I recently had three separate discussions over chargeable fees; a client, a prospective client and a colleague. We discovered that the industry we operate in hasn’t quite evolved in the manner of tracking progress in creative projects. Intended progress shouldn’t be measured by day rate or manhours. Why? Because you can’t measure the value of innovation or creativity in hourly units.
Did you know that billable hours were first popularised by the American Bar Association to boost its member’s salaries?
It thus begs the question: Why are so many 21st century creative folks and strategists still measuring creativity, innovation and work delivery after lawyers in America from the 1950s?
Billing projects by the hour saps morale. It’s bad for the agency, because it either forces habits like time-stuffing and doesn’t necessarily reflect the value they add. Just as bad, it makes teams rush when they need time and space to develop ideas.
It’s bad for the client too. Instead of thinking about outcomes, we focus on output. How many hours did that take? Could we rush the next sprint? Can we hasten the turnaround time? Why haven’t we made more progress?
Old habits die hard
Many moons ago, billing by time made perfect sense. It helped businesses earn more and receive bonuses for extra time spent on client work.
This pricing model doesn’t fit anymore. There are four big reasons for this:
As technology speeds up, we spend less time on processes. However, this shouldn’t mean the value of our service goes down.
And subsequent to the above, it doesn’t mean that an agency has a lower cost and / or charge lower because less time on process doesn’t equate to less contact hours. The need to connect with the client for clarity of brief, delivery of direction, creative expressions and messaging remains paramount.
People work at different speeds depending on skill and the complexity of messaging the creatives. More experienced people shouldn’t be punished for working faster or urged to take longer.
Most importantly, the value of our work should be based on the value of outcome delivered.
Avoid the race to the bottom
Some 9 years ago, Ron Johnson while helming JC Penney made one of the single largest strategic retail marketing mistakes in the history of retail in America. “Pricing is actually pretty simple. Customers will not pay literally a penny more than the true value of the product,” said Ron Johnson at that time.
If everyone competes on price, seemingly ‘cheap’ service providers can offer a more attractive prospect. Imagine an individual staying with his mom or operating out of a wifi-enabled café compared to a full-suite company that must pay lease and utilities? This is a false economy.
You wouldn’t want to measure the value of your brand’s core proposition in something as basic as hours. The original Swoosh cost USD 35 and brought enormous long-term value for Nike.
Thinking in a linear ‘X amount of time should produce Y result’ is unhelpful. That’s why we also shouldn’t measure in days.
For example, we should look at asset value rather than output in the revenue management industry. If investors aren’t focusing on output but ROI, then the rest of us should follow suit.
Fixed fees – pros and cons
The natural alternative to charging by day rate is the ‘fixed fee’ model. You may choose a series or menu of fixed project fees and your client selects the best fit.
But is this really better than charging by day rate? Arguably no. Fixed fee pricing doesn’t allow for flexibility. Delivery is true to brief. Every project is completely unique, with varying requirements, deadlines, scope and interdependent entities based on a set of deliverables.
Delivery quality, deployment of media exposure, buzz and subject matter experiences should also count towards creative value. Value-based pricing has the advantage of illustrating how each client values their own brand’s existence, as well as their appreciation and acceptance to understand the basis of cost in delivering quality creative work.
We need a new way of measuring value
We need to get away from focusing on outputs and to focus on outcomes.
Value-based pricing creates the freedom to finish projects ahead of schedule.
As technology speeds up processes, value-based pricing doesn’t and shouldn’t penalise working more efficiently.
Clients can pick a scope of work that is clearly defined, allowing them to choose a plan that fits the size of their business.
Meanwhile, the client is always certain of the complete value they will receive, which is a basis for healthier ongoing conversations and happier clients.
I personally believe the financial push-pull dynamic of determining cost ahead of valued outcomes and time tracking sours otherwise harmonious relationships.
At COMMUNICATE, while we understand and appreciate that some companies are bound by budget constraints and processes of checks, we are more than happy to customise a value proposition that works in order for your brand to maximise its value and connection with your target audience. We’d love to meet new people and develop interesting creative projects together. If you’d like to have a chat about how to bring your projects to life, we’d love to hear about it.