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Money is the sincerest form of respect in business

The strength of a relationship can be gauged by the value that the client receives from you and their willingness to compensate you for the creation of that value.

Think of the example where a reputable designer goes in to present a written quote to a prospective client and is challenged with, "but we can get this done for $5000 less!"

If the designer responds by reducing the project fee by $5000, what might go through the client's mind? Either the designer is a sucker, a con artist or worst of all, doesn't know what the project is really worth. None of these thoughts are particularly flattering in terms of the designer's professionalism or integrity.

If your prospective client really believes that what you are proposing to do is worth the fee you're quoting, then they should be happy to pay. If there is a problem, go back through your description of work and deliverables to make sure that the client is comparing apples with apples.

Pricing is determined by value, not by cost

Luxury goods are great examples of the price = value, not cost. Perfumes and cosmetics cost only a fraction of what they are sold for, yet millions of consumers are happy to pay much, much more. Why? Saying they are all suckers doesn't explain the sustained financial success of the companies that supply these goods.

Design is in many ways a 'luxury' good. You don't actually need design in order to do business per se, the way you need a product or service to sell. However, in businesses where competing products or services are physically very similar, design is critical in creating the intangible differences between products--the 'brand.' So, if your client has a strategy where distinguishing their product from everyone elses is of critical importance, the value created by an affective design would far outweight the cost of creating that design.

Even in something like a major corporate restructuring to improve service levels, design and visual communication are important in ensuring that the customer base understands what has happened and why. The new identity for Telstra had to do precisely this task by showing both externally and internally that Telecom Australia had been transformed into a new, competitive telecommunications provider.

The relationship between price and cost

The relationship between price and cost should be that price covers cost and leaves enough to make doing the project worth your time.

While price is determined by value rather than cost, it is still important to understand your costs on a project-by-project basis. If you don't, you can easily end up losing money by consistently pricing your work at less than it costs you to do it. The basic cost items you need to understand are: salaries, consumables, rent and equipment leases. In a normal studio, these items would make up the majority of inhouse costs. Since each project consumes a certain amount of time and consumables, you should be able to calculate the minimum hourly rate that will ensure your costs are covered. Make sure when estimating what your minimum hourly rate to allow for non-working time such as lunches, sick days, vacation time, training and weekends.

Pricing can be a positioning tool for professional service providers

An above average fee is a very common way of signalling to clients that you provide a higher-than-average level of service and/or design quality. Of course, you need to be able to back up that higher price with genuine delivered value, but sensible business people know that 'you get what you pay for.'

Why pay a premium to anyone for anything? Check your own lifestyle and you will find many examples of where you know you are potentially paying more than the cheapest available rate, but are happy to do that anyway. Think of your telephone service, dining-in services, etc. Usually the premium relates to 'added-value' such as: above average reliability, better understanding of your needs, extra personal attention, extraordinary flexibility and items that are not normally part of 'plain vanilla' service.

When I had a studio, we had one client who would always send us their 'drop-dead-deadline' work even though they had an inhouse art department twice our size. The reason was simple, we could always work overnight where they couldn't or wouldn't. Naturally, the fees for that sort of work were higher than regularly scheduled work, but the client's main concern was to get the work done so paying extra wasn't a problem.

Well, that's all for this week but I am happy to explore further the principles I have mentioned or other areas. What pricing issues would you like to me discuss further? (Email me, Andrew Lam-Po-Tang (andrew@lam-po-tangcom))

"Great overview of the issues Graphic Designers face in terms of pricing and placing real value on our work. As a teacher of Graphic Design, I am constantly asked 'how much' and it is such a difficult question to answer to a generation of 'ebay, want it now, want it cheap' people. I look forward to further insights."

"I think you also need to consider further non-chargable time, meetings, travel and admin. We have just increased our hourly rate from £25 per hour to £40, we havn't lost any clients as I have reasoned with every client beforehand - don't be shy about your costs, say it loud and proud. we quoted for a £10k job and were told we were 3 times more expensive than 2 other agencys. if you don't get the job, try phoning the client back when the project is half done and ask how things are going - it's very interesting - we find we usualy get the next job, they have more confidence in you and no questions about price. These articles are like going back to school - keep up the good work, you are making a real difference."

"excellent to see that there are great pro around, but making a huge quote at the moment, i am still in doubt after 12 years in the graphic industry. sometimes you have to adapt prices to the market. I am working from a really small town in QLD Australia, and it is hard to apply your prices to local business when you are used to work for big brands in major cities."

"We are having terrible trouble with pricing. Only two years old, Active started in tough times with small clients. We offered low prices, great service (24/7) and commitment to build relationships and demonstrate our worth. Now we are asking clients to pay us a reasonable amount which is still low in comparison to the industry(£25.00/hour -£40.00/hour) on the basis that we have shown good work. And it seems we have shot ourselves in the foot... bye bye clients... we were so cheap, they just don't respect us..."

"Hi. Just found your organization online and ran across this article. Am small studio in S. Florida who concentrates on higher-end design and struggle with this very topic, esp. in today's economy. Clearly it's an issue across the board and geographic regions, however has so heightened in S. Fla. whereby there is very little respect and value on graphic design. Bottom line is "how much". Can be very discouraging. Anyway, thanks for your article and enjoyed the read."

"Great read Andrew. Apart from designer's knowing what their services are worth, they need the confidence to make the client understand the value of their service.

Times are tough right now and I guess most designers are willing to reduce profit margins just to secure projects. This can also create future problems when trying to raise the cost of services.

Looking forward to future articles. Robert"

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andrew@lam-po-tangcom