The significance of pricing correctly cannot be overstated. You can work harder, smarter, change your processes or whatever else – but if you’re not charging correctly, it’s not going to change the prospects of your business.
One idea that has been ever-present in my experience of speaking with marketers is the idea that charging for ‘time’ isn’t always optimal as it’s not equal to the value one may glean from creative moments.
So, how can you charge for creativity based on value, not time? That’s what Giles Edward explored this week, and here are the takeaways…
In creative projects, there are two kinds of work.
First, there is the ‘factory’ work (Giles acknowledged the crudeness of this statement!). This is the day-to-day work: Giles gave the example of something like resizing an ad for a client. It might be general admin or operational work. Here, a ‘cost-plus’ (more on that later) model will probably suffice.
But then there is the ‘magic’ work. Creative, knowledge work that is ideas and value creation. Here, the value of the work has no correlation to the output. In these cases, point number two comes into play…
Mindset: Stop charging for the time it takes to do the magic trick, and start charging for the magic
Time is no measure of creativity.
“What gets measured is what gets managed, unfortunately, this also means what gets mismeasured also gets mismanaged. The misalignment between how agencies create value and how we make money is now so great that we are in danger of being incentivised into irrelevance.” – Unknown!
Different types of pricing
Many creatives, agencies and freelancers use ‘cost plus’ pricing based on the inputs. Here, you take what it costs you to produce a thing and then add on a margin.
There is also ‘outputs’ based pricing – i.e. having some defined work to produce and pricing based on that project.
Finally, there is ‘outcome-based’ pricing – i.e. market effects: how effective your creative is in terms of generating an impact. Giles gave the example of a piece of work that took 20 minutes to produce but generated £1,000,000+ for the client. It would be ridiculous to have charged £30 to the client for the time spent on the project in the knowledge that this was the possible outcome.
Giles proposed the thought that where possible, we should be doing our best to elevate our conversations for ‘magic’ work to the third kind of pricing.
Three rules to follow when pricing
- First, price the client, not the job. This doesn’t need to be as scary as it sounds. We see this every day in our day-to-day lives with dynamic changes to prices and different tiered pricing for different-sized companies. Travel companies will ask you to pay closer to the day of flying. Uber will charge you more if your battery is lower. We’re used to being charged differently based on more variables than time alone. Investigating charging more to companies who will see a larger outcome based on your work is okay.
- Second, always give options – anchor and nudge. Behavioural science plays to our favour here. But on a basic level, if you only provide one opportunity for how people can work with you – you have a binary yes or no answer. However, if you provide three options, you have three roads that lead to a ‘yes’ and only one that leads to a no. A few options also allow for anchoring to take place: i.e. giving context for what your pricing means. There is a high, medium and low option – asking the question ‘what looks the best for you?’.
- Third, talk about money and scope value! Giles and I were speaking earlier this week and one thing we identified was a lack of confidence in speaking about money – particularly in the UK it’s culturally engrained into us! The magic of value-based pricing really lies in scoping your creative project. You have to understand the client and how much value you are going to bring their business if you’re going to be able to price on that basis.
- Giles recommended within this conversation, you should be mindful of the language you use to hold this conversation. Head to 34.21 in the video to hear more about this!