What’s the best way to price your creative services?

 

One of the most common questions creative entrepreneurs have is how to price their work. There are four main options to consider: hourly, fee-based, package pricing, and value pricing.

Is Hourly the Best Fit for You?

Hourly pricing is by far the most common way to price and sell your services. Aside from the additional questions of setting your rate and accurately estimating projects, there are some important liabilities to consider in this option. (You can use my rate calculator to help with the rate question, and read chapter eight in my book Blazing the Freelance Trail, recently released in audio, for tips on estimating properly.)

There are two main problems with hourly pricing. One is that you cap your revenue to your available billable hours (of which you have fewer than you may think). And the second is that the better you get at your craft, the less money you make. Not a great business incentive.

Nevertheless, especially when you’re just starting out, hourly billing is the most common and best way to feel your way forward. For more on these liabilities check out my video, Liabilities of the Creative Services Business Model.

Are You Ready for Fee-Based Billing?

Fee-based billing is a step up from hourly. It allows you to benefit from your skill and experience by keeping the difference between the total fee and, hopefully, the lower amount of time you need to deliver the project. Of course if you go over budget, then you end up doing worse than if you’d billed hourly—so most creative entrepreneurs need to warm up and gain confidence in their estimating and delivery skills.

Another benefit of fee-based pricing is that you can capture the value of your strategic experience and expertise. There is a huge difference between the value of your pure creative inspiration, and the follow-up effort needed to bring your vision to completion. You might come up with a brilliant concept of tremendous value in five minutes. And if that idea happens to be easy to implement, and if you billed hourly, you would get almost nothing for the most valuable part of what you do! But with fee-based pricing, you build in base level compensation for the essential strategic and creative vision you bring, as well as the time it takes to produce it.

What about Package Pricing?

Package pricing is not all that common for creative entrepreneurs, mostly because so many remain generalists. You offer so many different services to so many different kinds of clients that you can’t simplify your deliverable into a predictable and repeatable process. But if you specialize, you can consider package pricing.

I hired 1106 Designs, a specialist firm in book design and production, to help me produce my book. They were able to give me a set price for each aspect of the project. That kind of certainty is very reassuring for a client, and if you package well, you can retain that difference between the hours worked and value of the package. (I hope I didn’t blow up 1106 Design’s profit margin with my picky insistence on proper ligatures in my book!)

Is Value Pricing a Possibility For You?

The last of the four, and the most lucrative, is value pricing. In this model your fee is unrelated to the time it takes to do your work. Rather it is proportional to the value that you bring to your client. You need to really specialize, and become a highly regarded expert in your area of specialization, for this to be a feasible option for you.

And generally speaking, for truly creative entrepreneurs (designers, illustrators, photographers, etc.), I’m not sure its a realistic option. One reason some creative entrepreneurs might be inappropriately pursuing value pricing is that there is such overlap in advice given to digital marketing agencies and creative entrepreneurs. Let me try to distinguish these, so I can explain what I mean.

When I started my creative career it was pre-digital. We still sent out for photographic type and did pasteup with stats and rubber cement. Back then there was a sharper distinction between “creative agencies” and “marketing firms.” Creative shops sought One Show pencils. Marketing firms engaged in direct mail, and trade booth displays for industry conferences. One was more creative, the other more tactical. Of course they were not totally distinct, but the difference was clearer than it is today.

With the rise of digital, the blending of highly tactical, data-driven, analytical digital marketing also requires the involvement of visual resources. Design and marketing have a greater overlap today—the lines between them are blurrier.

Value pricing, in the tactical digital marketing space makes 100% sense. Its value can be 100% quantified. But measuring the bottom line impact of a logo design, or website layout, or an illustration, is much harder.

Historic Uses of Value Pricing for Creative Entrepreneurs

That said, some forms of creative service have been using value pricing for decades. Illustrators and Photographers often sell their work, not based on how long it took to produce it, but in how it would be used. If it was for a one-time use as an editorial illustration, for a local magazine, it might only be worth a few hundred dollars. But if a similar illustration required all rights, for all time, for a national brand, it could be worth tens, maybe even hundreds of thousands of dollars. Photographers also sometimes sell their work by usage rights. Value pricing has always been a part of their pricing model.

But designers don’t typically work that way. You don’t sell usage rights for a logo, or a web page layout. If the logo is for a larger brand, who will deploy it in a much broader set of circumstances, you can certainly charge a premium. But if you do a logo for a startup, and they end up being acquired by Google, you’re not going to get any more for that logo.

And so for the truly creative entrepreneur, in distinction from a discipline that involves tactical digital marketing, value pricing is a harder sell. Not impossible, but it’s a stretch.

Growing Into Your Pricing Model

And so of the four options, for most creative entrepreneurs, you’ll probably want to start with hourly. You need to learn how to master your time, regularly measuring and reviewing it as you gain more and more experience, and then look to hop over to fee-based pricing as soon as you have the confidence. Once there, you can continually increase your fees without pegging them to an hourly rate, opening up the opportunity to significantly increase the value of your creative services.

If you get really focused, you might include at least some packaged options to increase your margins even more. And when you feel like your services can justifiably demonstrate real bottom-line impact for your clients, it might be time to reach for the gold standard of value pricing.