Introduction
When I started out in business, I helped a number of start-up businesses across many different industries for free, on a “just try and get my name out there basis”. During this time, THE MOST COMMON question I was asked was “What Price should I charge for my product or service?” which in some cases hadn’t even been created yet.
This question would usually arise about 15 minutes into the conversation, and I am sure each fresh-faced entrepreneur was sincerely expecting a specific figure from me, there and then.
The very quick answer to this question – especially if it’s a product – is that “I have no idea”. At least if I am expected to provide an answer on the spot.
The equally quick and slightly more helpful answer I typically do provide is “Whatever price will keep you in business in 6 months, provide proof of concept, a portfolio of work, and allow you to continue trading for another 6 months while you develop your value proposition, marketing tools, et cetera”.
I will cover the Pricing Quadrant shortly but, if you’re a Design Agency, Studio, or Freelancer, and you’re just starting out the far longer answer, but the one which will allow you to arrive at a suitable price is as follows:
First things first, let’s look at the minimum Price you should charge your Customers
If you’re just starting out, then the minimum amount you should price a project at is based on the time it should take to produce the body of work. I would stress that this first option will not make you rich.
Here’s an example.
I’m sure each project has various stages. For the benefit of your time, let’s keep the stages very simple:
- Concept / Brainstorming
- Vision / Planning
- Production / Execution
You next need to put a value of time required to complete each stage. This would typically be days or hours. So again, for super ease, let’s just assume days.
- Concept / Brainstorming = 1 day
- Vision / Planning = 1 day
- Production / Execution = 3 days
Once you have a value of time, you now need to understand what the Cost of that Time is. And this is where I come in …
Let’s assume just one person is required to carry out this Project; and they’re a middle-weight Designer. To ensure you capture not only all costs, but their productivity level too, I would seriously recommend you incorporate the following:
Productivity
| Days in Year |
365 |
||
| Less: | |||
| Weekends |
104 |
||
| Annual Leave |
|
20 |
|
| Bank Holidays |
|
8 |
|
|
Sick / Absences |
6 |
being 1 days absence every 2 months | |
| Training / Unproductive |
24 |
12 months times 2 days wasted per month | |
| Available Working Days in Year |
203 |
||
| Productive (Daily) |
80.0% |
||
| Productive Working Days in Year |
162.4 |
||
So, despite seemingly employing someone for 261 days per year (full-time) – being 365 less weekends – you can only realistically charge an employee out for 162.4 days, according to these assumptions.
Whatever percentages and assumptions you use (and you might expect a junior level designer to be less productive than a senior), it is imperative that you assume some level of unproductive, or re-work, or scope creep, because it’s a killer.
As my business mentor told me, you rarely lose your shirt for under-estimating an item. You will lose your shirt when you forget to include it and scope creep could be one such item.
Next up, their Cost
What to include …
- Annual Salary (obviously)
- Employers National Insurance @ c. 13% of salary
- Employers Pension @ 3% (or more if you pay more!?) of salary
I would then also recommend you include:
- Rent: not always easy to quantify, especially if you have a big / fluctuating team
- Travel (if required on project)
- Annual Professional Subscriptions for Employee
- Annual Training Course Budget for Employee
- Computer Equipment for Employee
- Anything else that I have missed
So even a salary of £25k would probably cost circa £35k for a year.
So now their day rate. Pretty obvious now.
Let’s just continue with that £35k salary divided by the 162.4 days available for productive (sellable work) would equal £215.50 per day, minimum.
And then … I would then add the profit you want to earn on the project, or generally. If we were to assume a 25% profit on this employee, then you really need to be charging this designer out at:
= £215.50 x 1.25
= £270 / day. Minimum.
So completing the Project above, it would look like:
- Concept / Brainstorming – 1 day = £270
- Vision / Planning – 1 day = £270
- Production / Execution – 3 days = £810
Project Price – Fixed Fee = £1,350
But is that everything? Potentially or maybe not depending on how aggressive you wanted to be on your price.
As a CEO or COO, you may wish to ensure your agency’s pricing is optimized to maximise profits, right?
Creating a profitable pricing model requires a few key steps. First, you need to understand current market trends to ensure you stay competitive with other agencies potentially pitching for the same project.
Branding Projects for example can be quoted in the hundred’s of thousands of pounds, if not millions, depending on the size of the client. I would not recommend pricing a Brand re-Design for Google for example, using my previous day rate model. You would be laughed out of California for having such a ridiculously low price.
The Pricing Quadrant
For more established or growing Design Agencies or Studios, I would strongly recommend you take a look at the Pricing Quadrant.
The following allows you to implement a Pricing (as well as a Branding) Strategy more so than pricing for an individual project. This is where “The Cost of everything and the Value of nothing” comes into play.
The Pricing Quadrant is a framework used to help position yourself in the market (relative to competitors) based on the interplay between price level and value delivered. It helps businesses understand how their pricing compares to competitors and whether it aligns with the perceived value of their offerings.
The Pricing Quadrant should allow you to assess your product or service’s value proposition to ensure it matches your pricing strategy (Positioning), compare your quadrant positioning with competitors to identify differentiation opportunities (Competitor Analysis), and finally align pricing strategies with your target audience’s expectations and willingness to pay (Customer Segmentation).
The Four Quadrants:
- Premium Pricing (High Price, High Value) – Products or services are priced higher than competitors but deliver superior quality, brand prestige, or unique features.
- Economy Pricing (Low Price, Low Value) – A no-frills, budget-friendly approach where the focus is on affordability with minimal extra features.
- Value Pricing (Low Price, High Value) – Offering high value at a competitive price, delivering more than what customers expect for the price.
- Overpricing or Underperforming (High Price, Low Value) – Products or services are priced higher than the value they deliver, often leading to customer dissatisfaction and poor sales.
A well-executed pricing project can bring a number of benefits to your business, including increased profits and improved customer satisfaction. When customers understand the true value of a service they are more likely to appreciate it and feel comfortable paying for it.
Additionally, when customers trust that they are being charged in line with expectations, there is less chance of them feeling cheated or dissatisfied with their experience overall.
Conclusion
The correct Project Price or Pricing Strategy will vary depending on where you are within your journey as a Creative Agency, the Value you bring, what your customers value, plus the size, industry and wealth of your customer.
If you’re able to consider every element of the above, you can create an informed pricing model that reflects true customer value while still allowing enough margin room so that everyone wins.
With a little effort and more creativity on your part, crafting an effective creative agency project price can be easier than ever before!
By Christopher Grubb. You can find out more about me here.
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I hope the above has helped.
The role of the Finance Director does not need to be a full-time overhead for someone to be committed and make a difference to your business. My aim is to simplify the financial performance, planning and strategic positioning for SaaS and Tech businesses who just want their world to be uncomplicated and thrive.
Please feel free to message me with any comments or questions. Or find me on LinkedIn here.
