In service-based businesses such as the creative services industry, I'm in, the go-to way of pricing our services is time. We work out how 'qualified' we are and then attach an hourly rate to it. I don't know when this started or why but I believe it came from a way of trying to justify the price of an end product by how much effort we put into it. It probably came from the fact that as a service business our largest outgoing is employees, and these employees are typically paid by the hour as they exchange their time for an income. When we need to work out how much a project costs it’s a matter of adding overheads and expenses to the wage bill and figuring out how much more per hour the company wants to earn.
Challenging the ‘by the hour’ pricing system.
The issue with this hourly rate system is that this whole pricing matrix is focussed on the creative agency’s internally focussed pricing system and not the customer. The customer has come to the agency to solve a problem. It’s a quantum leap then to price how to solve their problem and work out the benefits that provide the customer using a pricing system that has nothing to do with solving a problem and everything to do with output.
If it’s discovered that the business requiring that eight-page brochure actually needs a much easier to create website landing page in order to solve their problem then is it smart business for the agency to guide the customer towards this much cheaper option, even though it will give them the answer to the problem they face?
Thinking strategically reduces the need for charging for ‘rush jobs’.
There are times when some businesses need things to happen quickly which, in this case, can really mess with an hourly charging system. If they want a fast, effective result then they're most likely to go to a more experienced creative person, because with experience comes to speed of delivery. But as the adage goes: Speed; Quality; Price. Pick two. Meaning that with speed either quality or price has to be sacrificed, and in a business where reputation is everything it’s the price that has to give. The question is, how do you increase your price when you charge by the hour to accommodate a tight deadline? It’s certainly not going to take you any more hours to complete the project and so you either charge a higher hourly rate or add a ‘rush fee’.
But if the business has worked closely with their brand company in the past and worked towards a larger picture solution, then by the proactive nature of this approach, future requirements are accounted for and can be planned well in advance of when they're needed. If an unforeseen requirement does come up then because the brand company and business owner already know what the business message is they'll be able to put a solution together far more effectively and quickly and know if the job really is required at all. How do you ensure that you already have a strategic system in place? It's less likely to be in place if you work with an agency that has an hourly charge out, a pricing system that is focussed on how long it takes to produce 'stuff', not on value created.
Creating a customer-focused matrix
By charging a customer the value of what something provides a business and not the time it costs, all of a sudden the brand company is forced to ensure the project does provide the business with value. If the brand company delves into what the problem that needs to be solved by the eight-page brochure in order to work out it's pricing and through that process sees that the brochure isn't what the business needs then they're going to have to act in the customers best interest and have that discussion. In short, charging by value the brand company is forced to make their pricing and business customer-centric.