If you're looking for info on how to set prices, hourly rates and project pricing for graphic design, illustration and web design work, you're in luck. You're also in trouble, if your time is limited and your aim is to be comprehensive. Hours could easily be spent researching this topic. Because I've been pricing freelance creative services for nearly a quarter century, I feel free to boil the topic down to three essential points that will help you get started.

It's all based on a gross generalization: there are three ways to price a creative project:

• Market pricing
• Overhead pricing
• Magic Genius pricing

Let's go over each in turn, then finish with a practical plan of attack.

Market pricing is the phenomenon you will find at work daily on Guru.com, Elance and other web-based freelance marketplaces. For those who aren't familiar, Guru, Elance and their brethren give potential clients an opportunity to put their creative project out for open bidding by designers all over the world. In general, the lowest price gets the job.  By and large, it seems to work well for many clients and freelancers. How a competent creative person manages to develop professional logos at $25 a pop and 400-word articles for $10 each, I'm not exactly sure. But supposedly they do.
On the other hand, most working professionals use a less scientific version of market-based pricing to set their rates. They ask around about the rates of other freelancers in their marketplace, then establish an hourly pricing accordingly.

Overhead pricing will sound familiar to anyone who has ever built a freelance business. In this approach, pricing is set by overhead: how much you need to make to provide an adequate income and cover expenses. Divide this number by the number of hours in a work week, and you have a handy and workable hourly rate. This can be great if you live cheaply, and it's tough if you're in a marketplace with $30/hour competitors and you maintain an $80/hour lifestyle.

Magic Genius pricing has always intrigued me most of all. This approach doesn't depend on the market or the cost of sale, but rather on the value of your service to the customer. The person using a Magic Genius model figuratively walks into a client's office saying something like this:

"Hello, I'm a Magic Genius.
I'm the type who comes up with ideas 
that are brilliant beyond the conception
of mere mortals.
My ideas revolutionize markets,
create dizzying success and build careers.
When you hear my edgy ideas, you'll squirm.
You'll sweat. But you'll do what I say.
If you don't, stop wasting my time.
I just got a call from your fiercest competitor.
They'd like to set up an appointment."

I've seen this approach work well under two sets of circumstances. Clients who want to compete in a very crowded marketplace (broadcast network television, for example) love the cocksure ability of a Magic Genius to stand out in a crowd. It can also work great for a client selling a high ticket item. This pricing procedure is equally great for the Magic Genius' bottom line. They may not have as many projects in a month as the Elance swordsman, but the dollar size of each job makes up for the lack of volume. Have you ever wondered how Lee Clow manages to spend so much time surfing? It's Magic Genius pricing, pure and simple.

How to price. Really.

The most effective way to set a price is to admit that all jobs aren't the same, then prepare a  pricing framework that unashamedly addresses each of the three tiers. 
There may be days when the volume of work is low enough to make market-priced jobs a necessity. Be prepared with a price that is within striking distance of the market low, while staying as close as possible to the rates used by the best freelancers in your marketplace.
At the same time, it is important to do the lion's share of work at a price that can support you in the long run. If you are working mostly at a $25,000/year pace and you have 20+ years of high end creative experience in the US, somebody's getting cheated. If you want to meet that somebody, take a look in the nearest mirror.
Some projects demand (and clients expect) a Magic Genius price. Offer to do a Fortune 500 corporate logo for $500, and you'll be making a mistake. Even if you get the job (which is unlikely) your low price is likely to create a crisis in confidence.  When you perceive that you're selling expertise, price up. A few jobs like this will make up for a lot of Market pricing.

At the end of the day, you are worth what you are worth. It's your job as a freelance professional to make sure you get it, and that your client gets what they paid for.

For more information on pricing (or to price the work of a leading freelance writer) visit me at http://www.watter.com  -Jeff Watter