I've never been a huge fan of 'value-added' pricing for design. If you are having a difficult time justifying charging more for the same amount of work for larger clients internally, then I'll wager that the clients would have a hard time with it as well if they knew of the discrepancy. Is it more profitable for the design firm/agency? Yes, in the short term. But for small firms (like ours), I've found a standard hourly rate for our services to be a better path to a long term relationship.

Doug, so you would charge the same hourly rate to, say, Microsoft as you would a, say, one-person interior decorator shop? It's not "value-added", it's "common sense" — sorry, don't mean to be overly sarcastic. Design has a different value at different levels and, at higher levels, the amount of effort it requires needs to be billed accordingly. And you need to gauge your client's spending ability — you'd be doing yourself a disservice if you didn't. What you bill your different clients is only relevant to you; as far as they know, everyone on your client roster is paying the same.

In short, my answer is 'yes'. We would bill the same hourly rate . However, don't confuse our 'rate' with the 'number' of hours we would estimate to complete a task (either large or small). Our bigger clients expect more: from more actual design time to increased time spent working on the creative, meeting with the clients, etc...I feel more comfortable giving our clients an estimate based upon the number of hours we will actually spend versus a 'value-added' equation which might be hard to explain in detail later. I'm not saying that the latter is a less honest approach, but it's more of a guessing game. In Ben's example, some of his staff were surprised when the client agreed to the value-added (higher) price. For me, as a principal of a small firm, surprise that a client accepted a bid for our work isn't the best way to further long-term business development.

I compare it to rights-protected photography; the usage dictates the fee. The more impressions and wider exposure a stock photo gets, the more it costs to use. If a small client uses a full page photo in one magazine for a month, the price differs drastically if the same photo is used by a larger client in ten magazines for six months. Bottom line is, the investment is greater, shouldn't the ROI be greater, too? The same goes for design; more eyeballs = higher initial investment = greater brand equity = higer ROI. Even it is "just stationery". Just my 2 cents.

i'm with doug, our hourly rate stays the same. but the amount of hours you allocate depends on the client/project.

Several factors can affect the price of something. What it costs to produce is a primary consideration for the minimum (at least for any business that intends to remain in business.)

What the buyer can afford is a major consideration in maximum price as is how the buyer values the thing being sold. The latter is affected by the buyer’s view of the intrinsic value of the thing being sold but is also shaped by the context of the thing. If you’re spending a hundred grand to remodel your kitchen then that nice teakettle with the bird won’t make you blink. If you’re doing nothing but buying new dishtowels then the Graves kettle at Target suddenly looks a lot better. Just over a tenth of one percent vs. ninety-five percent of project costs changes the view of the cost of the kettle.

If you charge a hundred bucks for the design of a cheap, limited run of letterhead than that may be big. Charge a few thousand for the design of what will be a boxcar load of letterhead and who will care?

Is there risk in seeming to overprice something? Sure. But although competition may a factor in what may be considered overpriced, your hourly cost may not be the best way to judge that. I lost a client once over one “overpriced” job that went long despite having done an enormous amount of work that was a bargain and was done at the same hourly rate.

I'm actually a little surprised that this is even open for debate. I'm very surprised that a 25 year old branding company would "test this theory by pricing the work higher for the larger client."

I thought everyone priced higher for the larger client. It is a usage rights issue, just like photography or illustration. But it's also a perception issue. I'm certain a large corporation would find a low rate to be suspicious ... as though they weren't dealing with someone who knew what they were doing.

As for working by the hour, most clients I've ever had are extremely nervous at that prospect, as they don't know what they're going to end up paying. I only ever do that for extended changes.

The design as a unit has a value in the marketplace, and that value changes depending on which marketplace you're in.

We *estimate* jobs using hours: how many hours will this job take times our hourly rate. We don't *work* by the hour. Larger clients almost always end up with bigger estimates because we spend more time on those projects at many levels, so the number of hours in the above equation is bigger. This practice is useful for us in many ways: if the scope of the job changes, we have a solid mathematical equation to adjust the estimate on the fly; if the client wants to see pricing for 3 discrete versions of a design/creative vs. 2 versions, again, it's simple math, and everything is right there on the table. Furthermore, it eliminates *all* guesswork WRT our clients' ability (or lack thereof) to approve of any particular price tag for any job, large or small. ie: if our estimate for the job is too high for a client's budget, we can remove x hours from the equation. This usually means less in deliverables, but a budget is a budget. At the end of the day, we have no guesswork with our estimating or billing...and that gives us more time to design and create.

Doug

As for working by the hour, most clients I've ever had are extremely nervous at that prospect, as they don't know what they're going to end up paying. I only ever do that for extended changes.

i should have clarified that we do not charge the client by the hour. but we do base our project fees based on the amount of hours we anticipate to spend. (for us its not a usage rights issue but thats another discussion)

Charging by the hour seems to work only when there is a deep understanding by both parts to what each step of the process entails, and what responsibilities each party is undertaking. Otherwise, it is usually doomed for semi/full failure.

But going back to the price of that hour, I am with Marian in that in my experience it is an understood part of our business (and maybe I am in for a surprise here), that the larger the client the higher the price. This does not mean you will duplicate or triplicate your amount, but you are usually taking into account the fact that you will require more people involved in the project, you will spend more time on the project and there will be more internal and client meetings involved, more conference calls along the way… basically, you are “assuming” by previous experience that it will be necessary and that you can do it.

Also, many a time, it is this higher price that allows you to do a minimum (or non) charge project that you feel strongly about without necessarily declaring a loss.

I've been in business for the past two-years (and lack the experience of 25 years) - however, I'll put in my two cents:

The way we do things at our studio is this: When we take a client we research everything we can about them - first thing being their size and annual revenues. This usually is a crucial element that predicts client's expectations and is a mirror of what we're dealing with.

After that, we compare them with a previous client of the same size and same sort of project (archived time-sheets are always a great help in this step). We look at the hours spent before, evaluate possible hours that will be spent on the new project, add tedious expenses, and add 25% on top of the final price - just to cover our behind in case the client takes too long to come back with changes or changes his mind at the last minute. We have always stayed away from charging the clients extra if the project goes longer than anticipated - i think that is our fault for not being able to predict and project the final estimate...and client's hate it the most when they hear that they will be charged more...i hate telling them that as well. The worst thing that can happen is that we end up with a 0-0 margin at the end.

I'm not sure how this would work for everyone else, but in my case it has worked so far.

o yea, almost forgot:

bigger clients = more hours + more expenses + more coffee == more $$$.

so yes, I would charge Microsoft more than the local start-up micro-brewery! - not that Microsoft is hiring my studio anytime soon, but something to keep in the back of my head...

Something to ponder on: What happens when the micro-brewery becomes the size of Microsoft five years from now? Do you raise their fees for the same beer bottle labels you've been designing for the first five years??

Maybe this is a dumb (easy) question, but how do you guys (Valon and others) usually go about finding things about the client, like size and annual revenues?

Great, practical thread! I've been thinking about this lately (had my own 3-man firm for a couple years, and now I'm back working for someone else) but was at a loss as to how exactly you decide what to charge. This is another good piece that helps complete the puzzle. Thanks, everyone!

Tim:

One way to go about finding more about a company is to check the Hoovers database. This kind of approach will drain your $$$ if you're running a small studio, however you can find out almost everything about the company.

Other cheaper ways that are more aplicable if you're running a small firm are to simply ask the client. If asking directly seems to forward, then you can also ask 'where they want to be in 5-10 years' or 'what clients they deal with' or 'how many people work for them' ...etc. Usually this approach is much more insightful and quite honestly will build a better raport with the client right off the bat.

However, sometimes clients hesitate to give out crucial information about their company...if that's the case you're really left with what you already know about them...or quite honestly you don't have to work with every client that walks through the door.

In my own experience, clients that hesitate to give out information about their company will usually be pain in the neck down the line and you never know what they're saying...I might be wrong on this one, but I guess you can judge each situation as a unique case and learn as much as you can.

hope that helps...

k gotta get some z's before I go on and on and on....

I've often struggled with the issue of how to price our work. Generally, I end up telling our clients (truthfully)that our fees are based on the estimated hours required for the project, multiplied by our hourly rate. This is standard amongst professional service firms, and is easily understood by virtually all clients.

On the other hand, it takes the same time and effort to design a 12-page view book brochure for a Catholic high school as it does to design one for a $350 Million capital campaign — but the return on the latter is far more substantial than on the former. The question then becomes, do we charge what what WE are worth, or what the PROJECT is worth?

I've often struggled with the issue of how to price our work. Generally, I end up telling our clients (truthfully)that our fees are based on the estimated hours required for the project, multiplied by our hourly rate. This is standard amongst professional service firms, and is easily understood by virtually all clients.

On the other hand, it takes the same time and effort to design a 12-page view book brochure for a Catholic high school as it does to design one for a $350 Million capital campaign — but the return on the latter is far more substantial than on the former. The question then becomes, do we charge what what WE are worth, or what the PROJECT is worth?

At my firm, we have about the same rate regardless of the size or value of the client.

However, big clients equals a lot more effort. A lot more people is involved in the process, from both ends, which returns more and longer meetings, a bigger demand for presentating and documenting, more revisions etc.

So although I charge pretty much the same, working with a small client who is capable of making decisions on the spot, is quick to respond, takes much less of my time, than if I have six people who power-struggle between them selves and just have to see their amend, just to see it.

Marion's observation is exactly right, in my humble opinion: The design as a unit has a value in the marketplace, and that value changes depending on which marketplace you're in.

Design's worth/use IS variable in the real world. If everything were in same-size-minimum-value units, would it be fair for the little guy to want it even cheaper?

From my own experience, in moving from New Orleans to Atlanta I can immediately see the difference in percieved value of standard projects. Here, even a cup of coffee is expensive. Well, to me it is.

Valon,

Thanks so much for the information. That's really helpful! I appreciate your sharing your point of view. :)

Design is a service, not just a product or commodity. As such, design should be proportionate in scope, effort, and value to the product or client which it benefits.

In other words, billing rates should be variable. So should scope of work, size of team, and depth of expertise and effort.

A $2.5 million rebrand campaign for FedEx ($45 billion revenue a year) is a bargain compared to a $25,000 identity package for a local business whose revenue is $450,000 a year. That's a 0.005% ratio for FedEx compared to a 5% ratio for the local business.

It's important to note that in my experience, smaller firms have much more flexibility when it comes to variable pricing. Larger network agencies have much less flexibility — costs and scope of engagements are more defined and formulaic. With network agencies, it's either the full meal-deal, or it's pro-bono.

Hi all, interesting comments, thanks for engaging in the discussion. I have a couple to add of my own. First, the pricing differential was not so great in my example that anyone would ever consider us "gouging". :-)

But more importantly, I wanted to reiterate the most important premise of the story (and what I was hoping most of the comments would center around)...the value of design. Not all, but many responses mentioned hours required to get work done. To me, that has very little to do with value. That has to do with covering overhead and (hopefully) building in a target profit level based on a predetermined rate we've all settled on for the majority of our work.

Looking at past projects and estimated time requirements are valid, but for me, that is used to simply put an initial stake in the sand on cost. From there, then I take a look at the value we are bringing to the table. In some cases, honestly, it might not be significant. In fact, I can recall numerous situations where the time required to get something done would NOT be worth the client's expectation of the value of the deliverable. So it works both ways for certain.

To be more blunt, is design a commodity? I know we'd all like to say no but when the discussion simply turns to estimating hours, I'd say take a long look at yourself in the mirror. What about the great ideas we create? What about the unforgetable tagline that rolls right off your tongue in the first 5 minutes of a meeting? What about when you doodle the Citibank logo on a napkin lickity split? In those cases, I bet none of us would try to simply multiply 5 minutes times their hourly rate.

THAT, is the value I speak of.

(I realize this is an immensely broad subject matter and that is why I focused on simply one aspect of design and limited the example to a basic stationery package.)

Ben

When talking about creating "stationary packages" are you talking about design, or production? Meaning, are you creating new elements or organizing existing ones to fufill the order? If it's the latter, then it probably isn't that different of a project whether it's the beauty salon around the corner or IBM. Indeed, IBM might even be simpler because all you have to do is follow the procedures outlined in the style guide.

As far as actual designing goes, doing work for bigger companies requires more resources which incurs greater overhead.

For instance, the analogy of the kid with Dreamweaver in his parent's garage doesn't really hold up when you consider everything that actually goes into a national brand site--from strategy and positioning to the site architecture to visual design through actual coding and any backend and content management system required. All of which, due to size of the project, needs to be supported by project managers, account reps, and so on. Plus the site needs to be able to withstand the traffic that a national brand will generate which means more a robust infrastructure.

The reason why Pepsi's site cost $1-3MM and Joe's Autoworks cost $2000 is because Joe's requirements are minimal on every level compared to Pepsi's (there was the episode of the Apprentice where the teams had to present bottle designs to the marketing dept at Pepsi--there must have been 50 people from Pepsi sitting in that meeting--if you figure the cost of wages of all those people alone, the expense of that meeting is kind of staggering to contemplate...).

The reason why Microsoft doesn't call Linda The Talent Designer who's Yellowpages ad says she does logos to do the id of their new project isn't because she's not skilled (let's say she is) but because someone working alone out of her spare bedroom just doesn't have the resources required to satisfactorally guarantee a sucessful result for a company that size.

>The reason why Pepsi's site cost $1-3MM and Joe's Autoworks cost $2000 is because Joe's requirements are minimal on every level compared to Pepsi's

Actually, interactive is one area of design where value-billing does not exist. Most interactive work is estimated and billed mostly based on time and materials — ie. hard hourly costs. The reason is that interactive work is usually so production intensive, that labor largely depends on exact scope and day-to-day details of any given project. To bill a flat fee would leave the door open to copious amounts of changes that could potentially be endless.

John, I know you used to the example to compare size and scope — but a website is a completely different beast when it comes to variable pricing.

> Actually, interactive is one area of design where value-billing does not exist.

I am sure firms like R/GA, Second Story, Antenna and The Chopping Block — to name a few — would beg to differ. There is plenty of creativity in the interactive realm that can add value to a web site, DVD or feed-based signage; it isn't all sitting in a basement writing code. Even then, just like graphic design, there a dozen different ways of coding a site and higher-profile clients require the same "value added" design than they would from their graphic design firm of choice.

You're right — I shouldn't be using absolutes. I'm sure the big boys like R/GA and AveA/Razorfish are finding ways to build brands and value in the interactive space. But with most mega-sites, the bulk of the work is still in the back end — whether it's coding, data crunching, or some type of super-optimization — the pricing is based largely on labor and defined segments of work. That may be high-dollar work, but it's not value-billing.

Yes, most of the interactive work is production, but I often refer to the (production aspect of) programming as the equivalent to printing and distribution... And, at least here in Sweden, not many print houses utilizes value-billing...

Ben, wouldn't design value be determined by the scope of projected use? The idea that a company as large as say, Pepsi, would have a vastly different series of application challenges compared to Joe's Muffler Shop, means the choices and decisions surrounding that napkin scribble, being transformed into corporate branding, would be variable accordingly. The existence of a marketplace where values are assigned is more or less set, otherwise the large agencies would have a hell of a time convincing anyone of a $2.5M pricetag.

The cooked and the raw:

All logo designs prior to acceptance are potential value, but are they essentially worthless until chosen? I have a cardboard box full of various unused icon drawings but I can't pay rent with them. In their raw state they are ink on paper, When a client wants one it goes from zero dollars to say $3000. It's the agreement/acceptance about value that makes it so.

I am interested in knowing,

exactly what sort of reliable

methodology is used to determine

"value-added" per project because...

While the concept of value pricing

is a notion many of us designers

subscribe to; all the business man

will see is a bunch of hocus pocus.

Sure, the big corps have no problem

shelling out the bling, and in return

they do expect firms to "work their magic".

But for many design firms who work

with small to medium sized businesses

and in this day of cautious spending,

it strikes me as unnatural for them

to spend money unless they knew exactly

how & what they are getting for it —

value pricing is too goddamn artsy.

> it strikes me as unnatural for them to spend money unless they knew exactly how & what they are getting for it — value pricing is too goddamn artsy.

Why do so many people here seem so opposed to the idea of billing more for design work? Why is charging clients a premium price for good design service considered "unnatural"?

There's nothing unethical or slimy about expecting a high and equitable value for our professional services. It's capitalism and free enterprise.

Devaluing your pricing and working for peanuts does not make you a more virtuous designer. It only makes you a poorer worker and it hurts the industry.

Why do so many people here seem so opposed to the idea of billing more for design work? Why is charging clients a premium price for good design service considered "unnatural"?

I don't think any designer has any objection

to the idea of charging a premium price.

The problem is that clients have these problems.

Realistically, most designers don't have the

luxury of being exposed to appreciative clients.

Realistically, most designers can't enlighten

the client about the true value of design

over shrinking budgets for marketing.

As a result a more practical and numbers

oriented pricing system is needed.

I think it is awesome for those designers

who happen to work for clients inclined to trust

and have faith in the powers of design.

At the same time, we'd only be fooling ourselves

up in our ivory tower if we think that value-

pricing is the best and most common billing

approach.

> we'd only be fooling ourselves

up in our ivory tower if we think that value-

pricing is the best and most common billing

approach.

My concern is that if we take the value variable from the pricing equation out, then we are left with an equation that would make design a commodity rather than a solution. I understand that we should explore how our clients perceive this pricing scheme, but I think we should focus our attention on educating them why design carries an intrinsic value and shy away from pricing for a mass market.

> we'd only be fooling ourselves

up in our ivory tower if we think that value-

pricing is the best and most common billing

approach.

My concern is that if we take the value variable from the pricing equation out, then we are left with an equation that would make design a commodity rather than a solution. I understand that we should explore how our clients perceive this pricing scheme, but I think we should focus our attention on educating them why design carries an intrinsic value and shy away from pricing for a mass market.

This is a wonderful discussion. It's an issue I wrestle with daily in pricing design/solutions for my clients. My question is this:

We believe in value-added pricing, but then where do you go from there. I agree, it needs to be there, but it's still arbitrary. Take Apple, for instance, (I don't like using Microsoft). You're asked to design an identity package, you decide on the overhead cost and then you get to figuring out the value-added price. Well want you think the value is, vs what I think the value is vs what Steve Jobs thinks the value is vs what the CFO thinks the value is could all be different. And you can't tell me that educating them on the value of design is the key. Again there is no formula.

So while we think design is not a commodity and should be priced as such, pricing the value is still a guestimate. So does it come down to your opinion of the value+the profit margin you want+overhead+25% markup?