If cash flow is your main pain, the problem may not be your prices or your clients. It could be your pricing strategy.
In today’s episode, I talked with Matthew Wolf of Wyndetryst, a graphic design studio in Philadelphia, about his twist on a very common pricing strategy. Since he implemented this new strategy, cash flow hasn’t been a problem.
It’s fair to say that his strategy goes against everything I teach (so if you know how I think about pricing, you may have an idea about what it is) but as I always say, there is no right way and Matthew has found the way that works best for his small studio.
Here’s Matthew’s baby step - It’s a bit of work but there’s no way to avoid taking a hard look at what is causing the cash flow issue – if you don’t have a budget, you need one. It’s not complicated – could take an hour, maybe less.
- Make a list of your fixed monthly expenses to find "your floor" – the minimum you need to earn to cover your expenses every month.
- Analyze how many billable hours you can reasonably work in a month.
- Do the math to figure out your base hourly rate. That will give you the tool to figure out your prices, no matter what pricing strategy you’re using.
Here are a couple calculators to try too:
Will you try it?
But first, listen here (and below) to the episode:
And if you want to build a thriving business on your own terms, the first step is to sign up for my Quick Tips at marketing-mentortips.com. You’ll also get my Magic Money Formula when you sign up!
Read the transcript of #478 Twist on a Common Pricing Strategy with Matthew Wolf
ilise benun
Hi there. This is ilise benun, your Marketing Mentor. And this is the podcast for you if, and only if, you are ready to leave the feast or famine syndrome behind, and I mean for good.
If cash flow is your main pain, the problem may not be your prices or your clients. It could be your pricing strategy.
In today's episode, I talked with Matthew Wolf of Wyndetryst, a graphic design studio in Philadelphia, about his twist on a very common pricing strategy. And since he implemented this new strategy, cash flow hasn't been a problem.
It's fair to say that his strategy goes against everything I teach, so if you know how I think about pricing, you may have an idea about what it is. But as I always say, “There really is no right way.” And Matthew has found the way that worked best for his small studio. So, listen and learn.
Welcome, Matthew, to the podcast.
Matthew Wolf
Thank you. It's great to be here.
ilise benun
Thank you, and please give your elevator pitch or how you answer the question: what do you do?
Matthew Wolf
I'm Matthew Wolf and I'm the owner of Wyndetryst Graphic Design Studio in Philadelphia. And most of our work is focused on the life sciences industry, so we're working with a lot of MedTech, medical-based brands, and we help them to build out their marketing strategy through print, digital and website design.
ilise benun
Excellent. And one of the reasons I invited you onto the podcast is because we've worked together quite a bit over the years, and you have a very interesting pricing structure and process that I thought would be helpful to share with the listeners—especially because it kind of goes against everything that I teach.
And because I always say, “There's no right way,” and each person and each business really does have to find their own process and what works best for them, I really thought it would be helpful for you to talk about what your pricing structure is and how it works for you and why it works for you—especially as a way to say: "This does work for some people."
Matthew Wolf
Absolutely. And I'd agree. I tend to be in the opposing camp, sometimes, in the way I've been pricing my work over the past many years. But I've found that it's actually worked really well for my studio. And since I've made the shift to this new model, I would say that my business has been the most stable it's ever been. And my cash flow has been the best it's ever been as well.
ilise benun
All right, well that speaks volumes. So what the heck is it, Matthew?
Matthew Wolf
So it's not a huge secret, but somewhat controversial, that I do almost all of my pricing for my studio as hourly pricing.
I think I want to just want to back up a couple steps and explain how I got to where I am, because I didn't always do it this way. So like many studios, I started out with flat-rate pricing.
ilise benun
And how long ago was that?
Matthew Wolf
I started my studio in 2012.
ilise benun
Okay, so going back more than 10 years.
Matthew Wolf
And freelancing for about five years before that, as well. And the reason I started out with flat is because that's how everybody I knew, every other designer, was doing their pricing like that. And I didn't learn in school very much about pricing. I learned from figuring it out on my own and from other designers that I knew.
ilise benun
And actually, since you mentioned “in school,” what was that education that you had that didn't show you how to price?
Matthew Wolf
I feel I got a great education in learning the software skills and learning how to be a conceptual thinker, but there was very little to no emphasis really on actually running a business and how I could make it as a freelancer or actually starting my own studio.
ilise benun
And so you have what kind of degree in design?
Matthew Wolf
I have a Bachelor’s of Fine Art in Design. I find that's pretty typical for most people in our field.
ilise benun
I guess the reason I'm asking, also, is because there are a lot of self-taught designers out there who feel sometimes imposter syndrome, sometimes inferior to other designers because they don't have a particular credential. And you're basically saying you learned how to design and what you needed to know about design, but not a lot about the business side.
Matthew Wolf
Absolutely. Yeah, that was very typical. I would say one of the areas that I did have to my advantage was being exposed from a pretty early age to what it took to run a business.
My father has been a business owner for many years, and I was always curious about life as a business owner as opposed to working for someone. So I had a bit of an advantage of just being exposed to more of an entrepreneurial way of thinking, but the structure of a design studio versus what he was doing is completely different. It wasn't like it was an exact translation.
ilise benun
And just so that we have all the facts upfront, your studio is made up of how many people and what kinds of people?
Matthew Wolf
Right. I started just myself, and for many years it was myself and I had a sort of revolving door of a few different designers who were part-time.
About six years ago, I hired my first full-time employee who was a junior graphic designer, and since then, she is now still with me, and she's my junior art director. And I also have an additional graphic designer that I've hired. And I have two main contractors: a web developer and a web content strategist that work with me.
ilise benun
Beautiful. Alright, so come back to your pricing structure.
Matthew Wolf
Like I said, I started with flat-rate pricing and it worked mostly well for me for many years. I always found it a little bit cumbersome to track everything and make sure that I was actually billing based on the amount of work that I was doing. You know, I always sort of thought about things in time. I just relate very well to time.
I would say for many years that worked well. But then the tipping point for me was really two things. One, we have a lot of work coming through the door that looks like small projects as opposed to large projects. So a typical client for us is really someone who's sending us anywhere from five to ten individual projects a month, and there's ongoing work, as opposed to one project that might last six months to a year or something like that.
So we just have a lot of things moving fast. And also I was starting to just have major cash flow issues. And when I did some analyzation of the cash flow issues, I realized a big part of the problem for me was that I was not billing things fast enough. There was a whole layer of things that would get in that way.
So for instance, I would set out a payment schedule for a project that would get stalled—and this happens all the time; it's just something that happens in the industry. Priorities shift. And then when you have a payment schedule attached to a timeline for a project, it can become very challenging to collect on that.
The other thing that I found very difficult to manage with flat billing was just increases on revisions for projects or shifts in objectives or additional concepts. So I always had things written in the contracts regarding what we would do in that case, but I found it, in practice and practicality, much more challenging to have conversations with clients when things shifted outside of scope.
It also sometimes became a slippery slope, like, "Oh, I'll just slip this one extra round of revisions in," and that one extra round becomes two, then three, then four. And then before you know it, you're past the point of no return where it's embarrassing, at the very least, to shift gears, and also confusing for the client.
So those were some of the main factors that made me really stop and say, "You know what? I want to change the way I approach my pricing."
And the one thing I had to my advantage was I was always tracking hours. I'm somebody who loves data. I like to take things and analyze it. So myself and my team were always tracking hours, even if it was a flat-rate project. So I was really fortunate to have a lot of data there to start to analyze typical projects.
I did a lot of work in just pouring through some of that data, looking at common projects that we had through the studio and averaging out—finding averages of time it would take to actually complete the project.
And then paired with that, I did a lot of work to put together a hourly-rate calculator for myself. And there was nothing complex about it; it was just a spreadsheet where I outlined all of our budgetary needs, and outlined potential work capacity for myself and my team, and put together a few formulas to be able to come up with our base hourly rate—which is something I recommend anybody doing, whether they're doing hourly billing or flat-rate billing. I think it's really important for designers to understand what is the minimum that you need to be getting an hour to just make ends meet?
And from there, I was able to blend that with a couple of things: considerations for the speed at which we're working, the value—the market value of what I knew projects were worth, and then also who on my team was working on those projects.
So one of the challenges with hourly billing that comes up all the time, I hear a lot of people that don't like it that say, "Well, you shouldn't be punished for working fast." And that's absolutely true. And I work really fast. Most of my team works really fast. But our hourly rate reflects what we should be getting to, at the end of the day, accommodate for our speed and accommodate for what the value of the project is.
ilise benun
So it sounds like you're saying your hourly rate is on the high side.
Matthew Wolf
It's on the high side compared to maybe an individual freelancer. But I think it's in a very competitive place for studios that are our size or a little bit larger.
And the reason I think I've been able to remain competitive is because I'm not guessing. I see a lot of people who guess what their hourly rate should be, or they overly pad their hourly rates to be able to make up for the fact that they don't have the data to know if they're pricing it right.
So I've tried to really keep in a sweet spot of billing an hourly rate that I know will most often add up to what the flat-rate value of a project would be, if that makes sense.
ilise benun
Definitely.
Matthew Wolf
And then there's some other considerations that I have in what I'm choosing to bill an hour. Typically, one of the things is client consideration.
So every one of my clients does not have the same hourly rate. I have a different rate for nonprofits versus for-profit companies.
And I also occasionally reduce the rate for clients who are sending me a significant amount of work a month and have made some commitment to have a minimum spend a month.
And I also grandfather in older clients at slightly lower rates. And that's a challenging thing for any designer to raise their rates for clients that have been with them for a long time.
ilise benun
So, I mean the first question that comes to mind is, and I was going to ask: Does each client have their own rate essentially? Or do you have more than one rate—and you do—and is that something that you're transparent about or does everyone think their rate is your hourly rate? And how do you handle the idea of increasing an hourly rate, and at what point?
Matthew Wolf
I'm not sure if my clients realize that their rate may be different than somebody else. The way I would handle that, if that question was specifically reached by one of my clients is, "This is your rate and this is our agreement, and that's sort of the end of it." It's not their business what I bill other clients. And I think it would be surprising if I had the same exact rate for everybody because there's so many things to consider.
So as far as increasing rates, I will say that this is something that I have gotten a lot more confident in doing from the time I've been working with you and also the connections I've made with other people in some of your groups, because it can be very intimidating to increase rates. You always feel like you're going to increase and that's going to be the end of it and your client's going to walk.
And I have found that the best way to do it is to not over explain and just be clear and focus on the fact that it is normal to increase rates. So my facility for increasing and communicating these rates has evolved over the years. And what I've been using for the past number of years is I, at the end of every year, send every single one of my clients a document that's sort of like our working contract for the upcoming years.
And it's basically a two- or three-page document that the first page lays out what their billable rate is going to be for the upcoming year. And I also have a table put together that lists all of our common project types. It's not comprehensive of everything we offer, but it certainly covers 80% of everything.
And I put in a low range of hours and a high range of hours that something typically costs. And this is basically a tool that I provide my clients to be able to look through to the year to be able to do some of their own budgeting and estimating.
You know, oftentimes I'm not aware of all of the things that are in their head of what they might need in a quarter or a year or whatever, but they now have a tool to be able to put together some rough quick estimates of what certain deliverables might cost for them.
ilise benun
My main question about that is, how exactly do they know, then, how much they're going to be spending if you are billing hourly? Even if you've given them a rough estimate of how long certain things take, but you're not being held to that I assume, and so is there any kind of ceiling process like, "Don't go over this," or I imagine there's a lot of communication about it. In the real world, in the day to day, how does it play out?
Matthew Wolf
That document really is just a starting-point tool. It would never be able to guide the process without good communication and conversations. So communication in regards to hourly billing is, to me, the number one thing that everybody needs to understand. You have to be willing to put the time in to communicate to your clients and do it clearly and set their expectations correctly.
ilise benun
So give an example of that, Matthew. What does that look like?
Matthew Wolf
With all of my estimates, sometimes even with clients who have this document ... that just sets the big picture tone for the year. But I always tell them, "If we need to do an individual project estimate, we'll do that and we'll scope it out, because these are generalizations here."
That's one way we communicate for more complex projects where clients are particularly concerned about the budget. And in that case, I'll put together a much more traditional estimate that outlines the scope clearly, and I will do a low range and a high range. So I'll outline, say, "This is going to take 10 to 20 hours to do." I put a very clear clause in there that says: "If we get in danger of getting towards the top of that range, I'm going to have a conversation with you. We're going to say, ‘We're getting close. Can we extend the range budget? Or what do we need to do to make sure that we're efficient to stay within this range?’"
And I will say most of the time, because I'm giving ranges that are not so big that they don't make sense, but big enough to give wiggle room, 70 to 80% of the time, I never have to have that conversation.
The other thing that's important in this is I need to have a mechanism in place where it's very easy for me to check in on where we're at with the project. Myself and my team are always tracking our time daily, so at the end of every day, I can always see what my team has worked on and how much time it's taken.
ilise benun
And what tool are you using to track time?
Matthew Wolf
We're using FreshBooks to do this. And what I love about FreshBooks is that I can easily create a project and assign an hourly rate in there and add my team members. And I can then easily just click on that project and see ... I can add a budget in there—so I usually put my top-orange budget in there. And it shows a simple little bar with, "Here's how many hours you've worked and here's where you're at as far as unbilled hours." It's a very easy tool for me to be able to quickly track time without the use of cumbersome spreadsheets, et cetera.
ilise benun
And it also sounds like it gives your team members a way to know when they're getting close because I think—from what I've heard with other people, other designers—part of the problem is it's not done yet. So you just keep working, and you don't know what they're doing, so you don't know how close they are or when they've gone over.
Matthew Wolf
Absolutely. That can be a real challenge in certain projects. I would say we have probably a 50/50 mix of projects where we have a tight budget and other projects where we just do what we need to do to get the project done.
And in the do-what-you-need-to-do model, that is only ever with clients that I've worked for for many years and we have a real trust built up that we're being efficient while also delivering the best possible outcome, and our clients are trusting us that we're not price gouging them in some way. The only way to get into that place is to build that level of trust up with your clients.
ilise benun
Yeah, I just want to underscore that, because I think hand in hand with the communication you're talking about, is it's not automatic, but it builds trust. And you also have to establish that trust. And that means you have to vet prospects well so that you are only offering this type of work, which is the only kind of work you do, to people who can handle it.
Matthew Wolf
100%. And I start out every conversation, when I'm in the initial phases of onboarding a new client or not even onboarding, basically just discovering if this is going to be a good relationship for us ... I always look at this as a two-way thing.
I want them to want to work with us, but I am not going to just automatically work with the client. They have to be the right client in the type of work that they're going to send us, and also be willing to jump on board with this model—because what isn't going to work for us is to have some clients in one category and some in another category, because then the whole system breaks down.
But in these initial conversations, I just start out and say: "You know what? We do some things a little bit differently than some other studios you may have worked with. We actually bill all of our work hourly."
And I just go through a set of reasons why we do this and just end it there. I don't make a big deal out of it. I'm just clear and say: "This is the way we operate. It may be different than what you've experienced in the past, and if we're going to work together, this is the way we're going to do it." There's not really even an opening to negotiate that is something that's going to change.
ilise benun
But I would imagine opening the door to the conversation in that way prompts the question, "Well then, what is your hourly rate?" And are you in a position at that moment in your relationship to put a number on the table?
Matthew Wolf
The answer is typically “no.” In an initial conversation where it's a new client where I'm discovering more about them and about the project, I have a base starting point of where that hourly rate's going to be. But I also never typically say anything until I put together a formal estimate.
So I listen. I take in the information. Sometimes I will give them a range and say, "You know, I think this project might be in the $3,000 to $4,000 range, but I'm going to take some time to digest what we talked about and run some numbers."
And then I go through a bunch of different exercises. So I will actually use some spreadsheets I have to price out the project. I break down every step in the project using what I think the hourly rate should be.
I also take into other considerations. You know, if it's going to be a particularly demanding or high-risk project or client, the rate may be a little bit higher because, as a studio, I'm taking on either more work or more risk.
And then the other thing I'll consider is sometimes, if I really, really want the client, maybe I'll lower the rate just a little bit because I see some other added value to working with them. Maybe I see a strong potential of a lot more work that this first project is just a test. Or maybe it's a client that I want to be able to build up my reputation in a specific sector or industry.
ilise benun
How often do you bill, then, Matthew, for your cash flow?
Matthew Wolf
This is actually a great question because this goes back to the initial problem that I solved and that was cash flow.
In the past, what I was doing was billing very sporadically. There was no real consistency to billing. It was all based individually on projects and what I had set out as maybe milestones of when we would bill X amount.
What I shifted—and this was the biggest shift with the hourly—was I began billing at the end of every month. So I bill once a month, and in some cases I bill every other week, but that's less typical. And I start out the conversations with my client with one clear statement, and I say: "We bill at the end of the last business day of every month for all work completed in that month regardless of project completion."
And this was, on one hand, one of the scariest things to say to clients because I was never used to saying, "You know what? I'm going to charge you for the work I did today, even if you're not getting the final deliverable."
But at the end of the day, most designers know this—that this is the challenge we all face, that we do a lot of work upfront that we sometimes don't see that money for months and months and months. So I was like, "I can't be sustainable anymore doing this. I need to bill for the work I've done. I have contractors and employees that I've paid, and if this project gets delayed, that's fine."
And it is really so much stress in doing monthly billing for the work we've done, that when a project gets delayed, I'm like, "That's frustrating, but you know what? I'll move on to other projects. And when they're ready on their timeline to come back to the project, then we just pick up the billing again."
And it also really helps to light the fire under some slower-moving projects, or clients who might not move as fast as they have potential to move, when they know that they have more skin in the game.
ilise benun
You know, I'm just wondering, you're talking about a design studio and a design process, but do you think that this kind of billing and process would apply beyond just design to, let's say, copywriters or videographers or other creative professionals?
Matthew Wolf
I do. I think it will. I work with copywriters, videographers who do bill hourly. I have not seen anybody, I don't think, that actually puts in that what I would call the “magic clause” of: "We bill at the end of each month regardless of project completion."
ilise benun
That's the trick, basically.
Matthew Wolf
I really think that's the trick because you could still get into the same problem with cash flow if you're billing hourly, if you're waiting till the end of the project or if you're saying: "At this milestone, we're going to count up the hours."
The other thing that is a bit of a tangent, but I think important to understand in one big shift I had in my model, is that I actually hand over files. And many designers don't do this. Studios very often don't do it. But my whole thing is: "You've paid for this. I'm glad to hand over the files, and if you want to make updates, go ahead and do it." And I will say, nine out of 10 times, they don't make the updates. They come to us to make the updates to the project or the next one.
And I think what I have found with my clients is that is a really powerful symbol in building the trust—that we're looking out for their best interests; we understand that this has to be a push and pull relationship. And at the end of the day, it just cements the value that we give, as opposed to feeling like they're in some way being held hostage or that there's all these stresses in the contract that they have with their designer.
I think this has also been a good companion for hourly billing, that if a project gets canceled, I'm like, "Okay, here's the work we've done. You pay me for the work, and as soon as that invoice is paid, I will hand over the working files to where we're at and call it a day. If you want to finish this on your own, you want to work with another designer, that's your prerogative. Things change. There's many reasons that could happen that have nothing to do with the work we've performed or our relationship necessarily."
ilise benun
All right. We're going to have to stop soon because we could go on forever. And I really appreciate everything that you've shared.
I have one question before I ask you for a baby step that people can take if they want to try this process, because one of the things I've been talking about with some of my coaching groups lately is the idea of making one's numbers more meaningful to ourselves. Because often, when we put together a profit-and-loss statement, for example, and have all these categories that are already in QuickBooks, then it doesn't mean a lot to us. And so I wanted just to put the question to you, Matthew, if I said: “How do you or how have you or how could you make your own numbers more meaningful to your business,” what would you say?
Matthew Wolf
I think the most important thing for making the numbers meaningful for your business are understanding the numbers, first off, and paying attention to them.
For example, I have a lot of colleagues who rightfully, and I'm in the same boat—that we outsource our accounting, and you know, sometimes it's sort of like: "My accountant is doing this," and we forget about it.
But I think it's critical to have a core understanding of what's happening, so that at any point you can be reading those reports, or inject yourself into the process of the accounting of your business and the money in and out process, to know what it all means. And to also be creating budgets for your business so that you understand if you are hitting the marks that you need to, for a year, to be able to pay your expenses and more.
ilise benun
You know, one of the things I'm thinking as you're talking is that, what it means to make the numbers meaningful to each and every one of us has more to do with, like there's no right way to do it. And sometimes we imagine—especially if it's something like numbers that we haven't been trained on and we don't think we know enough to fiddle with it—like to get rid of that idea and just say: "What do I really care about? Which metrics are important to me? And how do I need to design them, even?" Like designing a dashboard for oneself or renaming the categories or any of these things to make it more understandable to you. Have you ever done anything like that?
Matthew Wolf
I have not specifically designed any tools for myself to make the numbers more meaningful, but I would say I'm actually using built-in tools already.
For instance, because I do all my invoicing and time tracking through FreshBooks, I am in FreshBooks every day, all day long. And I'm constantly looking at a couple of the metrics in there. So as long as I have assigned a billable rate for every single project, FreshBooks right in their dashboard actually shows where I'm at in unbilled time and they translate that to a dollar amount.
So one metric is my understanding of what I need to bring in a month, which goes back to my monthly budget I put together. And if I'm three weeks into a month and I see that I'm a little bit low in my unbilled work, then I need to make some shifts in maybe the work that we're outputting that following week, the last week of the month.
That may look like shifting some lower-billed work with lower hourly rates to the next month, and inserting some higher-billable-rate work into that last week, to be able to make up the difference so that we're averaging out.
I think in that case, it's certainly important to have an understanding of what those numbers are at all time. And if you can find a tool like using something that's automatically calculating it to take out the admin work, it's way easier than tons of tracking and updating on your own, which becomes cumbersome.
ilise benun
All right, excellent. Thank you again for all of this.
What is a baby step that anyone who is really struggling with cash flow should do to start moving in this direction?
Matthew Wolf
I think the baby step, even though it might be a bit of work, but there's no way avoiding taking a hard look at what it is that is causing the cash flow issue.
I think a simple baby step is if you don't have a budget, you need to put together a budget for your business—and that doesn't have to be complicated. It could be an hour of your time to just list out all your main expenses and get your monthly, yearly budget.
And I think then also do a quick analyzation of the amount of time that you think you're capable of working in a week or a month. Divide those numbers and figure out what your base hourly rate is.
And then you have the base tool to be able to price your work in any capacity, whether you're billing hourly or whether you're billing in a flat rate. Because even if you're billing at a flat rate, you have to start with the amount of time it's going to take. And then if it's below the market value, then you adjust that rate to go higher to be a flat-value-based rate.
From my perspective, there's no avoidance of understanding your hourly rate.
ilise benun
Beautiful. All right, Matthew, thank you again, so helpful and so innovative and creative. I thank you for sharing. Tell the people where they can find your company online.
Matthew Wolf
You can find us online at wyndetryst.com and I'll spell that out because it's a tricky one. It's W-Y-N-D-E-T-R-Y-S-T.com. And you can always send me a message directly at Matthew Wolf, that's Wolf like the animal, at wyndetryst.com (matthewwolf@wyndetryst.com)
ilise benun
Beautiful. And I assume you're on LinkedIn as well, and people can invite you to connect there.
Matthew Wolf
I'd love to connect.
ilise benun
Beautiful. Thanks again, Matthew, and perhaps we'll talk again soon.
Matthew Wolf
Thank you. It was my pleasure, ilise.
ilise benun
Here's Matthew's baby step. It's a bit of work, but there's no way to avoid taking a hard look at what is causing the cash flow issue.
If you don't have a budget, you need one. It's not complicated and it could take an hour, maybe less.
All you have to do is make a list of your fixed monthly expenses to find what I think of as ‘your floor.’ That's the minimum you need to earn to cover your expenses every month—you should know that number.
Then analyze how many billable hours you can reasonably work in a month, and then do the math to figure out your base hourly rate. That will give you the tool to figure out your prices, no matter what pricing strategy you're using. Will you try it?
And if you want to build a thriving business on your own terms, the first step is to sign up for my Quick Tips at marketing-mentortips.com. Once you're on the site, you'll find lots more resources, including my Simplest Marketing Plan and the Magic Money Formula, which is what you get when you sign up for the Quick Tips. So, enjoy and I'll see you next time.