The problem with value-add pricing

Value-add pricing is the conversation of 2022 – it’s a hot topic between designers.
Most of the talk focuses on how to transition a client base from an hourly-rate pricing model to value-add pricing model and that’s a problem.
It’s a problem because not all clients are value-add-able, and that’s OK.

It’s a problem to assume you can transition every client to a value-add pricing structure because some clients need one design solution and then application of the solution, repeatedly. It’s not they don’t value design, it’s just that they only need one design solution and then roll-out.

Like a tram timetable – one design solution x 365 days of artwork.
Like a weekly EDM – one design solution x 52 weeks of artwork.
Like a monthly stakeholder newsletter – one design solution x 12 months of artwork.

All are fee-for-service tasks most likely costed at an hourly rate. An hourly rate based on a highly-competitive market-value. The profit from these price-based projects will come from productivity, using technology to work smarter. And the value is in the reliability and predictability – both gold to a business owner.

Design thrives on the unpredictable but small business owners need to reduce risk and deliver predictable results. Maintaining a base rate of around 30% of transactional projects like these makes cashflow projections more accurate, and operating expenses more predictable.

That’s valuable because predictability is a solid base to grow a sustainable, entrepreneurial creative business.

It’s from that base you target other clients who value design. Clients open to a higher fee base because design can deliver a measurable outcome to their business.

Clients open to value-add pricing understand and value design.
They sit at level 3 and above on our design ladder.
They are open-minded, and that means they’re open to being quoted a budget range.
They are not bottom-line focussed, they’re outcome focussed.
They have a different risk profile to others.
They’re entrepreneurial.

November’s Lunchtime Learning is about how to identify design-value clients appropriate for your studio and your skill base. We’re explaining – step-by-step – the process of defining, identifying then approaching clients who value design, using a ‘typical’ studio as a case study.

Hope you can join us.
Register here.

And if you can’t, no problem, register and you’ll get access to a recording of the session on-demand for the next 30 days. Plus access to a closed Slack Q+A forum to clarify anything left unanswered.

Takeaway

The problem with value-add pricing is it’s not a blanket-approach for all clients.

But that’s a positive too. It’s the mix of clients that builds a strong, sustainable design practice.
Transactional client keep the door open. Value-add clients are usually the most profitable.
Both give you the cashflow to take on passion and pro/lo-bono projects.

It’s the mix that adds energy, excitement and longevity to a design practice.


Want to continue the discussion? Email Carol.

Carol Mackay


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These articles talk more about finding the right mix of clients and projects:

  1. Finding the right mix of clients
  2. Shifting design from tactical to strategic
  3. Talking about retainer fees

About Carol

After 30+ years running a design studio, I accumulated a pretty special network of fellow designers. One thing most have in common: a dislike for the ‘business’ side of design. Most are impatient with any task competing for time spent doing what they love – designing.

Not me. I love that intersection between design and business. I built a career working with Ombudsman schemes, the Emergency Services sector and the Courts. My special power has always been an ability to use design to translate the difficult to understand or the unpalatable message.

I now use exactly the same skills with creative business owners. I translate the indigestible into bite-sized chunks of information. I share insights, introduce tools and embed processes to help others build confidence business decision-making skills. More confidence makes it easier to grasp opportunities. More confidence makes it easier to recognise a good client from the bad.

Outside DBC I have mentored with Womentor, AGDA and most recently with The Aunties.
And I’m a proud board member of Never Not Creative. Ask me about internships 😉

Always happy to chat, I can be contacted here.

 

For a short while, an archive of my design work at mbdesign.com.au.
My current work can be viewed at designbusinesscouncil.com and designbusinessschool.com.au.

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