March 23, 2018

Pricing Creativity: A Guide to Profit Beyond the Billable Hour

Blair Enns, author of The Win Without Pitching Manifesto, has released a new title, Pricing Creativity. Blair was happy for me to share an excerpt.

Pricing Creativity, Rule #2: Offer Options

One of the biggest pricing mistakes that creative professionals make is to put a proposal in front of the client that contains only one option. In such a take-it-or-leave-it proposition there are only two outcomes, 50% of which are positive and 50% of which are negative.

If you resolve from hereon to always put three options in your proposals, you will increase the percentage of positive outcomes by half. That increase in odds, however, is not the main reason you should adhere to this rule of always offering options. There is something far more powerful going on here.

Presenting options changes the question you are asking the client from, “Does this proposal represent good value?” to a better question, “Which of these proposals is the best value?” The brain is wired to answer the second question. In fact, it is incapable of answering the first question without first asking the second. Allow me to demonstrate.

Look at the photo of the stick below and try to determine the length of the actual stick (not the photo). How long is it?

Wooden stick

I’ve put this image in front of hundreds of people and asked them to guess its length. I get responses from 2 inches to over 8 feet, but most people get the point of the exercise and answer, “It’s impossible to tell.” It’s impossible to discern the length of the stick because there is no context.

This exercise reveals a hidden-in-plain-sight truth: Human beings cannot subjectively perceive absolute values. You can only know the length of anything objectively by measuring it against something for which you do know the length, like a ruler or a running shoe or Saturn. To know its value you must make a comparison; there is no other way to know it.

This truth is so universal that it applies to all values, including weight, size, luminescence (brightness), temperature, and more. By removing the comparisons I can leave you uncertain about something’s value. By controlling the comparisons I can make you think light is heavy, black is white, and expensive is cheap.

Pricing Creativity, Blair Enns

Pricing Creativity is available to buy from Win Without Pitching. Blair’s spent a career coaching hundreds of creative firms on how they can improve their finances. He’s finally put that coaching into a book. And it’s great. Even if you’ve been setting your prices for a decade, there are different ways of doing things, and Blair covers a lot of ground here.

You can listen to Blair talk about the writing process and the book content on the 2Bob podcast with David C. Baker. His earlier book, The Win Without Pitching Manifesto, was featured previously. Also worth a read.

November 29, 2016

Swim the other way

Don’t Get a Job... Make a Job, by Gem Barton, is a book that’ll help recent design graduates find work.

Read more

December 27, 2013

We could really do with £50k

Written by John Scarrott of the Design Business Association in London.

50 pound notePhoto by worldoflard

I was chatting to one of our 'experts’ at the DBA Design Effectiveness Awards when he recounted the following story to me. I’ll tell it from the expert’s perspective.

"One of my clients, a small design agency of five people, was asked to quote on a piece of work. They’d not worked for this client before. They took the time to carefully cost the project, based on their normal charge-out rates, and the time and level of commitment required. The price came to £100k.

"At this point the agency experienced what I would describe as a ‘slight degree of nervousness.’ It seemed like a big number to them; a lot of money. It was. In fact as a project it would be one of the biggest they had undertaken. But, they took a deep breath and sent the proposal off.

"The client came back the next day with the following news: "We’ve only got £50k in the budget." The agency rang me. Their first reaction was, "There's £50k we could have." Mine was a little different — we couldn't accept a £100k project for £50K. They were initially hesitant to accept my advice to turn away £50k. I reminded them that we had carefully worked out a financial plan for the business based on sound principles and we should stick to it.

"They contacted the client via email, thanked them but said that they couldn't do the work for the budget, concluding that it would be lovely if they could stay in touch. No counter-offer. The end.

"Actually not, as it turned out. Things did go quiet for a couple of days. But then the client picked up the phone and said they’d found some budget for the project and could pay £95k if that was acceptable to the agency. Which, of course it was."

Listening to this story, it struck me that that the agency’s relationship with the expert was key, and they'd built a positive and trusted relationship together. So I asked our expert what the key issues and turning points were. What gave the agency the confidence to know what they were doing was right?

1. The size of the number, it felt big!

A perfectly valid thought. But not a fact. The important point was that there were sound business principles behind the calculation of the price. It had been worked out. It was a genuine figure. There was no smoke and mirrors, no figure added on as fat (see 5.). They knew they'd done their numbers properly and this gave them a mindset of certainty and confidence in what they'd suggested.

2. They have a financial plan that underpins the business.

Sitting beneath the studio is a financial plan. This involves delivering income to cover overheads and make a profit. They know they need to bill at £X per hour to be profitable at the end of the year. If they have that plan and someone says "I won’t pay that" and they take what they offer, they’ll never achieve their plan. The more times they do this the further away they get from achieving their plan. They may actually lose money. I've heard tales of serial acceptors of these offers, eventually folding as businesses. This happened to one of the best creatives, a household name with books on shelves. No one wants to go the same way.

3. Imagine the atmosphere in the studio if they'd taken this job for £50k!

How are they going to feel? How will the team feel? That they're working "£100k hard" for a £50k reward. They can't pull their effort back to £50k because the client's expecting a £100k job. So they’d be stuck working their backsides off on a job that takes them further away from where they want to be. The effect on team moral is going to be bad, and they want to enjoy what they do, not suffer for it.

4. They're consistent.

They have a plan and they keep to it. They could add on some fat to the bill to negotiate but they choose not to. This instills a sense of self-worth that is important to them as an agency. It allows them to stay in rapport with their clients by being clear about where they stand.

5. They don't add margin only to cut it later.

What if they add some money on top, say 20% and then let that slide in the negotiation? How does the client know that they're supposed to stop there? If they give 20% what's to stop the client chipping further?

6. They're confident in their ability.

They know their ability and they stand by it. They know that what the client is paying for is better than they could get elsewhere. They've created a niche of expertise for themselves. This is another foundation stone for their confidence.

7. They understood the myth of "We'll just do this one."

It's always a tempting thought. Could £50k now be better than nothing? What about up-selling the client in the future? These things get questioned, but what stops them is the knowledge of what could happen. A better opportunity could come through which they can't accept because they're doing the £50k job. They know getting the client to pay more next time will be an uphill battle that in all likelihood they won't win.

Of course if you try this the next time you're asked to cut the price you might send the email and never hear from the client again.

It might be the best thing that never happened to you.

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John Scarrott is membership director of the Design Business Association. Catch him on Twitter.

July 10, 2013

Picasso and pricing your work

Designers often ask me whether they should charge by the hour or by the project. This tale is the best answer I can find in favour of the latter.

Picasso Brigitte BardotPicasso and Brigitte Bardot, Getty Images

Legend has it that Pablo Picasso was sketching in the park when a bold woman approached him.

"It's you — Picasso, the great artist! Oh, you must sketch my portrait! I insist."

So Picasso agreed to sketch her. After studying her for a moment, he used a single pencil stroke to create her portrait. He handed the women his work of art.

"It's perfect!" she gushed. "You managed to capture my essence with one stroke, in one moment. Thank you! How much do I owe you?"

"Five thousand dollars," the artist replied.

"But, what?" the woman sputtered. "How could you want so much money for this picture? It only took you a second to draw it!"

To which Picasso responded, "Madame, it took me my entire life."

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Quoted from How to charge, one of the archived posts on 1099 — "the magazine for independent professionals." The post was written by Ellen Rohr, author of How Much Should I Charge?

More resources for pricing design.

June 19, 2013

Design pricing for non-profits

Kim Hatton asked, "Do the same design pricing principles apply between non-profits and for-profit businesses?"

When it comes to pricing for non-profits there are a few things I think about:

  1. A percentage off my normal rate
  2. Pro bono, cutting my rate entirely "for the public good"
  3. A service trade, where the client can offer a product or service that's useful (although this is actually better suited to for-profit clients)
  4. Full rate (we might call them non-profits, but they're still businesses with design budgets, needing to turn a profit to grow)

Most of my clients are for-profit businesses, but when the third sector gets in touch, sometimes I'll choose one option, sometimes another. It depends on my workload and how strongly I feel about the cause. When a client needs a reduced rate that I can't offer, I'll always be happy to give feedback on ideas for no charge — a kind of free non-profit consultation.

If you work pro bono or offer a discount, send a full-price invoice as normal but show the saving, whether it's 100%, 10%, or whatever. It's a little reminder about the value of the project.

It'd be good to know how you work with non-profits.

Thanks for the question, Kim.

December 13, 2012

On trading design services

When Ivan Chermayeff and Tom Geismar started their design practice in the late 1950s, one of the first things they did whenever possible was to trade design for some minor services they needed. Ivan cites the following example.

Money kite

“When the time came to have an attorney to help with a simple contract agreement, we traded the legal fee for a letterhead design. We did such trades from time to time with landlords and other suppliers to whom we owed something — anyone who could use a little graphic design and didn’t have anything of any quality in place.”

Ivan isn’t the only professional who has traded design for something else of value. Vancouver-based Nancy Wu recounts an occasion when she traded her design skills with a man who specialized in custom woodwork and home renovations.

“He asked if I ever traded services, as he needed some design work done and wondered if I needed anything done around the house. In fact, I did. I live in an old house with splintered wood in one spot, so I traded for minor work redoing the floors in my son’s room, fixing some bathroom tile cracks, and creating a removable cover for one of the vents to keep the house warm during the winter months. In return, I designed a postcard, banner, and business card for an upcoming trade show. Our form of trade was less about monetary figures and more about value for value. He had one of his experienced men come in to put in new high quality laminate, taking advantage of the kind of discount rates they could obtain with their suppliers. Likewise, I had my own printing contacts and signage suppliers to help keep things affordable and on schedule to meet his deadline.

“In the end, it was a win-win situation and we ended up both being quite happy with the results. The key is that we kept it professional at the start, getting everything outlined in detail so that each of us knew what was needed and what the expected outcomes were.”

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Excerpted from the "Pricing your work" chapter of Work for Money, Design for Love. Get the full chapter when you join the mailing list.

Chapter contributors include Alina Wheeler, Ivan Chermayeff, Nancy Wu, Ted Leonhardt, Andrea Austoni, Karishma Kasabia, and Mike Reed.

Other chapters have been excerpted on the AIGA website.

November 28, 2012

When selling design is like selling furniture

"They'd rather buy a few things that are good and are going to endure, than lots of stuff which isn't."

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September 10, 2012

Ask about the budget

"Not everyone knows what their budget is. And that's ok. It just means we'll discuss a few options. Some below your price range, some above. It'll take a little longer.

"But if you know what your budget is; let us know. It'll save us all from having to look at everything on the [car] lot."

You should read Mike Monteiro’s full post, titled Why I need to know your budget.

Dodge St Regis hood ornamentPhoto credit: Dodge St Regis hood ornament.

Some clients will say they don't know, perhaps because they're unsure if the figure they have in mind is suitable. For times like these here's a tip from Carlos Segura, founder of Chicago-based Segura Inc.

"When clients tell you they don't have a number, say, 'Oh, ok. So a $100,000 solution would work for you?' They'll quickly come back... 'Oh no, probably something more around $30K.' Bingo: That's the budget."

The sooner we talk to prospective clients about money, the less time wasted for both parties.

August 9, 2012

“Nobody bought the cheapest option.”

People were offered 2 kinds of beer: premium beer for $2.50 and bargain beer for $1.80. Around 80% chose the more expensive beer.

Now a third beer was introduced, a super bargain beer for $1.60 in addition to the previous two. Now 80% bought the $1.80 beer and the rest $2.50 beer. Nobody bought the cheapest option.

Three beer bottlesBeer bottle photo by jovike

Third time around, they removed the $1.60 beer and replaced with a super premium $3.40 beer. Most people chose the $2.50 beer, a small number $1.80 beer and around 10% opted for the most expensive $3.40 beer. Some people will always buy the most expensive option, no matter the price.

You can influence people’s choice by offering different options. Old school sales people also say that offering different price point options will make people choose between your plans, instead of choosing whether to buy your product or not.

How to test it: Try offering 3 packages, and if there is something you really want to sell, make it the middle option.

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Excerpted from pricing experiments you might not know, but can learn from.

The story is referenced in William Poundstone's 2011 book Priceless: the myth of fair value (and how to take advantage of it). Via the 11 ways that consumers are hopeless at math, on The Atlantic.

August 17, 2009

The design pricing formula

Newer designers often ask me what they should charge their clients. As much as I want to, I can't give specifics, as I try to explain with this pricing formula.

design pricing formula

Expertise: No-one knows better than you how much talent you have, how much time you’ve devoted to learning, or how much you need to earn to makes ends meet.

Specification: All design projects have their differences. Even logo projects. You should always price according to the client.

Time: Clients will expect to pay more if you’re working to a particularly tight deadline — if you’re designing for an imminent event, for example, and there’s no scope to change the date.

Demand: I don’t pitch, but some designers do. If you spend a lot of time pitching for projects you never win, your quotes will need to reflect the fact that much of your work goes unpaid.

Economy: If a client’s local currency takes a hit, and it’s a project you particularly want to work on, lowering your rate might be the answer.

Location: There was a rare instance when an overseas client was reluctant to hire me because we couldn’t meet face-to-face. Now, that doesn’t affect what I charge, but it might affect what a client is willing to pay.

I’ll leave you with some advice from Pip Jamieson via Creative Review.

“If you’re a studio and trying to work out what to charge clients for projects then a good (but very basic) rule of thumb is to allocate a third of the project cost to time spent on the project (i.e., salary allocation), a third to fixed costs (i.e., studio rent, amenities, legal, accounting, etc.) and a third to profit. For example, if the cost of your team that’s allocated to the project is £5,000 then you should charge roughly £15,000 (£5,000 to cover the cost of the team + £5,000 to cover fixed costs + £5,000 as your profit).”

And a few pricing resources:

November 16, 2008

How 20 designers charge their clients #3

The final part of the series — how 20 designers charge their clients, and a few relevant resources.

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David Airey
Brand identity design

Independent since 2005
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