Imagine how great your creative business would be if you could go back in time and adjust all your pricing so that every hour you’ve ever spent on every project was fully paid. Imagine having the superpower of perfectly forecasting exactly how much time every project would take.
Unfortunately for most creatives, we are not project prophets. Rather, pricing is our Kryptonite, our Achilles heel. And when we underestimate what a project will take, we usually end up eating much, if not all, of the costs.
Building Your Estimating Skills
Getting your pricing right is a major key to success for creative entrepreneurs. But it’s so difficult to accurately price our work! Building this crucial skill is imperative, and there is a path to getting your pricing right.
The Ultimate Pricing Goal
Before I address the barriers we face and suggest some solutions, it’s important to put forward a pricing goal—one that can move you beyond the billable hour. Once you begin to master your pricing, you’ll want to move quickly toward project pricing. A quoted fee, while feeling riskier than hourly billing, creates the possibility of increasing your profit margins even beyond the measure of perfect hourly capture. Of course, if you miss an estimate you could make even less. But let’s be honest. When your clients pay by the hour they demand upfront estimates. And they hold you to them as if they were quoted fees anyway. So hourly billing is a lose-lose scenario. If you go under your estimate, you make less money. If you go over your estimate, you aren’t compensated for your work. And if you hit it perfectly, you cap your profit margins.
Whether you bill by the hour or move on to project fees, estimating correctly is still key to maximizing your profitability. And so gaining this skill is immensely valuable. With so much at stake in getting our pricing right, why are so many creative entrepreneurs so bad at it?
Barriers to Accurately Pricing Creativity
There are many barriers to pricing creativity. The first is raw optimism. As we begin to think through a project, trying to formulate how much time it will take, we tend to underestimate. We rely heavily on our memory of past projects, and that memory is often faulty. We gloss over many aspects of running a creative project. We might recall the heads-down time we spent in creating the work, but we forget about all the meetings, conversations, emails, setbacks, and revisions from the client.
In addition to faulty memories, there’s also wishful thinking, fear of missing out, and lust for creative opportunities. We justify low-ball estimates by thinking we can produce our work faster than we did before. We may also tell ourselves, when we have empty pipelines, that we need the work and that a low-paying job is better than no work at all. And more often than not, our appetites for creative opportunities simply outweigh our desires for profitability.
So how do we overcome these barriers, and learn to scope projects accurately and price them accordingly?
Establish a Data Source
First of all, we need a source of cold hard data to balance out our wishful thinking. This is why it’s so important to accurately record all of the time you spend on projects, using sufficient granularity to see all the details of what goes into your work. Set up a timekeeping system like getharvest.com and use it religiously. Break your projects up into a few helpful sub-categories such as communications, meetings, concepting, and producing.
Data will help, but unless that data contains examples similar to projects you need to estimate today, it won’t be very helpful. This is another benefit to PinPoint Positioning. When you focus your creative services on one main type of work, for similar clients with similar problems, your data and experience will greatly improve your ability to predict costs. When you operate as a generalist you rarely do the same thing twice, and even more rarely for the same kind of client. And so you repeat the education process from scratch every time—including project scoping education. It’s a downward spiral.
Additional Benefits of Repeating Similar Projects
Not only does repeating similar projects increase your estimation skills, but it also educates you about industry-specific risks and options. You might know, for example, that corporate headshots can be delivered either as formal sittings or as personalized portraits. You can make either look great, but the personalized portrait takes much more time, and therefore comes at a premium. Just the fact that you can describe the difference to a prospect, and explain the difference in results and in price, deepens your prospect’s perception of you as an expert. Which elevates your overall value—justifying your premium prices. You’ll gain many such insights when you discover patterns in the details of what you do. But if you constantly do new things, you’ll have to absorb those education costs every time.
Repeating projects builds detailed knowledge, expertise, insights, and it transforms you into a pricing superhero. Couple that with increases in your efficiency and you’ll be able to charge more all the while capturing greater profit margins
Pricing can either be an anchor that drags us under, or wings that lift you to the heights of success. Why not make 2021 the year when you apply yourself to getting your pricing right?