Lots of great comments. I think the "free design" world happens when the commodity work that rolls of printers and vinyl plotters gets confused with custom. Different types of projects need presented and sold differently. If you're selling channel letters just like you sell banners and stickers, well, good luck with that.
Even with commodity work, the design work isn't "free" even if it is offered that way. Factor in some standard design time. The only thing that can save you is solid business practices and communication.
Here is my approach: "Hello Mr/Ms. Client, here is the cost of a one color vinyl banner with text, here is the cost of a full color digital with 1/2 hour of custom design time, we can always add more time if you need it. Please make your choice". Good pictures of both drive home the message and save you from hell. Present the commodity with the value built in. People are afraid of a "never ending clock" when shown hourly rates. Show them budget and higher end options. If they want it cheaper let them leave.
Convenience and ease of pricing is the reason why outfits like national franchises that offer print services sometimes have "outrageous" pricing. They make it convenient to navigate and buy, and surprise surprise, it works.
With custom work the portfolio drives the sale. Fantastic hands on samples side by side with the garbage hacks do is night and day. It's all about the little things you do to score the job while protecting yourself from the "design contest" already mentioned.