The 7 Ways Designers Make Money (and why most of us are only doing the first three)
While this article is titled “The 7 Ways Designers Make Money” it’s fair to say that it’s really about how people in general make money. It just so happens that I come from a design background, so this article has an inevitable design slant. It’s also safe to say that this article is pretty basic. In fact I suspect a lot of people reading this will be thinking “duh, yeah”. However I wanted to write it because while the contents may be a little business 101, it’s also stuff I didn’t really think about when I was a practicing designer or running my own design studio. Had I thought a bit more systematically about how designers make money, it’s possible I might have made different life or business choices. As such I’m writing this in the hope it’ll give people a little more perspective on some things they may currently be taking for granted.
Selling Our Time
The way most designers make money is by selling their time. We’ll essentially trade a block of time—be that an hour, a day a month or a year— in return for cash. The amount of cash we get to charge is generally decided by the market. This effectively means that the people buying your time will base how much they’re willing to pay on what other people with similar skills are charging. If those skills are widespread, rates will generally be lower. As the demand for those skills rise, rates will go up accordingly. I think it’s safe to say that design — especially digital product design — is in high demand at the moment. As such designers can charge more for their time than they could 5 or 10 years ago.
Some designers will choose to sell their time in smaller chunks. A few days here. A few weeks there. We generally refer to these folks as freelancers (duh!). One of the benefits of being a freelancer is that you get to work with a wide variety of different clients over the course of a year, which allows you to create a varied portfolio. Because of this freelancers need to sell their time to multiple clients, and run the risk of having gaps between projects. This also means that freelancers need to spend time finding new clients and marketing themselves, which takes time. This hidden effort ends up getting backed into their fees, which is why freelancers usually charge more. There’s also a tendency for things to cost more if you buy smaller volumes, because you lack a certain amount of bargaining power.
Freelancers can make more money in a couple of ways. Firstly they can increase their hourly or daily rates. They can do this by specialising in a niche (ideally one that’s in demand), getting really good at their craft (thus separating themselves from less skilled competition) and getting really well known for their craft (so people will pay a premium to work with them). They can also increase their earnings by getting really good at self promotion in order to drive more business, and also by getting super efficient, in order to increase their output. However if you’re selling your time there’s generally a hard cap on what you can make each year.
Let’s imagine that you’re a pretty solid designer charging £600 a day (different regional variations will apply). Assuming you work 250 days a year, you could theoretically be bringing in £150,000 which sounds pretty good. However in reality it’s highly unlikely you’re going to be working at 100% capacity. In fact I imagine most freelancers work closer to 60% capacity, which would bring your income down to £90,000.
The more senior or well known you are, the more you can charge. For instance I know some practitioners charging £1,200 a day range, and some consultants charging more like £2-3k. It’s just worth pointing out that the more you charge the more sales and marketing you’ll likely have to do. As such I find that the folks charging £2k a day don’t make that much more than those charging £600 a day as they’ll be averaging one day worth of paid work a week rather than four.
This is why a lot of designers will choose to contract rather than freelance. Contractors will generally agree to work with a single company over an extended period of time. Say 6 or 12 months. If you work as a contractor at £600 a day you’ll end up getting much closer to the £150,000 mark. You might not have the same freedom as a freelancer (for instance you won’t be able to take off for a couple of days if the weather is good) but you get a certain level of security as a result.
Contractors may also experience gaps between the end of one contract and the beginning of another. However a lot of the contractors I know use this time to undertake other pursuits, be that hobbies or extended blocks of travel.
While the dream of being a freelancer or contractor is nice, it can often feel a little transitory. As such a lot of the freelancers I talk to say they miss being part of a team, or working towards a bigger goal. The other problem with being freelance is it’s much harder to land bigger, more meaningful work. As such a lot of freelancers find themselves getting good at one thing quickly, and then repeating that thing for each of their clients, rather than working on bigger and meatier problems. As a result freelancers can start to feel their skills are atrophying as a result.
Being freelance can also be quite emotionally and physically exhausting. Especially the sense of not knowing where the next job is going to come from. The pandemic is an excellent case in point. Over the past 18 months I’ve seen a lot of freelancers opt for permanent roles for a bit more job security. Life stage also plays a part when it comes to feelings of security, with many freelancers switching to permanent roles when they start thinking about buying a house or starting a family.
The move from freelance to perm was a challenge 10 years ago due to the big gap in earning potential, but that’s been steadily changing. US salaries—especially in hot locations like the Bay Area—are getting to the point where they’re eclipsing what you can make as a freelancer. This is even more true when stock options are taken into account (more on this later). In the UK middleweight designer salaries have jumped from £60k-80k in the past 18 months, while seniors at certain hot start-ups might be earning closer to £120k. When you add in holidays, sick pay and company benefits, perm roles are starting to look a lot more attractive to freelancers.
While I’m a huge fan of companies having separate Manager and IC tracks, it’s still fair to say that in most geographies it’s possible to make much more money as a manager than an IC. As such design leader salaries in the UK can range anywhere between £90-250k depending on the type of company you're working for, their sector, the size of the team you’ll be looking after and your seniority. This is largely because managers are profiting, in an indirect way, from the effort of their reports. You can see this best in agencies where they regularly hire people with 3-4 years experience but charge them out as “seniors”. The reason they can do this is because of the extra value their manager (who probably is a senior) is meant to put in.
Selling Other People’s Time
While it’s not as common today, it used to be the case that as soon as any design team hit a certain size, the senior practitioners would leave to set up their own design agency. The thinking was generally that I’m pretty much doing the work already, so why not get the benefit.
Agencies—as well as most other service businesses—essentially make money by selling other people's time. Most agency models are based on the idea that they’ll sell an individual designer's time for double what they pay for it. That might seem like a big markup. However a lot of that goes to paying all the infrastructure agencies have. Offices, sales teams, marketing teams, HR etc. These are all the things you were probably doing as a freelancer and not getting paid for, so agencies simply get to a level of scale where they can hire dedicated people to do this stuff. The result is that you get to do more of the design work you like and they (theoretically) hire people who are better at doing the other stuff. I say theoretically because in my experience most good design agencies are pretty terrible at doing sales and marketing, while the agencies that are good at sales and marketing usually do a pretty poor job of design. Go figure.
If the agency is being run well, the founders will hopefully be making a 20% margin on sales, which effectively means a 10% margin on your salary. As such, if they have 10 staff they’ll roughly be making a full person's salary in profit, while if they have 100 staff they’ll be making the equivalent of 10 salaries worth of profit. This will probably be on top of the salaries they’ll be paying themselves. As a result the only real way to make money in a service business is to grow a large business. For smaller agencies you’ll often find founders actually paying themselves less than some of their top staff, and may halt salaries altogether in leaner times. However that also means that in good times it’s possible to 2x or 3x your earning potential running a mid-sized studio.
The things I generally find is that in agencies, the founders and senior team could probably end up making more money for less stress if they went in house. However what they’d lose as a result is the freedom and variety of work.
Selling Your Expertise (and Selling Your Network)
You could argue that when you sell your time you’re effectively renting out your expertise. However there are a few other ways of selling expertise. Writing a book used to be a popular means of doing this, and it’s still possible to make good money from book writing, especially if you pick a popular topic and self publish. However with most books making less than £1k in sales, you probably need to write the next “Design Sprints” book to see any serious money. So for most people the outcome of writing a book is a small amount of passive income each month, plus a boost to your personal profile, which you might be able to use to increase your salary or fees slightly more.
You could also choose to package up your expertise in the form of a conference talk. However I’m sorry to say that even though it’s now 2022, the majority of conferences still don’t pay their speakers, and if they do it’s probably not enough to justify the time and effort you put into writing the talk. This is why professional speakers end up giving the same few talks over and over again at different conferences. It’s also why new speakers tend not to stick around for long. Having a few conferences on your resume looks good and can also help you increase your salary or fee levels, but only about 2% of speakers are able to turn it into a job, and even then it’s probably a mix of speaking, book writing and other activities.
One way you can make more money on your content is to share it with a much bigger audience. The rise of social media influencers has shown that it’s possible to make reasonable amounts of money off an existing fan base. As such I’m seeing more and more designers start paid newsletters, sponsored YouTube channels, and cohort based courses. I’ve even seen a few designers livestream their design work on platforms like Twitch, which still spins me out.
There are a few designers out there who have successfully monetized their knowledge, personality and following in a way that means they no longer have to do design work, or at the very least their design work is driving an increasingly small portion of their income. However I’d say there were probably only a handful of folks out there who are really making a meaningful living this way. So for most it’s a side hustle that gives them an extra 20-40% income each year.
Selling Value or Exchanging Time for Value
While selling your time or other people's time is where most designers stop, a few designers have managed to switch to value pricing. Essentially selling the value of the thing they create, rather than the time it took to create it. The easiest way to understand the concept of value based pricing is to think about the potential value of a brand like Coca-Cola (in the billions) versus the time it would have taken the designer to create said logo (days, weeks or possible months if you were using a modern branding agency). As such, people who sell their work based on “value” will attempt to capture some of the value their work is likely to generate.
While this sounds great in theory, it’s hard to deliver in practice. Often because for every designer doing value pricing, there will be dozens more saying they’ll deliver exactly the same results for less money on a time basis. As such, for value pricing to work, designers need to put some risk on the line. For instance by saying that they’ll work for free (or cheap) in return for equity. When designers do this they’re essentially making a bet. They’re making a bet that if they do this a few times, one of the companies they “invest” in will end up being such a success that it’ll return their stake (the amount of money they could have charged) many times over.
I’ve seen a number of agencies adopt this approach the past few years and it even has a name — creative capital. I personally LOVE the idea of creative capital. However I also understand why designers might prefer to take a smaller amount of cash now, over the promise of the potential of more cash later.
Taking Equity in your Company
The above trade-off is essentially what happens when your company offers you equity. They’re effectively saying that they’d like to pay you more, but they don’t have the surplus cash right now. But if you take these shares, there’s a chance they might be worth something significant at some future stage — usually tied to an IPO or trade sale.
I know a good number of product managers and engineers who have become very rich off taking equity. I know far fewer designers who have done the same. I think there’s a general feeling of risk aversion amongst designers that prevents them making these sort of trade offs. It also helps that engineers tend to get paid a lot more than designers, which makes it much easier for them to sacrifice some extra salary in exchange for share options. However options are the first real opportunity for designers to significantly increase their earning potential beyond the time based glass ceiling. As such I’d like to see more designers tasking options seriously, as they have the potential to be life changing, rather than seeing them as a nice to have that’ll probably never amount to anything (which in fairness they probably won’t).
Start Your own Product Business
Which brings me to the final way designers can make money, which is to start their own product business. While service businesses are hard to scale because they rely on taking a margin off each of your chargeable staff members, product businesses have a much easier time. Largely because the growth of a product business isn’t lineally tied to team size, but rather to the number of paying users you can acquire.
The logic is essentially that you’re able to build a product on a relatively small team, and each additional paying user you sign up reduces the cost to serve each existing user. As such you end up with “economies of scale”, and it’s these economies of scale that free you up from the glass ceiling of time based pricing.
There are a few well known companies out there who were started by designers. The likes of AirBnB immediately come to mind. Designer-led start-ups used to be conspicuous by their absence but as designers cycle through more and more tech companies, they’re beginning to see the effects of taking equity, joining a founding team, or starting something up themselves.
While we tend to focus on the big brands and the big exits, I know a surprising number of people who built fairly modest (10-20 person) companies they sold to much bigger players. Some as strategic acquisitions and others as acquihires. Some of these founders were paid in cash, while others have been paid in equity. The folks I know who were paid in cash all ended up being fairly comfortable, but still needing to work. Many of the folks that took equity ended up not having to work again when their acquiring companies IPO’d. As such you don’t need to build a huge company for it to be life changing (but you do need a certain amount of luck).
Design led companies have been growing steadily in the US for a while now, and we even have folks like The Designer Fund specifically investing in design founders. I’ve recently moved into the venture space myself and am starting to see a trickle of early stage startups either started by designers or with designers on their founding teams. I think this can only be a good thing, so I’m excited to see more and more designers explore this route.
As I said at the start of this article, a lot of what I’ve shared sounds obvious. However I think as designers we often don’t think about the economics of our discipline enough. I’m not suggesting for a second that we should all become money grabbing capitalists. There are plenty of reasons to become a designer beyond the earning potential. In fact if you want to earn money in tech you’re probably better off becoming a developer.
However I do believe that designers deliver so much more value to the companies they serve than they’re currently capturing. Possibly because it’s such an enjoyable job and many of us would be doing it in our spare time for free anyway (as that’s in fact how many of us started). So I guess I shared this article to help designers think about the various ways they have open to them for capturing some of the value they create, beyond simply selling their time. And if you do end up deciding to start your own product business, we should definitely talk :)