The Art of Business: Getting Pricing Right
On the face of it, a customer quote is nothing more than a series of cold, hard numbers. Yet no element of running a business is so laden with superstitious and specious calculations and considerations.
If pricing continues to perplex you, you’re not alone. In a recent survey by TrendWatch Graphic Arts, 47 percent of all design and production firms cited “pricing” as a significant business challenge — a historically high level for this business challenge.
Setting a price is even more slippery in a soft market, when the supply of creative talent outstrips the supply of projects. You want the job, but you don’t want to lose your shirt either.
Here are a few suggestions for arriving at the right quote.
1. Break it down. It may be elementary to say that a quote is nothing more than the sum of all the small tasks and costs of a project. Yet many designers work backwards — starting with one ballpark figure drawn from thin air, then breaking it all down so it seems like they’ve really done the math. This creative math works when there’s little competition or when you have so many requests for proposals (RFPs) coming your way you don’t care if one or two slips by.
In competitive markets, you can be sure the competition will be pricing their quotes quite low. It’s to your benefit, then, to put together numbers, real numbers, that truly reflect your costs. This way you can feel confident that you are proposing the lowest possible fee while assuring yourself that you won’t be taking a bath on the project.
Your numbers should also reflect the market realities. Check with colleagues, trade associations, and industry publications for pricing studies to find out how much the market will bear. If you haven’t already, pick up a copy of The Graphic Arts Guild Handbook: Pricing & Ethical Guideline. The handbook provides detailed hourly rates and pricing structures based on national surveys of graphic arts professionals.
2. Be fair to yourself and your client. It’s tempting to respond to proposals with prices so low that you’re guaranteed the job. But is it worth it? It’s certainly no good for your self-esteem, and worse, it makes it very difficult to increase your price later on; once you work for peanuts, your client will continue to expect you to work for peanuts.
If necessary, reduce your profit margin to reflect the times, but do yourself a favor and never work for less than you’re worth. This is particularly true if you promote yourself as a high-quality provider. Setting lower-than-normal prices may make clients suspicious of your claims of top-of-the-line results.
3. Help your client save money. One of the best ways to ensure that your quote comes in low is to work with your client to cut project costs before you give them a quote. So when the client asks, “Can you do it for less?” You can confidently answer, “Sure, let’s sit down and I’ll be happy to show you how we can reduce the cost of the project.”
You know the drill; use paper A instead of paper B and save $500. Use royalty-free photos and save another $1,000. Subcontract to a Flash developer and save 40 percent.
Costs can always be lowered, and you can shine as a creative consultant by showing your clients how. In fact, you’ll actually enhance your prestige by sharing your intimate inside knowledge of the industry. Consider it a free added value that you’re offering to the client.
4. Learn how to say “no.” There’s nothing harder for a small businessperson to say than no. But many clients will take advantage of a soft market to bludgeon vendors of all types, including creatives, asking them to slash costs, and slash them some more. Don’t let it happen to you. Should you succumb, your client will lose respect for you and your professionalism, and you will be committing yourself to a job that may keep you from taking a higher-paying gig tomorrow.
There is one exception to be considered sparingly: make it terribly clear that you’re willing to reduce your fee — but just this time and this time only. Hopefully, you’ll never have to walk away from a counter offer because it’s too low, but there’s a certain piece of mind in knowing that you can.
5. Create payment incentives. For clients, sometimes the issue isn’t money, but cash flow. If that’s the case, consider offering delayed payment or some sort of installment plan (provided you’re not in a severe cash-flow crunch yourself). Obviously, this can be a very risky strategy, and it’s certainly not advisable if you harbor even the faintest doubt that your client will pay when the time comes. Save this strategy for the very end of negotiations, when all other objections have been satisfied. Money later is almost as good as money today, almost.
6. Be timely. Pricing isn’t all a numbers game. It’s also about personality and timeliness. When asked for a proposal, respond speedily. Get your proposal in ASAP and sell it from the get-go. If you succeed in getting in first, and most importantly, satisfying all your client’s needs and objections, all other proposals will be judged against yours.
Bottom Line
If you want to create a profitable and sustainable business, take much of the ‘art’ out of pricing and make it a science. Not only will the transformation help you attract and retain clients, it will enhance your peace of mind, as well.
