A producer once came to me seeking advice on how to deliver a production estimate for a small video project.
“We know how much we want to charge for this,” he said. “But I don’t know how to get the math to add up with our rate card and what they’re asking for.”
I would be hard-pressed to come up with a better example of losing the forest for the trees because of an implicit reliance on outdated billable hour costing methods.
Pricing work–as with most things inside of an agency setting–is equal parts science and art. The science usually involves workbooks, billing rates, and callously referring to your highly talented coworkers as “FTEs.” The art is that subjective gut feeling that tells you how much you should charge for something (and how much you think you can sell it for). For the vast majority of my career, the former has dictated the latter.
How many times have you had a pricing conversation framed like this:
“We estimated this project will take 50 hours and we usually charge $200/hr., but I don’t think I can convince the client to sign off on a ten-thousand dollar rich media ad! What should we dooooo?”
Ok, yes, I added the extra emphasis on the end that makes that person sound very annoying and a little bit like Steve Urkel, but I hate these conversations! This is Science leading Art. Science dictates a price and then relegates Art to figuring out how to sell it. These negotiations are frustrating and usually unfruitful.
So that’s why it’s been a real joy for me to shift the paradigm a bit. Let’s begin with price and work backward from there. Especially when you know what the right price is for a deliverable, why would you walk from the exit to the start of the maze just hoping you can find your way back?
So how do we know what the right price is? Well, it’s helpful to remember that everyone has in their mind a value equation–the price point they want to pay for something. Too high and they’ll feel resentment. Too low and they’ll question if they’re getting something of appropriate value (You’ll mow my whole lawn for five bucks? No way you’ll do a good job!). Your responsibility when developing a proposal is no longer to figure out how many hours it will take to make a thing, it’s to ascertain your client’s value equation, translate it into a clear price, and then figure out how to execute the requested deliverables at or below that cost. Art, then Science.
This perspective shift avoids several of the common pricing pitfalls (negotiating against yourself, subjecting a rate card to scrutiny, intentionally underscoping) and forces a critical examination on how your team will produce the work. It also disabuses organizations of the notion that a timesheet arbitrates pricing. We know what we’re charging and what we’re delivering; all that’s left is to make something worth buying.