I’m about to make a bold statement. The quality of a design and the monetary cost of producing or procuring that design have absolutely no relationship whatsoever. It’s a bitter pill to swallow, I know. Many of you are crying foul at this very moment, but hear me out. I’ll explain my radical position – and hopefully give you a few pointers about how to more effectively price and position your design business in this brave new, and uncorrelated, world.
Quality-Price-Ratio (or QPR as it’s commonly referred to) is a concept that is used extensively in the wine trade. In it’s essence it’s nothing more than a measure of perceived value, of the enjoyment you receive weighed against the price you have to pay. Do you feel that the benefit your gained was worth the price you paid? If you don’t, then the product or service has a low QPR. On the other hand, if you feel like you got away with highway robbery then the product or service has a very high QPR. I’ll spare you the metaphysical comparisons between wine and design beyond this one important point: There is no correlation between price and quality when discussing wine or design.
Good design is subjective
While most good design shares many of the same basic characteristics, beyond a certain point the perceived value of all design is subjective. What appeals to me may not appeal to you; in fact, you could go so far as to say that you hate it. But, if you were being honest (and the work in question was in fact well done) you would have to admit that it was, at the very least, well put together.
Good design is cheap
Don’t misunderstand me. I’m not saying that good design should be cheap or that it always is cheap. I’m just saying that, these days, good design can be found very inexpensively. Think 99designs2, Graphic Leftovers3, and even some of the more reputable stock agencies. These services are extraordinarily popular because they bring good design to people on a budget. These services can also be extraordinarily difficult to compete against.
Good design has no correlation with price
From the client’s point of view, the QPR of design falls into four, and only four, categories.
Listed from lowest QPR to highest:
- Bad design that’s expensive. As a client, you do not want to be here – it’s a world of pain.
- Bad design that’s cheap. This type of design, I think we’ll all agree, has a fairly low QPR because, well, it still sucks even though you paid very little for it.
- Good design that’s expensive. This is a tough one. You’ve gotten a great product, but you’ve paid a hefty price. You normally just tell yourself that you did the right thing because everyone knows, “you get what you pay for”.
- Good design that’s cheap. This category has the highest QPR because you are getting a great product for a small price! Who doesn’t want to be here?
Your clients are clearly looking for that magic fourth category, while you’re trying to get them closer to the third. This is what makes selling design so difficult – you’re interests and the clients interests are clearly at odds.
Good design is about attitude
A little attitude and a little cockiness never hurt anyone. I would argue that those two qualities have actually helped more businesses than they’ve harmed. Why? Because being confident in your product or service is infectious. If you believe strongly in the value and the worth of what you’re selling, your clients are going see that – and respond in kind.
Good design is about branding
Brand is all about good will. Having high brand equity is nothing more than having a stockpile of good emotions and good response reactions from consumers. What does this have to do with good design? It doesn’t, other than the fact that consumer will give the benefit of the doubt to a design that has a strong brand behind it. They may not know what good design is, but if they respect your name – chances are they will respect your design.
Let’s face it, deciding how to price your creative services is hard. You are, in essence, trying to attach a discrete number to your creative acumen; which makes it seem very much like you are bragging if you charge a lot or like you have no backbone if you charge too little. But it is imperative that you get beyond these feelings. Design, and good design especially, is a very scarce resource and, as such, should be priced accordingly. But how to go about arriving at a number?
A note about premium services
I once heard about a wedding photographer (who charged average prices) that wanted to work less. So, she figured that if she just began raising her prices there would simply be less interest from clients. First she bumped up to $3,000 a weekend, then $4,000, then $5,000. To her astonishment, she actually began receiving more requests from clients. The clients figured that if she was charging such a high sum, she must be really good. Truth being told, she hadn’t gotten any better, she’d always been a good photographer – but the higher price led her potential clients to believe this and, in the end, they were never disappointed. Finally this photographer raised her prices to $20,000 per weekend, essentially pricing herself above what almost anyone could afford. Her potential clients then began offering to fly her to remote locations around the world just for the chance to have her shoot their exotic weddings.
I think you get my point. The old economic adage that higher price correlates to lower demand doesn’t always hold true, and this is especially true of luxury goods. Design is a premium service. A luxury good. It is certainly not necessary to run a business (just take a look at all the used car dealers of the world for confirmation), but results in a definite advantage to the businesses who value good design. Don’t be surprised to find that design and the pricing of design follows a slightly paradoxical pricing relationship.
This little story also illustrates how important market positioning is to luxury goods. You’d be a fool to try and compete on price with sites like 99designs, so don’t try. Compete on completeness, your creative vision and your customer service.
With our new assumptions and the idea that design is a luxury good, let’s take a look at a few tips to help you formulate a sensible price for your design services.
Don’t charge per hour
Design, or any other creative endeavor, should never be charged hourly. I know, it’s an industry standard method, but I whole-heartedly disagree with it – and here’s why.
Charging hourly works fantastically for things like stamping exhaust pipes or writing legal briefs – any type of job that is characterized by taking inputs and transforming those inputs using a specific process, it’s easy to see the direct correlation between hours and number of exhaust pipes or legal briefs.
On the other hand; with creative pursuits, and design in particular, there is often no time correlation what-so-ever. Sometimes you get that spark and a project takes 2 hours, sometimes you have to batter yourself for days before you feel that you have something remotely resembling a decent design. Should the client in the first instance have to pay nearly nothing for their design while the client in the second pays through the teeth?
Hourly rates are unfair to both the designer and the client. Well then, I can hear you asking, if not hourly, how are you supposed to figure out how to charge?
The cost of doing business
The first step in coming to a fair and reasonable valuation of your services is to take a look at your cost of doing business. Cost of business is simply everything that it takes for you to operate. The cost of your computer, the cost of all the software that you use, if you rent office space, the cost of your office space. Think of every single thing that you use on a daily basis to get your work done and write them all down. This is your cost of doing business (I find it easiest if it’s written in monthly terms), and you should revisit and revise this number at least once a year. To estimate a per project break even figure you can divide your monthly cost of doing business by your average number of projects completed in a month and you will have an average baseline project cost.
Your cost of doing business serves as a baseline to your pricing equation. This, by the way, doesn’t mean that the average baseline project cost is the lowest price you can ever charge for a project, but, it should, instead, serve as a guide post to help you maintain profitability.
The creativity coefficient
Let’s not mince words, creativity is hard work. It’s not rote production, transforming inputs using a standard process. Design, as with all creative pursuits, is all about creating something from nothing; and because of this, creative work demands it’s own pricing methods.
Price = Creativity Coefficient x Cost of doing business
The creativity coefficient is nothing more than a multiplier that you apply to your base cost of doing business. This coefficient (or multiplier) gives the designer a measure of control to help match the prices they charge with the difficulty and involvement of the projects they work on. The creativity coefficient should be based upon three things:
- Difficulty: If the project is difficult or very involved – charge more. This should be clear at this point. If you’re producing one tri-fold brochure your multiplier may be as low as 1.20, on the other hand if you are completely rebranding and redesigning a medium to large company’s image your creativity coefficient may go as high as 10 or 15.
- Brand strength: Simply put, if you have a strong brand behind you – charge more. At first glance this may seem unfair but, in reality, it is the simplest and most effective way to separate potential clients into the two groups that matter. The ones that just want to work with you because of your name – but are going to be a major headache (especially over price), and the ones that recognize the value that your brand brings and are willing to pay for that value.
- Individuality: If the client is coming to you because you specialize in a certain type of design or in a specific medium and there is no one else out there that can competently perform the work – charge more. Niche work is important and there is value in being different, especially in today’s hyper-homogenized world, clients that come looking for something different will be expecting to pay premium prices for something that they cannot get anywhere else.
The creativity coefficient gives designers a simple and effective way to try and wrangle concrete numbers around the value of creativity. And because you are starting with a baseline amount that reflects your actual cost of doing business you are ensuring that your business will stay profitable.
Finding a balance in the way that you price your designs isn’t just about economics and finding the highest number that you can get away with. These guidelines are just that, guidelines. Hopefully they have given you a new, and inspiring, light in which to view your services and the value of those services – but in the end, it comes down to feeling that you are providing a valuable service to your clients and that you are being fairly paid for those services.
- Burns Auto Parts6
Leslie Burns-Dell’Acqua is a consultant for professional photographers, but much of her work, and her two podcasts on pricing especially, can be generalized to all types of creative work.
- 12 Realities of Pricing Design Services7
Good list of points to remember.
- Harvard Business Review on Pricing8
Just in case you really want to throw down some money to read one of the most respected business schools in the world talk about pricing.
- 1 http://www.flickr.com/photos/kristinbradley/3430174833/
- 2 http://99designs.com
- 3 http://graphicleftovers.com/
- 4 http://www.flickr.com/photos/iloveblue/2415834085/
- 5 http://www.flickr.com/photos/bradipo/1435739708/
- 6 http://www.burnsautoparts.com/BAPsite/Index.html
- 7 http://vandelaydesign.com/blog/marketing/12-realities-of-pricing-web-design-services/
- 8 http://press.harvardbusiness.org/harvard-business-review-on-pricing