I was presented with many opportunities to work for free; I turned down most of them and should have turned down more of them. Graphic design firms at any stage of their life-cycle are often asked to perform work for free. Many (including me, on many occasions) refer to this work as "pro bono." (This seems a bit precious to me. Pro bono, which a lot of people think is Latin for 'sucker,' properly refers to professional and especially legal work performed at no cost. Is graphic design a profession? Webster's defines a profession as "a calling requiring specialized knowledge and often long and intensive academic preparation".)
It usually does not make sense to work for free. Graphic designers went to school to study graphic design, not banking or philanthropy. There are a few times when it does make sense to work for free:
Personal Involvement
Many of us have a high level of personal involvement with a project. The classic example is designing a website for one's boyfriend. Other examples include organizations that you participate in and feel strongly about. Your rich uncle who's looking for a website for free does not fall into this category!
Passion
If you care -- passionately -- about a cause or organization, it might make sense to work for free. Be careful, though -- in my opinion, well-managed non-profits are also well-funded and can pay for work. There are many, many causes and organizations that need help; you can't save everyone. My studio had a discounted rate for non-profits, which was a nice compromise between making a contribution and making a living.
Business Reasons
If you have a clear and quantifiable business reason to do work for free, go for it. Years ago I served on the board of directors of the Somerville Chamber of Commerce and did their first website for free. (Their website now is way better than the first one I did; I did a good design but we didn't have much content). At the end of my first year of service I could point to at least three clients I had gotten as a result of my work with the Chamber.
When Should You Especially Not Work For Free?
You will often be asked to work "on spec," which is short for "speculative." InvestorWords.com defines "on spec" as "doing a job without any guarantee of being paid, in the hope of winning future business." If you are considering working on spec, I have a simple question for you -- do you really want future business from an organization who won't pay for the first job? Nuff said.
A variation of working "on spec" is the ever-popular "logo contest." It's cute when an elementary school puts on a logo contest. In all other situations: puh-leez.
Friends or relatives provide a particularly challenging opportunity to work for free. Many people do not understand the true costs of graphic design -- especially the number of hours involved. It takes ten hours to put up even the most basic website. If you do it for free, those ten hours are taken away from family, exercise, sleep, and so on. Would you ask your best friend to mow your lawn ten times this summer? (If yes, don't contact me -- I don't need you as a friend!)
The day I stopped doing so much work for free was the day I had my son. I realized that I could say, "I can't pay attention to you right now; Mommy has to work" . . . but wouldn't feel good about saying, "I can't pay attention to you right now; Mommy is a sucker."

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