Outsourcing Graphic Design Services: A Study of Costs and Quality

A Paper Presented to the Southern Association of Agricultural Scientists
Agricultural Communications Section
Memphis, Tenn.
February 1999

Thomas W. Knecht
Head, Ofc of Agric Communic.
Mississippi State University

Martha Kuper Brinson
Director, Engr. Publications
North Carolina State University

Dan C. Tucker
Director, Biomedical Comm.
North Carolina State University

Background


Background, Scope, and Objectives

A. Background
Many public institutions are conducting or contemplating studies to determine whether privatization, or outsourcing-obtaining from external sources some of the services traditionally provided by internal staff-can save money. Among those services of interest to communicators are printing, design, and photography. This study pertains to graphic design services, which, in institutions with large communications departments, are often provided by maintaining a staff of graphic artists.

B. Scope and Focus
Graphic Design is interpreted here to mean the process of preparing text and illustrations for printing. This area includes conceptual design, comprehensive design (layout), illustration, typography, and related services provided in developing materials to be printed. It excludes art services directed toward products other than printed materials - for example, design of exhibits, World Wide Web pages! ! , and presentation graphics (slides and overheads). In most institutions, these tasks are carried out in a myriad of ways by personnel in many different job classifications in a multitude of departments.
The study was focused on units that provide graphic design services on an institutionwide basis, that employ one or more artists to render service to other units in their institution, and that in many cases charge a fee to partially or fully recover their costs. In this study, three such units in a major southern region university were examined.

C. Objectives
The purposes of the study were to:

1. Determine the actual direct and indirect costs of providing graphic design services through existing service units.

2. Compare those costs to the estimated cost of obtaining comparable services on a fee basis from sources outside the institution, including both the fees charged by the external service providers and the costs of having the institut! ! ion's personnel develop project specifications and requirements, identify suitable vendors, obtain cost quotations, establish contracts, monitor progress and quality, and make payment.

3. Examine important nonfiscal characteristics of internally provided graphic design services, such as quality, timeliness, accessibility, relevance of design solutions, and availability of consultation on design issues, and compare those characteristics to the services provided by external designers.

4. On the basis of data obtained, draw conclusions about the desirability of (1) continuing to provide graphic design services through internal staff or (2) eliminating internal graphic design services and contracting for those services with external providers.

Method

The graphic design services required in preparing materials for the press range from simple standardized layouts of type and illustrations to complex projects involving development of alternative design concepts for client approval, followed by execution of the option chosen. The skills required range from basic typography and keylining or desktop publishing to complex concept development and coordination of multiple design elements including photography, illustration, and typography. Technical aspects include electronic manipulation of images, extensive knowledge of page layout software, and preparation of complex computer files for output to imagesetters or other high-resolution devices. Developing a valid cost comparison between internal and externally provided services in this area is therefore not as simple as in the case of purchasing services such as printing and binding, which can be more precisely specified in terms with commonly accepted meanings.

To comp! ! are costs of the graphic design services provided by three units within the institution with similar services provided by external vendors, the following strategies were used:

1. Compare the true cost per billable hour for internal graphic designers with the fees charged by designers in the external marketplace. The cost for internal services included all salaries and the cost of resources devoted to the enterprise, such as equipment purchases, maintenance, and depreciation; the space occupied; physical plant (facility maintenance) services; and general administrative services. (The cost of obtaining external services such as the cost for identifying service providers, evaluating their bids, establishing a contract, monitoring progress, and making payment were not quantified.)

2. Compare actual costs for five representative graphic design projects carried out by two internal units with the costs paid for those services when the same or nearly identical proj! ! ects were completed by external vendor.

3. Compare the nonquantifiable, nonfiscal aspects of services provided internally with those provided by external sources, including quality, reliability, timeliness, accessibility, appropriateness of design solutions, and other relevant factors.



Results

Analysis of Graphic Design Services

A. Comparison of Costs for Internal versus External Services
Relative cost is a factor to be considered along with other factors such as availability, quality, turnaround time, and access costs in determining whether it is more advantageous for the institution to provide a service internally or to obtain it from an external vendor. In this section, the true total cost of providing graphic design services by maintaining an internal staff of graphic designers is compared to the cost of obtaining those services externally.

For the purpose of this discussion, the basic unit of measure for service delivered is the billable hour, the unit usually used by external vendors providers in charging for graphic design services. It represents the amount of time that an artist spends doing productive work on a specific project and is thus a useful measure of the deliverable received in return for the resources expended.

In t! ! he case of both external providers and internal graphic arts personnel, billable hours represent only a portion of the total time worked. In each case, a graphic artist must spend some time on tasks that do not directly add value to the product. Examples include time spent attending staff meetings, developing cost estimates and budgets, maintaining and organizing files, learning new tasks, and carrying out other necessary operations. The cost of the time spent on those tasks is a part of the total cost of providing the service. External vendors take these costs into account when determining the hourly rate to be charged the customer. For internal artists, the salaries, benefits, and costs for space, equipment, supplies, and utilities represent the total cost of producing the "billable hours," or project-specific productive hours, and must be included when calculating cost per billable hour.

In the units covered by this study, clients were charged different! ! rates for services provided, resulting from differing policies regarding subsidization of these services in their administrative units. These charges help to support the unit and discourage wasteful use of the services. Because of these differences, in this study the rate charged is not used as an indicator of true total cost.

1. Rates Charged by External Providers
Typical rates charged by external providers of graphic design services are readily determined from the leading published source of data within the industry, namely, the Graphic Arts Guild Handbook: Pricing and Ethical Guidelines, 9th edition, 1997.

According to this reference, the following hourly rates are representative for professionals at several levels within graphic arts firms (p. 165):

Senior art director $80 - 150
Art director $70 - 130
Junior art director $50 - 100
Senior graphic designer $60 - 130
Graphic designer $50 - 100
Junior graphic de! ! signer $30 - 60


Thus the fees for the services of a graphic designer range from $30 per hour for an entry-level position to a high of $130 per hour for a highly experienced senior designer. The range, of course, accounts for the variation in productivity and quality of product with experience and talent. The median salary for a private-sector graphic designer, $75 per hour, was used as a point of comparison in this study. These figures were consistent with the rates being charged by external vendors in the area where the institution was located.

It should be noted that these basic hourly rates do not include the cost for the institution's personnel to procure the services and to monitor the projects and validate billings. The estimated time required for a person familiar with design and printing to oversee a large project ranges from 40 to 100 hours, 10 to 20 hours of which are allotted to obtaining the services of an external designer.

Dat! ! a of significance on annual salaries from this standard industry reference are the following:

Annual salary for print designers working on products such as annual reports and other corporate literature: $50,000 - 65,000

Annual salary for intermediate graphic designer in design firms and marketing/consulting firms: $28,000 - 45,000

Annual salary for intermediate designer in book publishing art department: $30,000 - 40,000

Annual salary for intermediate-level designer/graphic artist in government agencies: $25,000 - 32,000

These data clearly show that the median salary for graphic artists at the intermediate level in public-sector organizations is substantially lower than that of their counterparts in the private sector. For comparison, the salary range for an intermediate-level graphic designer in the institution used for this study was from $22,248 to $35,899, which aligns quite closely with the industry figure for intermed! ! iate-level designers in government agencies, thus supporting the validity of the salary data provided by the Graphic Arts Guild handbook.

2. Costs and Productivity of Internal Graphic Design Services
The cost per billable hour for artists working within the institution was determined by adding the annual salary and benefits for a typical graphic artist position to the other annual costs involved in supporting the position (equipment, space, etc.) and dividing by the average number of hours of billable service that such an artist delivers in a typical year.

Salaries and Benefits. The average salary for the five mid-range graphic artist positions in the three units considered in this study was $26,257. Benefits based on 24.2 percent of that average salary amounted to $6,354, for a total labor cost of $32,611.

Space. The amount of actual office space allocated to individual artists varied among the units, but the standard 120-square-foot office u! ! sed in the institution's space planning process is adequate to house an artist and all necessary equipment except a copier and fax machine, which are typically located in a space shared with other professionals and office support personnel. The value of the space varies with the construction cost and age of the building and is computed according to the usage charge formula specified in the institution's cost accounting standards for grants and contracts. In a typical building of the institution studied, the annual value of 120 square feet of space was $442. Physical plant charges for maintenance of that amount of space totaled $1,105 per year

Equipment. In addition to a desk, chair, and other inexpensive pieces of office furniture, a graphic designer in today's workplace requires a high-end computer with a large, high-resolution monitor plus a collection of graphic arts software packages. The artist also requires access to a shared copier and fax machine. Costs ! ! provided in the table below are based on the needs of an artist in one of the three units examined in this study and are representative of the other two.

In summary, the annual costs for supporting a graphic designer position are as follows:

Salary $26,257
Benefits 6,354
Space (building use and maintenance charges) 1,547
Equipment
Depreciation 3,221
Maintenance contracts and repairs 400
Supplies (general items not billable to clients) 400
Telecommunications (estimated at $60/month) 720
Travel and training 1,000
Total $39,899

Data from the three units have shown that, on average, a mid-level graphic designer is able to deliver approximately 60 percent of his or her time on the job as billable hours (i.e., hours of work attributable to specific projects). There are 2,080 work hours in a year (52 weeks times 40 hours per week). Subtracting an average of 160 h! ! ours for annual leave (vacation), 96 hours for paid holidays, and 96 hours (on average) for sick leave, the artist has approximately 1,728 hours in the office to work on projects. Given that 60 percent of those hours can be documented as deliverable to client projects, the artist can deliver 1,037 billable hours per year.

Thus, the cost per billable hour is equal to the total cost of retaining, housing, and equipping the artist, or $39,899, divided by 1,037 hours of delivered service, for a total cost of $38.48 per billable hour, a figure that is only slightly over half (51 percent) of the median value of $75 cited earlier in this report for graphic designers in external practice.

B. Cost Comparison for Projects Conducted Internally and Externally
To further validate the differences in costs for internally provided versus externally procured graphic design services, a comparison was conducted of five of the institution's graphic design projects that ha! ! d been completed by both internal and external designers.

Comparison of Three College of Engineering Projects

In the first group of three design projects, the project size, scope, and complexity were nearly identical. Two of the projects were completed by external vendors and one by an in-house graphic designer. Results of the cost comparison are shown in the table that follows these project discussions. Comparisons of writing, photography, and other project components have been included for perspective, but the focus in this report is on the graphic design costs, which were roughly an order of magnitude less when the internal designer was used.

Case 1: College Fund-Raising Campaign Brochure

In Case 1, a full-color fund-raising campaign brochure, an established and well-respected external designer was selected to design the publication. An initial meeting was held in February 1994, and one week later the designer provided an estimate t! ! otaling $22,500 for the concept development, design, and production, including graphic design fees at $8,000; copywriting at $3,000; and photography from $4,000 to $6,000.

The project got off to a poor start. Five months passed between the first and second meetings while the designer prepared a production schedule. The schedule, set by the external designer, showed the project starting July 18, 1994, and ending October 22, 1994. In reality, the designer had too many projects in his shop and did not start work on the project until November; the printed brochure was not delivered until August 1995-a full 18 months after the initial meeting and 10 months after the revised promise date for delivery of the printed piece.

Seemingly unimportant aspects of the project in reality wasted a lot of time and money. Logistics and lack of proximity turned out to be major hindrances to the project (such as making the appointments and arrangements for off-campus meeting! ! s, carpooling to meetings, parking at the designer's site, and arranging for courier services). The institution's team spent much time waiting for the designer to arrive at meetings. He was his own boss and made his own schedules; he was routinely 45 minutes late and often showed up at the wrong office, appearing at the institution's offices while the clients were waiting for him in his downtown office.

Another negative element was the variance between estimated and actual charges. The designer's final bill of $32,649 far surpassed the original estimate of $16,000 to $22,500. (Writing fell within budget at $2,460, but photography mushroomed to $7,162, which was $1,000 to $5,000 more than the estimate, even though no changes had been made from the original plan. The final graphic design fee of $9,073 was more than $1,000 higher than the estimate.) All of these charges were in addition to the cost of the institution's representatives serving as liaisons with the ! ! vendor, overseeing the project and resolving problems as they arose. Those costs amounted to $3,200, bringing the whole project to a cost of $35,849.

Because the institution had no real control over the actions of the outside graphic design vendor, problems arose regarding adherence to deadlines, budgets, and specifications.

Case 2: College Research Brochure

Case 2 demonstrates one of the biggest problems with using outside vendors-the lack of loyalty to or sense of ownership in the project or the budget. In-house employees are more concerned with the funds that come from their own office, they have a history with and sense of loyalty to that office, they know that they will have to live with any problems that arise, and they have an understanding of the source of funding, which is often tight enough that all expenditures must be justified.

In this case, another well known outside vendor was hired to design a college research brochure be! ! cause the in-house graphic designer was tied up with a number of other projects. The outside vendor, however, caused a series of problems that ultimately had to be resolved by the in-house graphic designer. In the final analysis, the institution's personnel learned too late that the in-house graphic designer could have completed the job by the same date as the outside vendor, even though he would have had to start the project a few weeks later. Furthermore, the end product would have been of the same high quality but cost much less.

One of the main problems caused by the outside vendor was her continual attempts to add charges that were not part of the original estimate-without consulting the institution. Untangling these problems took a great deal of time and effort.

The project started out smoothly enough with an estimate from the external designer for a total design cost of $14,086. It is instructive to compare this estimate with the final invoice, in ! ! which $1,000 for photography was added to the charges, along with $350 for "printing supervision" that never took place and another $600 for "web preparation" that never occurred. The institution challenged the designer on these entries and requested a revised invoice. The difference amounted to $1,950.

Further demonstrating the external designer's lack of concern with the client's budget, she also approved printing alterations without the client's authority, adding $400 to the total cost. The institution's personnel determined that some of these changes were unnecessary and declined to pay them.

To complete this project successfully, it was necessary for one of the institution's graphic designers to serve as liaison, because only a person with special knowledge of prepress and printing processes could be aware of which functions should have been performed by the external design vendor as part of the contract-rather than the printer-or ! ! which items were unnecessary alterations. A college administrator or office worker, assigned to oversee such a job in the absence of an in-house graphic designer, would be very unlikely to know enough about printing processes to challenge the vendors.

Also, the vendor in this case attempted to incur other extra expenses, ordering an extra set of blueline proofs and an additional set of color proofs for her own use so she would not have to share these proofs with her client. (It cost only $8.50 for a courier service that made it possible to share the documents, but the additional bluelines and the color proofs for 24 color photographs would have cost $200 extra.)

All told, there would have been more than $2,000 in additional charges for this project if the outside vendor had not been closely monitored. Instead, an in-house graphic designer, one with enough experience to recognize unnecessary expenditures and with loyalty to the office that was paying for! ! the publication, caught these problems.

For all of these reasons, the institution's personnel decided it just was not worth it to outsource such projects and that they would have such projects completed in-house in the future.

Case 3: College Recruitment Brochure

In Case 3, the in-house graphic designer was called upon to produce a college recruitment brochure equal in size, scope, and complexity to the publications described in Case 1 and Case 2. The other facets of the job were also handled in-house.

The writer was an in-house, experienced employee who understood the recruitment goals of the institution and how to convey these to the target audience. Working under the same roof with the graphic designer made the job run efficiently and quickly, as they could share ideas and approve drafts with immediate turnaround. Working on the campus alongside the faculty members and students who were participating in the interviews and photography ! ! sessions made communications highly efficient.

The graphic designer was on location, providing rapid access to the internal client for approvals and changes to layouts. The graphic designer was experienced in ways of producing a high-quality piece while keeping an eye on the budget, and because the designer's supervisor was the head of the office paying for the publication, the designer felt a sense of ownership to the account and to the project. Communications flowed smoothly, and the printing vendors were kept in close check to ensure that the project came in on time, within specifications, and within budget.

The following table shows a cost comparison for these three projects.

Comparison of Charges for Nearly Identical Publication Projects Outsourced
Versus Completed by In-house Graphic Designers
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Case 1 Case 2 ! ! Case 3
Designer External External Internal
Graphic Design Charges $ 9,073 $13,557 $1,600
Writing 2,640 4,700 1,000
Overseeing by Institution* 3,200 5,140 1,300
Photography 7,162 8,000 2,200
Extras 500 133 0
Total $22,575 $31,530 $6,100
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* "Overseeing by Institutions" is the amount of time it took for one of the institution's staff members to monitor the project, serving as liaison to the outside vendor. For Case 1 and Case 2, it took approximately 20 hours just to obtain the service-identifying appropriate vendors; reviewing their portfolios; meeting with venders to determine pur! ! pose, audience, and scope of the job; reviewing estimates; writing proposals to the funding office; and processing purchase requisitions.

Extras include such charges as couriers and Federal Express charges in working with outside vendors.

Comparison of Two College of Veterinary Medicine Projects

In two instances the College of Veterinary Medicine had an opportunity to compare the charges of external graphic designers with the cost for providing the same services internally. The college has an internal communications service unit that provides graphic design services at a rate of $15 per hour. However, this rate does not recover the full cost of those services. In essence, the college subsidizes the services by paying the artist's salary. In the following comparisons, the rate used for billable hours is that calculated in Section 2 of this study, which reflects the true total cost to the institution of providing those services.

Case 4: Quar! ! terly Magazine

The graphic design work for the April 1996 issue of the College of Veterinary Medicine's quarterly magazine was completed by an internal designer. The April 1997 issue was completed by an external graphic design vendor. The design costs were as follows:
April 1997 issue (external designer) $3,200.00
April 1996 issue (internal designer) 1,558.44
Savings realized by use of internal designer $1,641.56

These findings are consistent with the nearly two-to-one ratio of rates charged by external designers versus the cost per billable hour of providing the services internally. As a further basis of comparison, the Graphic Artists' Guild Handbook of Pricing and Ethical Guidelines (9th edition) indicates that the average design fees for an in-house, 20-page, one-color magazine range from $2,500 to $7,800. Note that the magazine was a two-color product and therefore presumably would cost more to design.

Case 5: Short Course Brochu! ! re

The internal design staff creates two-color brochures for the institution's continuing education unit. In one instance, the faculty client approached the communications unit with a request to design a brochure for an upcoming program on two-day turnaround. Although the unit tries to respond to requests for rush projects, in this instance a staff shortage made it impossible to rearrange other scheduled projects to accommodate the request. To assist the client, unit personnel contacted an external graphic design vendor and requested a bid on the project. When the bid was received, the client found the external charges so high that he decided to wait the two weeks required for the internal unit to complete the project.

In the following comparison, printing costs are included because the external graphic designer included printing in his bid and did not break out the design charges separately. However, printing costs were essentially the same for both options,! ! and thus the difference in total cost represents the difference in design charges.
Design and printing bid by external vendor $2,900.00
Design by internal artist plus printing costs 1,074.30
Savings realized by use of internal designer $1,825.07

C. Qualitative Factors

Sections A and B demonstrate a definite economic advantage to providing graphic design services internally. However, to gain a complete picture of the relative advantages and disadvantages of providing these services internally, it is also necessary to examine a number of qualitative factors that can be as important as economic concerns in determining the best way for the institution to obtain the needed services. These factors include:

Appropriateness of the design solution to the institution's objectives
Dependability, reliability, and quality
Control over schedule and priorities
Cost and complexity of procuring external design services
Loyalt! ! y to the institution and its programs.

Appropriateness of Design Solutions

The purchase of equipment or certain external services such as printing or mailing is relatively straightforward because expectations can be set forth in a detailed set of specifications couched in terms that have generally accepted meanings to all parties. The same is not true of graphic design services.
Conveying an understanding about the desired appearance and functionality of a printed piece involves the use of abstract and imprecise terms. Considerable discussion is required to reach a mutual understanding with an external designer about the basics of a project, and bringing the desired focus to a project usually requires several attempts by the designer to develop rough concepts and to obtain client feedback before a final design can be executed.
On the other hand, designers who have worked for an institution for a period of time and who have constant interaction with t! ! heir internal "customers" develop an innate understanding of the needs and expectations of those customers. They can often accomplish in a single pass what an external designer - billing at nearly twice the cost - may require several attempts to accomplish.

Dependability, Reliability, and Quality

Many publications produced by an institution are designed for specific events and must therefore be produced on a rigid timeline. When projects are contracted to external graphic designers, the controls available to the institution are very limited. The designer has a stake only in that single project. The institution cannot dictate the level of priority that an external designer will give a project in relation to other work. Withholding payment is the only recourse in the event of missed milestones and deadlines. Internal graphic designers, on the other hand, have their long-term careers at stake and thus are more committed to the goals, needs, and timel! ! ines of the organization. They have a commitment to the organization and its goals, and thus they have greater appreciation of and respect for deadlines. Furthermore, their schedules can be rearranged by their unit manager as needed to accommodate unexpected developments, and their manager can take corrective action immediately if problems arise. For the same reason, control over quality of the product is greater when the work is done internally. Particularly where the quality of the finished product requires close interaction with the client and with other project participants (such as writers and editors), internal graphic designers provide services that cannot be matched by external providers.

Cost and Complexity of Procuring External Design Services

Very few institutional administrators and staff personnel have the experience with and knowledge of graphic design processes and vocabulary to communicate effectively with graphic designers. Thus they are ill! ! -equipped to obtain the services they need in the external marketplace. They are limited in their ability to identify and assess the capabilities of potential vendors. They frequently find it difficult to convey clearly their needs and the design standards of the institution. Often, they are unfamiliar with the purchasing procedures that must be followed in obtaining contract services.
Once a vendor has been identified, personnel in the institution's purchasing division must spend a considerable amount of time to establish a contract, issue a purchase order, process a receiving report, and issue payment. Consequently, there are substantial hidden costs in working with external designers that are not encountered with internal designers.

Loyalty to the Organization and Commitment to the Budget

The publishing objective of the client within the institution is to produce attractive, serviceable materials that meet the institution's design standards on a fixed! ! , often limited budget. The primary objectives of external graphic designers, on the other hand, are to maximize profit from each project and to develop pieces that will be positive additions to their portfolios. Thus the client and vendor's objectives are often in conflict. The external designer does not have a commitment to the institution's budget, and, in fact, has incentives to exceed it. This disparity frequently results in cost overruns for external projects, as documented in the case studies presented earlier.

In summary, the use of internal graphic designers enables an institution to save time and expense in procurement of services, gain greater control over schedules and adjust priorities as needed, simplify the communication of job expectations, work with individuals who have long-term commitment to the organization, and be assured that all means possible will be used to help them achieve their communication objectives.

Conclusions

The information developed in this study shows that it is normally more efficient and cost-effective for an educational institution to provide graphic design services internally than to obtain those services from external vendors, provided that the institution needs enough design work to keep one or more graphic artists fully employed-that is, the institution needs at least 1,037 hours of billable design services per year. In 1998, the cost of graphic design services per billable hour (per hour of design work attributable to particular projects) when all costs were taken into account was found to be $38.48 when internal graphic designers were used. The median rate for external graphic designers of comparable skills was $75 per hour, nearly twice as much.

The advantages to the institution come not only from the substantial monetary savings but also from less readily quantifiable benefits--time saved in the procurement of services and the monitoring of the designer's wor! ! k, greater control over schedules and priorities, simplification of communication about projects, and employment of individuals who understand the goals of each project and have commitment to the project, the budget, the deadline, and the institution.