Why Value Should Determine Price – Not Time
When buying design, consulting or other typically out-sourced services, how do you constitute value?
For the most part, clients and businesses tend to frame value as time. The project is a problem that needs solving, and how long it takes to solve that problem, dictates its value.
In this model, ‘big’ jobs take longer, and are more expensive. Whereas ‘small’ jobs don’t take a lot of time, and therefore should be cheaper.
So when I’m contacted by a new work prospect, it usually goes something like this:
“Hey! We saw your work on XXXXXXX, and we’d like you to work on our XXXXXXX…
… What’s your rate?”
The problem is, when a project framed around value=time, the focus naturally becomes on time, as opposed to solving the problem.
The client is anxiously watching the clock, as they don’t want to spend a lot of money.
The service provider is watching the clock, as they don’t want to over-service the project and lose money.
In addition to this, a time/value model penalises an effective service provider. Because they’re really good, the project doesn’t take long, and they make less money.
And yet it rewards a less effective service provider. Because they’re not very good, the project takes longer, but they make more money.
It doesn’t take a genius to work out this model is a little backward.
Time For A Change?
What should really matter in this equation, is the value of the problem to be solved.
There are no ‘big’ or ‘small’ jobs, there are only problems and solutions.
For those buying outsourced creative services – instead of asking for day rates, try this:
Ask yourself what the value of your project is. What will happen if you get this project right?
If you can, try to put a number on it. For example, let’s say a new sales catalogue you’re commissioning, will lead to annual increased revenue of 3%.
And now let’s say that 3% has a value of 100k. How much investment is that 100k worth?
In his book ‘Hourly Billing is Nuts, author and speaker Jonathan Stark tackles the subject of time-based billing, and reveals the inherent flaws of such a model:
“Billing by the hour is just as nonsensical as billing by the pixel, or by the line, or by the color. They are arbitrary units of measure that have nothing whatsoever to do with the outcome of the work.”
(Jonathan’s work in this area has been a fantastic source of inspiration, and I would highly recommend joining his mailing list)
For creatives or consultants selling services, when approached by a prospective client, your initial job is not to deliver a rate based on the deliverables.
Your job is to determine the value of those deliverables. The overriding value of your client’s project.
This will involve a lot of questions and thorough interrogation of the brief (pro tip: if the person you’re speaking to balks at such detailed questioning, walk away).
You’ll need to ask ‘why?’, ‘why now?’, ‘what do you ultimately want to achieve?’ and ‘how will you know if you’ve succeeded?’
Eventually you should get some sense of value, either in figures or in strategic terms. Your fee should then be a percentage of that value (also build in contingencies to this figure of course).
There are more detailed books on pricing metrics and strategies available, such as Pricing on Purpose by Ronald J. Baker
Free Your Mind
The real benefit of this pricing strategy, is it takes money off the table.
It means both client and service provider have firmly established value, and the stakes of the project.
It frees up both parties from ‘clock watching’, and allows everyone to focus on the problem that needs to be solved.
It allows the service provider to build a business, instead of exchanging time for money at some arbitrary rate.
It allows clients transparency and control, as there are no surprise costs or panics when projects go long.
And I think that’s worth a fair bit.
– Greg Bunbury