In a previous article, I described the three main ways that creative services price their services: time and materials, fee-based, and value pricing. I spent most of the article dealing with the first two since the overwhelming majority of creative services sell by time or fee — not that this is the best approach, but it is the most common.
What is Value Pricing?
In this article I want to circle back to value pricing, but with a different angle than is typically considered. In a nutshell, value pricing is setting your fee, or your ultimate compensation, to the value it will produce for the client, not on how much time it takes you to create. A photographer can create an image with the click of a shutter. But the value of the image captured is worth way more than the time it takes to snap a pic. As I mentioned in the previous article, photographers and illustrators have had a form of value pricing built into their models for a long time, in the form of selling usage rights, which scale up and down depending on whether their image is used in a local poetry journal, or a world-wide ad campaign.
These days however, value pricing has been suggested for other creative practices such as branding firms, graphic designers, and digital marketers. Value pricing, in this context, has the potential of providing the highest profit margin, assuming your work will deliver measurable results. When you explicitly tie your compensation to performance, all the risk behind costs moves away from the client, and on to you. And the higher the risk you take, the higher the reward you deserve to receive.
Neo-value pricing has most often been adopted by digital marketing firms—since it’s pretty easy to measure the results of a transactional digital marketing campaign. But when other creatives, such as branding firms and graphic designers adopt value pricing, more often than not, it’s used as an anchoring tactic to make their middle-tier, fee-based pricing option seem more attractive.
Value pricing in most cases is a strategy to get more money out of a sales opportunity. And there’s certainly nothing wrong with that. At the very least it helps to push back against the opposite trend of devaluing creative services through the downward pressures of clients going RFP shopping, and putting their account up for review to make incumbent agencies sharpen their pencils.
Pandemic-Driven Realistic Value Pricing
In the face of the massive financial crisis following the COVID-19 pandemic, maybe we should reconsider value pricing, not just as a sales tactic, but as a truly de-risked option for many of our clients who are going to be struggling for a long time to keep their businesses alive.
There are a few benefits, both for our clients and for us, in thinking concretely and realistically about value pricing.
Value Pricing to Your Client’s Rescue
Unless your client happens to manufacture toilet paper, they’re probably battening down the hatches as they try to weather this storm. This certainly includes tightening their marketing budgets.
But what if you offered your client a way forward with marketing and production despite the slowdown? And what if you could eliminate the risk of their cash going out the window if the campaign goes up in pandemic smoke? What if your clients knew that they would only be paying your invoice if — and only if — the results of hiring you pay off? If they only pay when cash comes in, then they’d have no need to tighten their marketing, would they?
So if you can offer value pricing, and accept the risks of failure, your clients will be well served, and extremely grateful to you. If you do fail, and end up working for peanuts, at least you will have built considerable good will.
Before You Write This Off…
Before you answer “no” because you don’t want to own that much risk, let’s run a thought experiment about what it might mean for us to say “yes.”
If you knew that you would only get paid to the extent that the photo you took, or the logo you designed, or the web page you built, contributed to bottom line revenue for your client, how might that impact your approach? If you knew that your pay was going to be in direct proportion to revenue generated, what would you do differently?
Or, perhaps a more realistic thing to contemplate: what kinds of services could you possibly offer that would measurably contribute to your client’s revenue? If they gave you a green light to move forward on a value-priced project, what would you need to make that happen?
I think the majority of creative entrepreneurs are not prepared to run a value-priced project. But just thinking about this approach can help us to stretch our imaginations. Maybe we’ll be forced to think outside the box for new ways we can truly help our clients, while enabling us to survive what’s shaping up to be a long desert season for the creative industry.
Are you ready to take the struggle out of finding new clients?