One of the most challenging things about offering creative services to clients is pricing creative work. On one hand, we need to price profitably considering all the time and effort we spend on completing creative projects, and the peaks and valleys in demand for what we do. On the other hand, we want to price fairly and encourage repeat business.
Ad agencies and creative studios that have been around for a few years learn from experience and usually develop a system for generating cost estimates that is based on: 1) The time it takes to close job orders and 2) Their best guess of what clients are willing to pay. But for creatives who do not have the benefit of experience and are unsure about how to tackle the pricing challenge, here are 8 simple steps you might want to take to come-up with a defensible price:
1. Understand exactly what needs to be delivered - Before bidding on a project or sending in a proposal for your services, be sure to understand exactly what your client needs from you and how you are expected to deliver the work. If you’re being asked to deliver a poster design, for example, check to see your client’s expectation of the format for your file delivery, image resolution requirements, whether you need to provide color and print guides, and whether you should make paper stock recommendations or not. Ask questions so you can accurately determine the scope of the project: some clients do not have enough experience in managing creative work to know what they need at each phase of their project.
2. Identify the resources you need - Identify every resource you will need to accomplish each step: people, technology, space, etc., and how much each of these would cost on an hourly basis.
3. Map-out the process for delivering the work: your job order fulfillment process - List down the steps you need to go through to finish the job. Be as detailed as possible. As you go down your list, see if you need anything from your client to continue working on your task including checkpoint meetings and digital assets. If the project calls for images, footage clips and other assets, price these out separately. Avoid “bundling” costs and providing an all-in price. This could prevent you from being able to cover any unforeseen costs that you might need to incur down the road. If you wish to show some client love by giving discounts, itemize your costs and then give a discount after the total amount.
4. Come-up with your best estimate of the time it would take to go through each step of the “job order fulfillment process” - Estimate the completion time of each step of the process in terms of hours or 8-hour days. Only consider the time you actually expect to work in your estimates. Nothing gets done during lunch time so make sure you are not underestimating your time requirements by counting downtime in your turnaround times (TAT).
5. Match your TAT estimates with the resources you need - Multiply your TAT’s (in hours) by your resource costs (per hour) to come up with your total estimated project cost.
6. Determine a comfortable margin and impute this margin to your total cost. A margin of 20% is fair.
7. Add at least a 10% contingency to your price.
8. Add any Value-Added Tax or Sales Tax that apply to you.
Follow these steps and you will be able to come-up with both a project price and a per-hour price that makes sense. Adjust your pricing as you get a better handle of your processes, TAT’s and resource requirements. Also, benchmark your prices against industry averages every quarter.
One final note: pricing per hour is a safer way to price but many clients will request for a fixed fee. If you must provide a fixed fee, be sure to come-up with a safe TAT estimate and a plan to bill for “change orders”.
About the Author
Ia del Rosario is StraightArrow’s Managing Director and Head of Business Development. She is very passionate about growing StraightArrow into a creative process outsourcing company that is known and respected all over the world.
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