid. Yet strangely they say that $20/hr is all they can afford, and they keep limiting my hours even though there is plenty of work to do (at the moment). It really doesn't make sense to me and maybe they are being irrational, but I would think that if they are getting even just 50% markup from my work they should assign me to do everything I possibly can.

So I would just like to know what is a fair markup for contractors in this field. And what special things need to be considered that effect this price?

For a little more background, they have a fairly high overhead with their studio and equipment and travel expenses etc. I essentially have none. But for the computer work I do it doesn't really cost them any more than maybe 15% of their time per the amount of time I put in to a job, if I do all the designing. I am not a very fast worker but I do high quality work.

Answer 1

This might do better on workplace if you are an employee. If you are a freelancer with them you should come up with a rate and if they don't like it or there are no factors that make it worth it to you, move on.

However I am going to flip this on its head and say "suppose you mostly do freelancing but have an employee who does some things for customers. How much to charge?"

For background reading you should lool at Writing my first business plan. How do I know what to put in the pro forma balance sheets and financial targets?

You start off looking at fixed costs. You say they have high fixed costs. That works against you in this case. Once you know what your full fixed costs are, then you look at production costs and overhead and see what is needed to make it work. This is how you plan production costs and fixed costs against revenues.

When I bring in subcontractors and agree to have them do work on a project with me paying them my minimum markup is 100%. In other words I charge twice what I pay. I do this because I offer additional guarantees and I may have to step in and fix things that have been done wrong, and I have low expenses. I am also taking on all non-billable work relating to what was done by someone else so my risk and overhead are significant. If I had higher expenses, my markup might be significantly higher.

I do think that a 400% markup ($20 -> $100) does seem excessive, but without knowing the specifics of their business I don't know.

However your concern as a worker should be "is it worth your time to work there?" If it is then it doesn't matter why, and how much of what you get out of it is money, or what they are selling what you do for. If it is not, then you need a raise or to get work elsewhere.

Answer 2

Sorry, but "fairness" doesn't come into it.

And I must correct you on your:

they are getting over 80% of the profit from my work

Yes, they are getting 80% of the proceeds of your work - but that is not profit. Out of their share, they have to cover their costs (including bringing in the business in the first place). And supply the equipment on which you do the work.

As a freelancer, you have more control over your T&Cs than does an employee - and if you do not like the rate on offer, you have the choice not to work for them any more. Or you accept the regular income stream that you have, and charge more for other work.

Answer 3

Rates for design differ from region to region. Remember that not all the money that the company charges for work (e.g. $100/hour) goes into their pocket (minus the difference for your rate). There is electricity to be paid, tech to be bought, food, travel expenses, mobiles, suppliers (in case they buy some materials, e.g. textures, fonts), accounting costs and many many more. Substracting all those and your salary comes your boss' salary. Of course, it is natural that this salary must be larger than yours, even though you do all the heavy lifting - due to the fact that they carry all the risk and find all the clients.

Now on the other thing - how come the company can charge $100/h to clients while you charge $20/h? Well, the client is not paying solely for work completed. He also pays for professionalism, trusts a brand, expects his deadlines to be met and knows that he has a trustable entity before him.

You on the other hand (theoretically speaking, I am not referring directly to your) are a single person. You don't have the staff, manpower, nor the knowledge on how to run a successfull business. You don't have an established brand and track record. So the price you may ask for is limited. If it should be $20/h though - I can't say.

In this case, we may put it this way:

• Contractor: You; Client: The Family Company
• Contractor: The Family Company; Client: Company X

If you were in the shoes of Company X - which of the two contractors would you pick for the next project? If you choose the smaller and less credible one (you), would you pay the same amount you would pay the Family Company?

Answer 4

It doesn't sound to me as though you're being exploited - you actually want them to use you more - and you seem to lack an understanding of the financials of running a business. Fixed rates and equipment are factored into pricing and a percentage of them is paid for by every single job, otherwise when would they ever be paid? Secondly, even taking business from referrals is expensive for an established company. It's not simply the case that the client telephones and hands over the money, there will be sales and planning meetings, legal and administration costs and there will be referrals that come in with all those associated costs but do not sign up. There will be costs to cover late payers and someone being paid to administrate that and people that don't pay at all or go bust, which is all their risk that you don't need to worry about. That's if you don't factor in marketing and PR costs that goes into building that trust and identity in the brand even for a referral and you could go even further and factor the huge costs and effort of the initial sale that brought the referral.

Bear in mind that if you were working directly for a client and you managed to get their interest and be ready to close a sale, they are going to squeeze your rate as tightly as they can, so think of these guys not as your employer (they're not) but as your direct client. Then the question you need to concern yourself with is - do I want to take these guys $20 per hour and whether I do or I don't where am I going to find the people who will pay me the same or more.