Value Based Pricing
Now, I had a couple gifts in this presentation that we weren't unfortunately able to use, so I wanted to use the corniest, stock photography possible, so here we go. It's a dude holding a moneybag cause we're talking about money, right? It's good, yeah. So, why value based pricing? So there's a couple different ways you guys can be charging what you're worth, there's hourly, right? We're all familiar with hourly. You can do it project-based, you just have a set budget you use for very project. Or, you have value based pricing which is what I like to use and it's how the industry is kind of shifting, where how much you would charge a mom and pop down the street, doesn't have a very large audience yet, they just started, you wouldn't charge them as much for a logo design than you would if you were creating the new Nike logo, right? Or you're creating something for Starbucks, because they obviously are a bigger brand. The more people that see your work is the value, right? So how do we go...
ahead and start charging what we're worth? Why should we even do value based pricing in the first place? Well, we have to stop being afraid. We have to stop being afraid that we're not good enough. That we can't complete the project. We have to stop getting into our own heads and being our own pessimistic selves, right? We need to be able to lift ourselves up, not put ourselves down. Never take low ball projects because you need the money, that's the number one thing. Now some of you are gonna be a little sad at this statement, but you can't go into freelance full time, automatically. You need an audience. For me, I definitely think the 70%, 80% is a good rule of thumb. I was at my day job and I started to make 80% in my freelance side hustle that I was making in my day job. So I can feel confident to quit. Cause the worst thing you do is just quit your job, get excited, and then, the clients aren't coming and knocking like you thought. And you're having to compromise your values because you're just taking on any client that will contact you. So what does that mean? If you're not ready for full-time freelance, I'm sorry you're gonna have to get a job. You're gonna have to work at Starbucks. You're gonna have to work at the mall, or you can be a graphic designer and have a full-time job doing that. You just have to make it work because remember, your passion is your greatest strength, if you lose it, if it gets bruised, you can just stop completely. And that's what happens to a lot of people, they'll go ahead, and be like, oh I'm just gonna go for it. That's what I did in my failed businesses. I was like, I'm gonna go for it, these other people are doing it, so can I! I wasted money and I failed miserably, and I got into debt which is the worst thing you can do for yourself cause you literally pay for your mistakes for years, right? I wanna be able to show you guys the right way to do things. Now, I know that can be disheartening that you can't just jump for it right away, but we have to be realistic. We have to pay our bills, we don't want to go homeless with this. What's gonna ruin your passion more than having to live on the streets in order to draw for a living? The starving artist isn't a cute look, okay? I know dreads work on some people, but, you look great with dreads, not me not so much, no, no, no. Another thing, is why do I think hourly rates are kind of B.S.? It's because, why would you be making less by working faster? I'm experienced, I've been doing this for years and the beginning of my career it took me forever to make something! So it made sense to charge hourly. But as you get better, you work faster. Like I said I got an iPad Pro, Apple pencil, I'm working things digitally, I'm working faster. Shouldn't that make me more valuable than less valuable? Right? From charging hourly? And keep in mind, clients don't pay for hours. They pay you to solve a problem. They don't care how long, or how short it takes as long as it's within reason of what they wanna do for their goal for that project, but they just want it done. Whatever's the best way to get it done is what they want. The last thing, is you want to start attracting high-paying clients cause you can actually underbid yourself. If a client's looking out to you, a professional client that works with really good top illustrators, and you give them a budget of 500 dollars, he's not gonna work with you, you're scum. You're not charging enough, everything I've worked with, 1000 dollars, 2000 dollars. You obviously aren't a professional, that's how they're gonna see you, right? But if you're going value based, you're speaking on their level, right? You're talking on the value that they're getting from your design, right? You've proven your strategy, you show your process, you have your case studies, all these things prove your worth, right? And now you have to figure out how to charge for it. Is this all making sense? Alright, let's get to the real nooks and cranny. Alright, what's the formula? Right? That's the big question. How do I start charging? How do I even figure this out in the first place? Alright. Well, you add your expenses. What are your expenses? Well, your apps, your software, all these ads you've been listing, those are your expenses. Things like rent and utilities, if you have a dedicated office in your home, you know that's a tax write-off right? What you do is you take the amount of square footage in your office, and then find a percentage of how much that room takes up, and then you know how to divide your utilities and your rent for your business. And that needs to go under expenses. A lot of people don't think to use their rent as an expense, but if you're using an office space, whether you have a dedicated room or you're in your dining room, that space in your office, and that's an expense, okay? It'll say advertising and marketing, so if you do decide to hit that promote button on Twitter or Instagram, well obviously you're promoting your business, you're spending money to make money, you need to have that as an expense. Now, for me, because I'm focusing on education this year, I'm only taking on one client a month if any. So, when I'm charging for my expenses, all my expenses that client has to cover, right? Because I want to be making a profit, I don't wanna go in the negatives. But if it's something like, I'm taking on four clients a month, two clients a month, same thing. Then you would divide it in half. Now yes sometimes you can't always predict how many clients you're going to have but at least here you can feel a little bit more comfortable that your expenses can be covered by your clients. Okay, so now let's talk about, per hour hourly rate, right? We're still doing hourly rate, guys, okay. So this is what skill sets are they gonna be using? Because not everything you create, is created equal. Would you charge the same amount of money for digitalization that took you years to hone and improve? Versus emailing and meetings? So for me, for admin, I actually only charge about 25 dollars an hour. For like meetings, emails, that kind of thing, me adding them into my calendar. Cause it's less hours, so it's not worth that much, right? But, my experience in production's higher, so when we're talking about that thumbnail process, those sketches, that digitalization, that's the big bucks. Then I'm gonna start charging 75 dollars an hour, 100 an hour. Now let's go back and talk about business strategy and art direction. Right? That's a service, so I only charge about 50 dollars an hour for art direction and business strategy. See how it's starting to come together? Now, remember we're paying more for revisions, so if you do include one or two or three rounds of revisions in your project, charge for it. So I charge $150 for my revisions. So we have our expenses, and then we add our time per scale. So you wanna keep in mind of how much you feel comfortable charging per hour, right? Based on your experience and the industry standard. Right? AIGA has a great resources of what people are making that are doing your exact niches in your area. So if you don't have any idea what to charge, that's excellent resource that's also in the kit. Now, let's talk about value. How do you even figure out what this thing means? Well, it all comes down to visibility. Now, depending on how comfortable you are, I like to multiply by a percentage. So we have our expenses, we have our time per hour, well we'll add it up together. Now, let's go back to that mom and pop coffee shop, for them they don't really have a big presence, I'm not gonna charge them anything for value because they don't have an audience yet. But, if I'm creating the new packaging for Starbucks, that's a huge client, so I'm gonna actually multiply that value by 50%. So that means, expenses plus time multiplied by the value I'm offering to them. Now I normally don't go any higher than 50, just personally or else it gets kinda like crazy. But something, like they've been in business for maybe a few years, maybe it's 10%, or if they're a medium-sized business and they've been in business for 10 years, maybe it's 25%. Now, this is pretty much arbitrary but it really can help you figure out what quote works for you. And again, we're trying to follow our gut here. These things, expenses, this is pretty literal, right? Our time, that's something we're basing on industry standards, so we have a point of reference. But visibility, that's really up to you and it will take a little bit of research to figure out what those things are. So how do we figure out the visibility of a client? Well, we figure out how many years they've been in business. What platform tells us that? LinkedIn, right? It tells you, hey, business started in 2012. Boom, now you know how many years in business. How many employees do you have? Could be another one, that also tells you in LinkedIn, a little light stalking never hurt anybody remember? What's their social following? Do they even have followers? You can just look up their Twitter, their Facebook, their Instagram, see what their following looks like. If you're only seeing 200, 500 followers then maybe you can't charge a lot cause they don't have a lot of visibility. But if you're starting to see 100,000, a million, then you know you can charge the big bucks. And the last thing you can do is website traffic. That's the one that you can't stalk your way into. You have to ask. Now instead of being like, hey, what kind of website traffic do you get, you can ask other questions like, what's your best-selling channel? They're always gonna say my website, first of all. Oh, it's my website. Oh really, how is that going? Are you seeing really good results from that? Yeah, actually we're getting about this-- What about your traffic? You kinda snuck it in there, right? What about your traffic? Like are you blogging, how are you getting people around? Well we actually get about 15,000 people a month. Oh, cool thanks for telling me, ha-ha-ha. Right? See how I kinda snuck it in there. Especially during that questionnaire process, when I had it in that meeting, you snuck it in cause you're trying to learn more about the business. That helps you help them, so why wouldn't I answer that question? So you take all that information, and you assign a percentage. So whatever you feel comfortable with. Anywhere from 10-50% multiplied, does that make sense? Alright, let's use an example. So, this is my logo design pricing. We're gonna go into rush fees right after it. So we have our monthly expenses, I spent about 700 dollars a month on my business. So apps and software comes up to $200, you're including in Creative Cloud in there too, rent and utilities comes up to $350, and I normally spend about $150, usually $50 per platform. I have three platforms, makes sense. Okay, and that comes out to 700 dollars. Now since I'm only working with one client a month, that client has to pay all of it, okay? And then I have time for skill. So at 25 dollars for admin, $50 for strategy, $75 for drawing, $100 for digitalization, because if someone wants me to vector something, that's actually something I don't really enjoy doing, I actually hire freelancers to do that for me. Freelancers cost money so I have to charge more for that skill so I can afford my freelancers, right? Now, revisions I charge $150, cause we're always charging more for revisions, remember cause of rush? And I go ahead and I multiply the amount of hours I think this will take. Now when you're first getting started, it's really hard to just guess how many hours it'll take you to do something. I think you should always give yourself an hour buffer, no matter what, if not two hours when you're first starting out. Because it's fine if you go under, but if you go over then you get to have that uncomfortable conversation with your client like, I went off of scope. It's just like, you don't want them to go out of scope so why would you, right? And I always have a hard and fast rule where, when I reach 80% of my time allotted for a project, I reach out to the client, hey, just a head's up, I've spent about this many hours of how many we have allotted for this project, we have 20% more of time, just giving you a heads up so we don't go over. Cause something, it could be like, some projects legitimately just take more time. Even if you've done that kind of project your whole life. Unforeseen circumstances happen, right? And if you go ahead and you communicate that to your client beforehand, they're less likely to freak out if you need more time. Cause remember, they're not paying you for hours, they're paying for solution, okay? Now, let's talk about visibility. So, for this logo design, they've only been in business for about three years, so I know they have a proof of concept, right? They have an audience, they haven't gone to business yet, that's great. Their social following is about 15k, nothing to scoff at, that's pretty decent, right? And their website traffic, I asked them, they get about 5000 a month. So from there, I can feel confident charging them an extra 20% because of the amount of eyes that will be seeing my work. A logo design has a lot of value. Cause especially, you're hiring me to solve your problem. You don't have to go through this whole process again, to rebrand again in five years, because you know I'm not gonna be, again, designing based on personal preference. I'm not gonna be designing based on that lobster font that was all the rage three years ago. I'm not basing it off of trends, I know, exactly, everyone's like ahh, lobster! It's the worst font ever. But, I'm creating from scratch so I'm going ahead and I'm alleviating risk, right? So I add that up, and then I have rush fees. Okay, so rush fees is the last little cherry on top. Does this need to be rushed? Pretty easy, right? Depending on how long you typically take to do something, if they want it a few days earlier, multiply by 10%. A week earlier, 25%. If you want, seriously like a one week turnaround, and I know it's gonna take two weeks to make your project, girl, you payin' 50%. Cause that's gonna affect my social life, that's gonna affect my loving relationship with my boyfriend cause I'm ignoring him. Right? He's not gonna like that. My dogs are gonna pee themselves, I gotta clean up their pee, right? Cause I'm so busy and I have other clients. Love you client that's trying to contact me but hey, I need to make a living, right? And other people came before you, and I have to be respectful to that. So if you want me to push those people out of the way and ask for a deadline, an extension on that deadline, I need to be paid properly for that time.