Lesson 7: Pricing
What You’ll Learn: One of the hardest things to do in a creative field is to price your creativity to be competitive and support the lifestyle you’re trying to achieve. In this lesson, we’ll explore different pricing strategies that will allow you to make bank without getting taken to the bank.
The Art of Pricing
Perhaps no other product or service in the world has a more flexible pricing schedule than the creative industry. There are no real standards, no convenient pricing sheet to look at, even from one project to another.
Thinking like a business helps you even out this pricing disconnect. You come to understand that there are both tangible and intangible costs to doing business that your price has to cover. There are supplies, marketing, taxes, studio or workspace, utilities, travel, and so on that you have to factor in, along with the value of your own time.
As an independent creative, you may not think about these things a lot. But they all have to be factored into your pricing structure. You have overhead that has to be factored in. Otherwise, you aren’t making as much money as you think you are, and you’re not taking advantage of the many tax breaks you can get to reduce your tax exposure and keep more money in your bank account.
We’re not going to go into a lot of detail on this, but depending on the creative business you have, you can deduct all sorts of things, from Cable TV and the Internet to magazine subscriptions, trips, meals and even that Gibson guitar we mentioned earlier. If you wear a uniform or costume as part of your work, you can write that off too. I’ve even written off swords and black powder weapons in my years as a period re-enactor.
Return to Main Office
Introduction: Are You Ready?
1. Thinking Like a Business
2. Business Structures
3. Access to Capital
4. Creating Revenue Streams
6. Finding Customers
8. Creating a Winning Pitch
9. Effective Negotiation
10. Intellectual Property
11. Managing Your Money
12. Going Global
Option 1: Hourly Plus
Many creatives start out by estimating the time it will take to complete a particular project. They may even add in a few extra hours and then multiply it by an hourly rate they are comfortable charging. This is not the way to figure out your pricing. It’s no better than quoting as an hourly rate. Changes and additions by the client can eat up those extra hours of profit up quickly, and because you’re already locked into a “fixed price,” you’re doomed from the get-go.
Option 2: Monkey See, Monkey Do
Another mistake is that many creatives look at what others are charging and mirror their rate structure. The problem is that you don’t know what their costs cover. They may not have their rate set high enough to cover your overhead (expenses), or their work may not match the actual market price that clients expect to pay.
Option 3: Magic Numbers
You could, of course, just make it all up. You could just throw out some magic number that resonates with the client. No formula, no rules. It’s just a number that came into your head.
This is not as crazy as it seems. While you need to factor in your costs and time, so the number has some basis, there is no set formula or rules for pricing. It’s part science and part art, and as you grow comfortable with the process, it will become easier to sit at the table, look the client square in the eye and say a number without breaking a sweat.
As you consider your pricing, you want to make sure your overhead is covered, and then factor in some other criteria:
1. Do you like the client?
This may seem a bit ridiculous, but it is one of the most important considerations. A picky, exhausting client is not worth your time, no matter how much they want to pay you. As a creative, you are letting this person into your life. You are exposing your talent and skill to them and developing a collaborative relationship that will hopefully go on for years. If you want to do the project because of what it could lead to down the road, you can always craft a PITA bid. Yes, that stands for Pain in the A**. You add a premium to your normal bid – say 25% – to make it worth your while. If the client doesn’t balk, it makes it worth your time to work with them, even if they are a bit exhausting or downright dull. The actual PITA rate depends on how much they want to have their hand in your work. If they are the type to tweak everything, even 25% may be too low. You can flip this model with a client you really enjoy being with and working for. If the client immediately gets you and your vision, you may want to shave some bucks off the bid since working with them is such a joy, and with any luck, they may send other cool people your way who match your working style and aesthetic.
2. What is the client worth?
On the surface, this may seem a bit questionable, but it is one of the most important factors in determining pricing. Let’s say you have two projects. Both are almost identical in scope. The first client is an established firm in town, and they have a budget of $5,000. The second client is a startup that has a budget of $8,000. You can’t do both, so which do you choose? This is where you look at the value lifecycle of the client or customer. Are they a one-time sale, or will they become a long-term sales opportunity? The same question applies to whether you’re an artist, performer or programmer. Every client costs money to acquire. You need to market, advertise, network and pitch. As any business knows, it is far more profitable to sell again to an existing client than find a new one. While the extra $3,000 would be nice, will the startup be around a year or five years from now? The established firm checks that box, meaning you’ll be able to extract even more value from the relationship. Over time, a client with a lower budget could offer you more long-term profitability than a high-margin client who never returns or only uses you sporadically. You can always move your budget needle upward as the client comes to trust you as a business partner and becomes more comfortable working with you.
Insider Tip: Getting a client to disclose the budget they have in mind is a bit of an art, but it’s essential if you want to get your foot and the rest of you in the door.
One way is to ask a series of questions about other aspects of the project and, somewhere in the middle to end, say, “Oh, do you have a budget in mind? Even a range will help me make sure that we are committing sufficient resources on our end to exceed your expectations.”
If the client asks you for a budget, give them a range instead of a specific number. Say, “It could cost anywhere between $2,000 and $8,000, depending on the actual scope and how you want the end product to look. Do you have a more specific range in mind?”
Clients won’t always reveal their ideal budget or even have a realistic idea. But it sure helps if you can at least get in the ballpark before you try to hit a home run.
3. How much value am I providing to the client?
This is often referred to as value-based pricing, the idea that you set your price point against the value you are providing the client. This sounds mysterious on the surface, but basically, it means that the service or product you are providing will help your client or customer make even more money down the road. In essence, your talent, skill and expertise have a particular value because it is unique in the marketplace. As such, it can create value that not only covers your costs but creates additional opportunity and wealth for the client somewhere down the road. Say you’re a branding expert, and you’re working on positioning a customer’s new product as it is readied for launch. Your magic as an event planner and promoter will mean a packed house for your client and extensive media coverage. They pay you a premium because they will make it back in multiples on the backside with a successful launch and sales campaign. Focusing on this in your bid, that your services will help them achieve a goal – personal or professional – will allow you to anchor the price against that added value. The beauty of this strategy is it pays you a handsome return if you are efficient in putting things together since it’s not attached to a specific span of hours.
There are other ways to increase your bottom line. Some take a bit of finesse, while others can be explored as you build your relationship with a client who loves working with you.
Don’t be in such a rush. As you meet with clients, don’t be in a hurry to give them an answer. Take the time to listen to what they need and, more importantly, what they want. Every individual has desires. On the surface, you may think they want to find the right lead actor to play a part in the play they just wrote or someone to fix the code preventing a player from accessing the secret vault. But there may be something more profound. They may feel overworked, under-appreciated or even afraid of losing their job.
Take the time to figure out what they actually want and need. Your client may think they already know the problem you’re there to solve. But they can also be wrong. Remember, you’re the expert. If they had the answer already, the client wouldn’t have taken the call or meeting. You aren’t there to be an emergency responder. Slow everything down and figure out what the real problem is so you can offer a solution that is precisely what they need. If you manage to do that, you will get paid what you’re worth.
Add value to your client’s experience with service. The way you deliver your creativity can be monetized as well. Yes, you can be the creative who gets a project, slinks off into their creative cave and executes. The client only hears from you when you have a question you can’t answer yourself or when the product or service is ready.
But you can also build a premium level of service around a client’s experience. Think of wedding dress retailers. These dresses aren’t as expensive as they sell for. Many come from China and are purchased for a tenth of the rack price. But customers don’t mind. They come in, they get a glass of champagne, a salesperson attends to their every need, and you don’t mind a bit when you hand over your credit card, paying that huge markup on the dress.
That’s because you received a premium customer experience. It’s included in the cost of the dress. You can do the same with your business, no matter what creative endeavor you are in. Remember, people hire people. A client can find another provider of the service or product they are in need of, but they won’t be able to find another you. Add value at every turn, and you will build an authentic relationship with them that borders on friendship. They will never look elsewhere when this happens.
Establish a thoughtful intake process. This goes back to figuring out what your client’s actual pain point is. Before you can ever meet their needs, whether it’s an interior design project, a performance for an event or custom coding for an app, you need to understand what your client really wants.
- Start by asking them lots of questions, including ones that explore what they expect to receive at the end of the project.
- Think about that expected result. How will you know when you’re done, and how will the client know. This goes back to the project creep problem. It’s easy to get stuck in an endless cycle of revisions unless you set boundaries, such as ‘X’ number of review rounds. If the client has a history of making changes to changes, you may want to add phases in your scope of work that has finite beginnings and endings.
- You want to identify what the client genuinely values so you can price the work to match their expectations. For instance, your proposed cost may increase if your client wants to be in continual contact during the project. If they like face-to-face meetings instead of Zoom calls, your costs may increase, including gas and travel time. Finding out what your client values will help you more accurately formulate a bid that meets their needs and yours.
- Based on this intake, you can now figure out your price. You may want to experiment with a tiered pricing structure. This can include a bare-bones price without a lot of bells and whistles, a mid-tier with more customer contact and service and a top tier that offers things they never thought to ask, such as a warranty period or other value adds. Clients will usually go for the middle one, but offering the top tier may get you more work and bring in more money with little to no extra effort.
Charge what you are actually worth. This takes a lot of guts, particularly in the beginning. But you need to do it. Your creativity has value in the marketplace, often far beyond what you see it as having. There’s a tendency to believe everyone has the same talents you do, but that’s not the case. You are unique in the world and in the business world. The world is full of stories of creatives who spoke their true value into the world, and it caused their careers to soar after years of dismissing their abilities and living hand to mouth because they allowed others to take their power.
Experiment with your pitch, pricing, and packaging of services and products. Don’t rely on what others are charging; that is not how a business person thinks. Effective pricing is something any creative can learn. Yes, it’s hard to quote a specific price when your cupboards are bare and the bills are due. But taking on a job where you actually lose money isn’t the solution. Believing in your talent and your ability to deliver the goods for the quoted price is.