How are design services calculated and remunerated?
An essay by Wolfgang Beinert, Berlin
The current structural change, the hypertrophic variety of design and photo services as well as the lack of standards in the design and advertising industry make the calculation and cost transparency of design services in the field of communication, industrial and photo design difficult. General regulations, as we know them in the form of collective agreements, are forbidden for self-employed persons according to the Cartel Act.
To make matters worse, the individual parameters between individual “designers” are extremely divergent in terms of field of expertise, degree of specialization, qualifications, willingness to perform, creativity, and pace of work; this is especially true in the web design segment. (↓1)
Therefore, objective comparisons of hourly and daily rates are fundamentally not possible. Hourly and daily rates are only meaningful in terms of a price-performance ratio upon closer examination. For this reason, compensation proposals from the AGD (↓2) or fee and salary reports from the BDG/VDID/designaustria (↓3) must be scrutinized very closely. Because the following applies here in particular: “Quod licet iovi, non licet bovi”!
Consequently, there can of course also be no uniform remuneration and hourly rates for design services of any kind. The range therefore extends from the amateur who occasionally works for 0 to 35 euros an hour as a para-professional “freelancer” on a more or less sham basis and precariously for an advertising agency, e.g. with a “service contract,” to the internationally renowned top designer or photographer who acknowledges his efforts – usually via a “contract for work” – with 80,000 euros and more a day. (↓4) As in other industries, supply, demand, qualification and market value thus determine the remuneration of design services. (↓5)
In a nutshell, two diametrically opposed markets exist that could not be more different. On the one hand, the very large, noisy market of amateurs, semi-professionals and young professionals, where cutthroat competition at dumping prices prevails – and on the other hand, the quiet, prosperous market of professionals (Good Design is Good Business). (↓6)(↓7)(↓8)
Since the German Copyright Act (UrhG) came into force in 2002/2003 (↓9), the legislator now regards the creation of creative works not only as a service within the meaning of the German Civil Code (BGB), but also as a personal, intellectual creation within the meaning of the UrhG. Room for interpretation regarding the level of creation was recently more or less eliminated by the Federal Court of Justice in its ruling of 13.11.2013 (I ZR 143/12). This means, among other things, that the total remuneration for a design service is practically divided into a comprehensible design and usage remuneration.
Compensation and Cost Types
As in any other industry, there are different calculation models for calculating hourly rates, daily rates for persons, flat rates or licenses. Regardless of which method is chosen, the basis should always be a commercially sound financial plan that corresponds with the UrhG. (↓10) The total remuneration for a design service should therefore always be presented in a differentiated manner, which provides legal certainty for clients in particular. An invoice can, for example, consist of the following types of remuneration and costs:
- Design remuneration
- User remuneration
- Remuneration for other services
- Material and organization costs
- Third-party costs
The goal of any job costing is, of course, on the one hand to generate a positive return on sales for the designer – after all, one does not live from sales, but from profit (↓11)(↓12)(↓13)(↓14) after tax (↓15) – on the other hand, the costing must represent a worthwhile investment for a client. A balanced relationship of interests is only advantageous for both contracting parties here; it guarantees constructive cooperation.
1. The Design Fee
In Germany, it is widespread to charge for design work on the basis of time spent or on the basis of a flat rate for a single (e.g. a signet) or several design services (e.g. a corporate design including signet and applications).
Once apart from the fact that objective comparisons of hourly and daily rates are fundamentally not possible, the basic hourly rate for a freelance, i.e. self-employed designer without significant qualifications, in Germany, for example, based on the recommendation of the AGD Alliance of German Designers (Vergütungstarifvertrag Design, SDSt/AGD, version of October 1, 2015), is 90 euros net for the design without the use. However, if generally applicable commercial measurements are used as a basis, this basic hourly (um)rate recommended in the fall of 2015 in cities with a high cost of living index – for example, Munich, Hamburg, Frankfurt, Stuttgart and Berlin – no longer covers the cost recovery contribution of a freelancer with his own photo or design studio or professional equipment. On closer inspection, the AGD recommendations are only suitable for career starters to get a first impression.
For an average qualified freelance designer or photographer with at least 10 years of professional experience, own studio or professional equipment, basic hourly rates without usage of 120,- to 260,- Euro are common in Germany. For nationally renowned freelance graphic designers or photographers, daily rates of 2,500 to 7,500 euros are charged. Internationally renowned top designers, especially in the fashion, product and architectural design segments, as well as some top photographers, occasionally achieve top fees of up to 80,000 euros and more per day.
As a general rule, strategic design services (one-off, special and new designs, creative individual solutions) are much better remunerated than operational design services, pure processing and project management, which require a lower degree of philological and/or artistic specialization. Example: The design of a signet, a business stationery, an original (!) website or an annual report is of course much better remunerated than the implementation of an already existing signet or an already fixed corporate design or the “decoration” of existing WordPress themes with stock material.
2. Compensation for Use
In the graphic and communication design segment, as well as in commissioned photography (i.e., no stock material), the remuneration for rights of use or licenses granted is added to the design remuneration on a percentage or flat-rate basis depending on the “type of use,” “area of use,” “duration of use,” and “scope of use. In the product, industrial and fashion design segment, revenue sharing or usage fees based on the number of units sold are also common. In the newspaper and publishing industry, temporary and circulation-based royalty payment systems are used in the majority of cases for average image material.
This mathematical delimitation of the “use of a design” has not only been legally compliant since 2002/2003, but it also offers a wide range in pricing. If, for example, a client has only a certain investment capital available for a certain design service, this offers the possibility of adapting the “copyright contract” to the client’s current financial resources, e.g. minimizing the use (in terms of type of use, area of use, duration of use and scope of use).
Example: In order to be able to realize an investment, only three years of use are agreed instead of ten years. At the end of the three years, a further utilization can be agreed, the conditions of which can of course be fixed a priori, but which may not take effect for another three years.
3. Remuneration for Other Services
This refers to services that are not personal, intellectual creations in the sense of the UrhG and are only billed as pure services without the right of use. For example, clean processing, research, contact, final artwork, typesetting work in the sense of simple word processing, image editing, programming, text entry, data transfer, authoring changes, model construction, etc. Many studios offer hourly rates here that differ from the basic hourly rate for drafting work. Often, different hourly rates are also applied depending on the cost type (e.g., travel or presentation) and qualification (e.g., for intern or owner). (↓16)
4. Material and organization Costs
This is where the costs of materials, travel, couriers, cabs, travel expenses, telecommunications, postage, copies, proofs, press proofs, papers, scans, photographic and film material, chemicals, etc. are charged. Most agencies, design firms, and photographers add a so-called “service fee” of 10% to 20%, or they add a standard retail margin on materials purchased wholesale. Often, flat rates or caps are also agreed upon for outside and organizational costs, which is usually advisable.
5. Third-Party Costs
Third-party costs, e.g. offset printing costs, are only disbursed by design studios and advertising agencies after separate written agreement plus service fee and usually only against advance payment. As a rule, the client handles these costs via its own accounting department, even if the design studio supervises production. (↓17)
• — — •
Fictitious briefing: In this example, the designer is a self-employed “normal” commercial artist (freelancer) with four years of professional experience in a medium-sized western German city. The design service is the design of a pictogram for a software. The client is a medium-sized engineering company with customers all over Germany. The pictogram is to be used in all specialist print media and online specialist portals in Germany for an initial period of 5 years. The client has the sole right of use. Estimated time required for the designer is 8 hours of drafting and 2 hours of final artwork on the computer. In addition, half an hour is required for the digital provision of the final artwork via USB stick, 1 hour for the presentation at the client’s premises and 1 hour for the return journey in the client’s own car. As a basic hourly rate 90, – Euro are agreed upon for calculation. The only material costs are a USB stick, a courier and small graphic material. Phone calls were made 5 times within the city. Four proofs were sent via e-mail as PDF files. There were no author corrections. Research was not necessary because the client is a regular and the software is known in the studio. There are no external costs.
1. Design compensation
8 hours of designing the pictogram à 90,- Euro = 720,- Euro
Total net design fee 720,- Euro
2. Usage fee
A user charge is derived from the factors “type of use”, “area of use”, “period of use” and “scope of use”. For this example, the factors are derived from a former table of the AGD remuneration agreement. Instead of using factors, the compensation for use could of course also be calculated as a percentage or as a lump sum. However, it is important that the sum of the compensation for use is clear and comprehensible.
Calculation of the compensation for use for this example:
Type of use exclusively, factor 1.0
Area of use German-speaking area, factor 0.3
Period of use 5 years, factor 0.3
Extent of use medium, factor 0.3
= total utilization factor 1.9
Total utilization factor 1,9 x design remuneration Euro 720,- = 1.368,- Euro
Total net usage remuneration 1.368,- Euro
3. Remuneration for other services
2 hours final artwork in Illustrator à 90,- Euro = 180,- Euro
0.5 hours of final artwork, data transfer, conversion to other data formats and transfer to a USB stick à 90,- = 45,- Euro
1 hour contact (presentation) à 90,- Euro = 90,- Euro
1 hour final processing (drive) à 90,- Euro = 90,- Euro
0.5 hours clean-up (proofs, telephone calls) à 90,- Euro = 45,- Euro
Total net other services 450,- Euro
4. Organization and material costs
1 USB stick 20,- Euro
1 courier 32,- Euro
1 travel lump sum in own car within the city 25,- Euro
1 material lump sum (graphic small material, telecommunication, postage, stationery etc.) 55,- Euro
Total net organization and material costs 132,- Euro
Invoicing (billing document)
The individual components on the invoice then add up as follows:
+ A. Design fee pictogram 720,- Euro
+ B. Usage fee net 1.368,- Euro
+ C. Other services net 450,- Euro
+ D. Material and organization costs net 132,-Euro
= total remuneration net 2.670,- Euro
+ statutory value added tax
= Total remuneration incl. statutory value added tax
NOTES, SOURCES AND TIPS
1. Note: Many web designers live precariously. A survey conducted by Host-Europe in 2017 found that a quarter of the web designers surveyed earn less than 20,000 euros per year. The largest group, 37.9 percent, has to make do with an annual income of only 20,000 to 40,000 euros. Another almost quarter earns between 40,000 and 60,000 euros a year. And only 15.9 percent earn more than 60,000 euros p.a. A portion of web designers that should not be underestimated is thus likely to find it difficult to operate profitably in the long term and consequently file for insolvency. Sources: Earning money with web design: how it works in Germany, https://www.hosteurope.de/webdesign-ebook/ (9/28/2018) and “I’m not more or less happy because of the money,” UX Designer Earns Net 144,000 Euros a Year, Zeit Online, https://www.zeit.de/arbeit/2018-07/user-experience-designer-kommunikationsdesign-ausgaben-einnahmen-kontoauszug (28.9.2018).
2. Source: AGD Vergütungstarifvertrag Design AGD/SDSt, version of October 1, 2015, “Alliance of German Designers”. Order via the AGD website https://agd.de/shop/publikationen/verguetungstarifvertrag-2 (28.9.2018). Costs approx. 39,- Euro. The recommendations of the AGD in its “Vergütungstarifvertrag Design AGD/SDSt” are presumably formulated in the form of a “collective agreement” in order to obviously not violate the German Cartel Act – because general regulations are prohibited for self-employed persons under the Cartel Act. No proof is provided as to why 90 euros is recommended as the basic hourly rate and why, for example, four hours are required for an “illuminated sign” or 12 hours for a “re-design of a word picture mark”. The AGD recommendations for “employee-like persons” are commercially not comprehensible and are suitable with exact view only for occupation beginners, in order to provide itself a first impression. Since the former AGD founder and managing director Lutz Hackenberg no longer determines the fate of the AGD, the quality of the VTV has unfortunately also noticeably declined.
3. Source: Fee and Salary Report for Designers 2014: “Designers are successful – if the basis is right”. This is the result of the Fee and Salary Report 2014, published on June 25, 2015 by BDG Berufsverband der Deutschen Kommunikationsdesigner e.V., VDID Verband Deutscher Industriedesigner and designaustria. In figures: The annual net income of the self-employed averages 46,300 euros. 8.1 percent take in more than 150,000 euros, and for a third of the participants, income in 2014 was less than 20,000 euros. Available at https://bdg.de/2015/06/25/designer-sind-erfolgreich-wenn-die-grundlage-stimmt-honorar-und-gehaltsreport-2014-veroeffentlicht. (28.9.2018).
4. Note: 80,000 euros daily fee for a photographer hired by Helmut Lang (PRADA Holding) (manager magazin 7.2005, 35. Jahrg., p. 52, Ursula Schwarzer: “Schöner Schein”). Or: Vanity Fair magazine pays photographer Annie Leibovitz two million dollars a year. Leibovitz’s daily rate for commercial assignments is said to be over 100,000 dollars (source: “Die Verblendung der Fotografin” by Jörg Häntzschel, Süddeutsche Zeitung, 8.9.2009). In stark contrast – freelance communication designers with a monthly gross turnover (!) of 1,250 euros. (Source: “I live the life of a sixteen-year-old who does jobs now and then” by Katja Lewina, Zeit online, 5/27/2018., Available at https://www.zeit.de/arbeit/2018-05/kommunikationsdesigner-freiberuflich-einkommen-ausgaben-bruttoeinnahmen (27.5.2018). Or the portal “Fiverr,” which globally brokers design services and digital mini-jobs starting at five U.S. dollars (source: What can good design still cost? Light and shadow of the Fiverr phenomenon, t3n, available at https://t3n.de/news/fiverr-561382/ (28.9.2018).
5. Note: Reliable, reputable sources on the remuneration of design services hardly exist. Basically, it can be noted that a discussion about “design fees” is conducted almost exclusively by amateurs, semi-professionals, young professionals, young employees, and by professionally not very successful association officials, who have lively exchanges in blogs or forums. This collective whining of the “Generation 30” (see also »Hört auf zu jammern!« by Bettina Weiguny, Frankfurter Allgemeine, FAZ.net of 25.6.10) is in turn gladly and unreflectedly taken up and reinforced by some industry-specific media as well as agency owners. Of course, one or the other agency owner likes to talk down “design fees” in a populist way. This verbal saber-rattling by an employer is, of course, part of the business. After all, agency owners profit from paying young designers outrageously low wages.
6. Tip: It is of course relatively difficult for newcomers to the profession to get an overview of the market situation in the design segment. However, give a wide berth to “coaches” who are currently mushrooming to try to teach us “creatives” what “business administration” is and how they can market themselves better. To cut to the chase: It’s all bullshit. Because experience shows that these are exclusively people who have not had any significant successes in their own lives and ultimately cannot pass them on to you.
7. Literature tip for career starters: Creative people start up differently! Start-ups in the Cultural Industries. A handbook. Herbert Grüner, Helene Kleine, Dieter Puchta, Klaus-P. Schulze (eds.), 2009, transcript Verlag für Kommunikation, Kultur und soziale Praxis, Bielefeld, ISBN 978-3-89942-981-7, price approx. 24 euros.
8. Tip: Don’t look for guidance in the relevant blogs or forums, because as a rule you will never meet the top performers in our industry there (they have better things to do). Learn to think and calculate like an entrepreneur. Generate basic commercial knowledge. Attend e.g. seminars or other advanced training courses of the IHKs, colleges or universities. Study commercial literature and ask older, successful entrepreneurs and colleagues for advice.
9. Recommended reading: Copyright Law, Publishing Law, Law of Copyright Collecting Societies, International Copyright Law. Text edition with a detailed introduction and a subject index. Verlag Beck im dtv, ISBN 3-406-51266-6 (approx. 11 euros).
10. Tip: The BDG Berufsverband der Deutschen Kommunikationsdesigner e.V. (Professional Association of German Communication Designers) offers a recommendable hourly rate calculator on its website. The BDG calculator supports especially commercially inexperienced to calculate – quote – “… the own hourly fee resilient and livelihood-securing. On basis of the own circumstances and individual requirements the minimum hourly fee is calculated, with which the own Design achievements should be offered “. (Source: http://bdg-designer.de/kommunikationsdesign/bdg-stundensatzkalkulator/ or http://bdg-kalkulator.de, page last visited on 9/11/2018).]
11. Note: Comparison of pay scale salary ./. hourly rate of a self-employed person: For example, in order to achieve a comparable gross annual standard salary in Germany (without employer’s contribution to health, nursing care, pension and unemployment insurance and without professional association) of 47,899.00 euros, a freelance systems analyst had to generate net sales (excluding VAT) of 87,700.00 euros in just 216 days back in 2001. Entrepreneurial risk, unemployment insurance, invalidity, reserves, acquisition, bookkeeping, further training etc. as well as fixed assets (computers, cameras, etc.) are not yet considered here. Thus, in order to earn no less than an employee without entrepreneurial risk, a freelancer had to turn over at least 89 euros net per hour as early as 2001. Source: DGB-Bildungswerk-NRW (20.4.2005). Adjusted for inflation, this minimum hourly rate has of course increased noticeably in 2018. To cut a long story short: a freelancer must earn around twice as much as an employee (net without VAT) in order to ultimately earn the same pi by thumb. In 2016, for example, an employed creative director earned an average annual salary of 78,303 euros. If he were self-employed, he would have to earn around 160,000 euros excluding VAT. Source: “100,000 euros a year: On the way to becoming a creative director,” 2016 salary study by the comparison portal GEHALT.de, page last visited on October 11, 2017 at www.gehalt.de/news/100-000-euro-im-jahr-auf-dem-weg-zum-creative-director.
12. Note: In a salary comparison with other occupational groups, German graphic artists and designers were among the top earners in Germany in 2008, with gross monthly earnings averaging 4,690 euros. In an inflation-adjusted comparison to 1990, gross earnings increased by 85% from the former 1,740 euros. Source: Who earns what? Stern, No. 02, 7.1.2010.
13. Note: In the salary statistics of selected occupational groups in Germany in 2008 (ranked 1-30), graphic artists and designers ranked 7th. Source: Statista 2010, German Federal Statistical Office, SOEP, Hans Böckler Foundation. http://de.statista.com, page last visited on 11.10.2017.
14. Note: In its regular fee surveys, the freelancer exchange gulp.de has been making the same astonishing observation every time for years now: companies looking for freelancers, for example, offer them higher hourly rates than the freelancers themselves charge. In October 2016, the average hourly rate of IT freelancers was a net 83.48 euros. This was the result of the freelancer study conducted by the personnel service provider Gulp, in which 1,291 experts participated. Source: www.golem.de/news/gulp-umfrage-stundensatz-der-it-freiberufler-auf-83-euro-gestiegen-1610-123947.html (11.9.2018). In 2018, the average hourly rate is 91.03 euros, according to the freelancermap market study. Source: Freelancer Compass 2018, https://www.freelancermap.de/marktstudie (27.9.2018).
15. Note: With regard to the question of 7% or 19% value added tax (VAT) for creative design services, there is still no legal certainty in Germany. According to experience, every clerk of a tax office, every tax consultant and every judge evaluates arbitrarily. Clear guidelines by the legislator still do not exist!
16. Tip: Clarify in advance which design services are covered by the Copyright Act and which are not. For example, the development of a corporate design is usually a creative activity (design remuneration plus license); the ongoing implementation of an existing corporate design, on the other hand, is usually not (other service). The same applies, for example, to image editing. If an independent collage is created, design remuneration plus license is due. If images are only processed for the pre-press stage (color corrections, sharpness, dirt removal, etc.), this is purely a service without rights of use. Incidentally, this is also decisive for the respective VAT rate. This is because a reduced VAT rate of currently 7% (Section 12 (2) No. 7c UstG) can only be applied if the main service consists of the granting of rights of use to a copyrighted work.
17. Tip: Many advertising agencies or designers “receive” from suppliers (e.g. printers, newspapers, hosters or advertising material producers) – often also unsolicited – a kind of “agency commission”, of which the client usually does not notice, but of course indirectly finances it. For example, this commission amounts to approximately 5% to 25% of the net order value. This commission system is particularly questionable if the design studio or agency also charges the client for production supervision (print approval, clean-up at the print shop, etc.). It is certainly more professional to calculate in advance with one’s cards on the table. Furthermore, it must be pointed out in this context that “commission business” could cause a freelance designer or photo designer to lose his or her privileges under tax and social law as a freelance “creator or author” (no trade, no trade tax, possibility of KSK, low accounting obligation, etc.) and thus automatically become a freelance “tradesman”. Consultation with an expert (accountant, tax advisor, lawyer) would certainly be advisable here.