Have you ever had a client balk at an invoice for a bit of design work that they know did not take a long time to produce? What is the actual value of design?
I recently had a conversation with a friend about hourly vs. “by the project” billing, and how we’ve had clients balk at the idea that something is worth more than the immediate time put into it. Because of this, I tend to use “by the project” billing methods since I am very efficient and quick at what I do. Like other professionals in various industries, web and graphic designers understand that things have value beyond the time spent to actually produce them.
A common example in design: When a bit of work is based on another existing piece, how much lower should the bill be? In most cases, the design piece produced will be worth just as much as the parent version. Just because it is based off of something pre-existing doesn’t lessen it’s communicating power, it’s ability to get the message out, it’s beauty and effectiveness.
I was making this point about design’s “inherent value” when I was reminded of a story I heard from Abdul, a local Indianapolis talk show radio host and lawyer, it went something like this, and I paraphrase:
A client walks into my office and asks me a legal question. I turn around, and from my massive book shelf pull out a book and flip through it. Finding what I’m looking for, I turn around, read the answer to the client, and charge him $800.
The client is upset, and says: “How can you charge me $800 when all you did is turn around and look up the answer?” To which Abdul replied: “I spent thousands upon thousands of dollars and years upon years in education so that I would know where to look, and so that I could unserstand what I was reading when I found it.”
My friend reminded me of the old picasso story about the drawing on the napkin. So I went online and dug it up. It goes something like this:
The story goes that Picasso was sitting in a Paris café when an admirer approached and asked if he would do a quick sketch on a paper napkin. Picasso politely agreed, swiftly executed the work, and handed back the napkin — but not before asking for a rather significant amount of money.
The admirer was shocked: “How can you ask for so much? It took you a minute to draw this!” “No”, Picasso replied, “It took me 40 years”.
Another version I found puts it another way:
A machine in a factory has malfunctioned, and the engineers on site can’t find the source of the problem.
So they call on a retired worker who had spent a long time working with the machine. He comes in, walks up to the machine, looks at it for a minute, pulls out a piece of chalk and draws a circle around the screw that needs to be tightened.
He then writes them a bill for $5,000.
“$5,000, that’s ridiculous, all you did was draw a circle around a screw!”
So he writes them a new bill:
- drawing a circle around a screw: $1.
- knowing where to draw it: $4999.
Technorati Tags: billing_methods, design, design_cost, design_prices, picasso, project_billing, value_of_design
April 7th, 2007 at 10:33 am
I agree that the inherent value to the client needs to factor into pricing. But that’s only one thing that needs to be considered before setting a price on something.
Also key is what you spend to create the product/service. The anecdotes all cite instances where something was created in a short amount of time. But would Abdul still only charge $800 for the same answer if it took him 8 hours to find it?
Then there’s also the big question of the what the market will bear. If something’s inherently worth $1K to your client, but it can be found elsewhere for $100, then you’re in trouble. Whether it’s of the same quality is in a lot of ways irrelevant — if the client perceives it so, and you can’t make a clear case otherwise, then you’re stuck.
Picasso can get away with what he charged because you couldn’t get “a Picasso” anywhere else — his brand was what drove the value. And the engineer could charge that much because all the other employees couldn’t figure out the problem. So in each case there was no market equivalent. If what you’re producing is more of a commodity (design, development), then you’re going to have a hard time finding & keeping clients if you don’t a) show why you’re a Picasso and/or b) charge close to market rates.
I’d love to hear what Abdul’s client did next. I’m not willing to risk a client being that upset or get into a situation where every question is preceded by “how much will that cost?”
Again, I agree with looking at inherent value when figuring out pricing, but there’s a lot more to think about :)
April 9th, 2007 at 9:26 am
Right, There are many factors when working with a client in any business- and none of this works when a designer strays outside what the market will support. As I mentioned in another post, There’s some quality strata that help define the cost. It’s pretty safe for someone like myself with sufficient experience to hit the range of 40%-60% of the big firms - since I do the same level of work without the burdensome politics and overhead costs.
I gotta say, I don’t sweat the freelance cost strata. What I offer for $1000 can *never* be had for $100. If the client doesn’t need the difference in quality, then I’m not “in trouble” at all- one thing I have learned is to stay true to the value of the work. If another designer wants to undercut me to get a project, then I’m fine with that - Ten years of experience tells me that there’s some serious holes in the low bid, and they’ll get what they pay for. This is why I believe the freelance stratosphere is accurate. It’s basic capitalism. The market adjusts the costs.
It’s not good business practice to “nickel and dime” anyone, so I tend to lump things together when possible. This is one of the reasons why I try not to ever set up projects to charge by the hour. If I must, I usually cap it and eat the difference if necessary. Clients want to know how much they are going to spend - this helps them budget and plan. When going hourly, there’s always the nagging fear of runaway billing. I know that when purchasing a service, I want to know how much it is up front. Do unto others…
April 9th, 2007 at 12:35 pm
All very interesting points.
BTW, the “in trouble” was a general statement … not saying that your business specifically is in trouble :)
I don’t sweat the freelance cost strata at all either. I know there are people who charge 1/3 of what I do, but I’m confident that what I deliver is > 3x what they can deliver in the same amount of time.
However, I still say that we’re both victim of the perceived value problem. The quality (and cost) of a Herman Miller far surpasses that of the Home Depot special, but it took me a long line of broken Home Depot chairs to realize that. And actually, I had to use a Herman Miller (that I didn’t pay for) for a few years, then go back to the Home Depot chair for me to *really* realize it.
I think in the same way, a lot of inexperienced would-be clients look at our prices and think, “people are crazy for using them … I can find someone for 1/3rd of that on eLance and they’ll still get the job done”. I’ve been victim to that thinking as well, having paid for crappy logo and business cards through online services. But it really takes someone going through the failures of using cheap, inexperienced labor to realize that it’s not worth it.
As you know, most of my projects are billed at an hourly rate rather than fixed bid. However, I think there a quite a number of differences between what we do that lends it to make sense for me to do it that way, and for you not to.
April 10th, 2007 at 8:27 am
The Home Depot/Herman Miller Chair analogy is an excellent one.
I guess we exist on the fact that there are enough people waking up to the realities of “you get what you pay for” to keep us in business.