Concepts based on Pricing Creativity: A Guide to Profit Beyond the Billable Hour by Blair Enns
The Failures of Starting with the Product
In many creative firms, they start by creating their main product - let’s use video production for example. They start with the statement that they produce this product: video. They will understand the cost of that video, and based on that will price the video. Once the pricing formula has been created, the creative firm will then find a client to sell that video. This leads us into the concept of “cost-based” pricing.
Product → Cost → Price → Value → Client
Cost-Based Pricing focuses on time and materials or the deliverables to determine the price that firms present to a client. The problem with cost-based pricing and productizing a firm’s creative services is that not every client NEEDS a video. It begins to take on the vibe of the car salesmen or the door-to-door salesman where “Everyone needs my product! No matter who you are.” This simply is not the case.
Cost-Based Pricing focuses on
time and materials or the deliverables
to determine the price or a project.
Start with the Client
Sit down the client, try to understand their problem on a surface-level and then on the deepest of levels. (Read More: 3 Tips to an Effective Strategy Meeting) Better known as consultative selling, the Firm doesn't push their product and instead listens more to the Client’s real needs. For example, after consulting with the Client, the Firm finds out that they don't need a new video - they need a new landing page to collect leads. This realization never happens with firms who only want to push their product.
Client → Value → Price → Cost → Product
Start with the client, figure out the value the Firm can provide, settle on a price and then determine the cost and execution method. It's the exact opposite approach to cost-based pricing.
Blair states throughout his book that this method proves to bring in greater average revenue over a cost-based firm. He also admits that this method is harder to implement and takes more practice. In the end, embracing value-based pricing will lead to higher revenue and greater profits for creative firms.
For More Reading
Blair Enns Amazon Page - https://amzn.to/2DAEyfy
Pricing Creativity: A Guide to Profit Beyond the Billable Hour - https://www.winwithoutpitching.com/pricingcreativity/
The Futur - Blair Enns Interview - https://www.youtube.com/watch?v=KtL02T5MonA