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Valarie Martin Stuart is an art director, designer and production artist based in Dallas, Texas, USA. Her boutique design studio, Wavebrain Creative Communications, specializes in providing businesses with creative and practical solutions for both print and web.

Valarie has over fifteen years experience in the design field, including ten years as an independent contractor. She has worked on national and international accounts for many leading ad agencies, design studios and corporations. Valarie has also been an Associate Professor of Graphic Design, where in addition to teaching students the basics of design and software, she lectures on important issues dealing with the business of graphic design.

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The value of value-based pricing
Should a creative professional charge on an hourly basis, or a project basis? Here's the answer by Valarie Martin Stuart
We creative professionals tend to be a right-brained bunch, harnessing our creative talents to create practical solutions for our clients. Creating pricing structures, estimates and invoices are not high on our enjoyment list. But we can avoid some common pitfalls and potentially unhappy clients by pricing our work based on project value rather than an hourly rate.

Many creative professionals are tempted to price their work on an hourly basis. After all, when we were young and working for pocket change, that's the way it was done. Our job at the local mall paid us hourly wages for showing up and performing our duties.

However, we are no longer acting as a body in a retail store, ringing up sales and sorting merchandise. We are creating a tangible product for our clients. This product is created for a specific reason, and our clients expect to achieve specific results if they purchase our product.

Pricing our products
I recently went shopping for a new television. I had a specific result I wanted to achieve by buying this product: I wanted to watch television in my living room. I wanted my television to be reliable, easy to use and simple to understand. I wanted it to work with my other components. As I shopped, I compared prices and features. I knew how much my budget allowed me to spend for a television, so I shopped accordingly.

Did I care how many hours it took Sanyo or GE to make a television? Of course not. I wanted a quality television, and I didn't care if it cost them $10 per hour or $100 per hour to produce. I wanted to pay a fair price for the product, and it was up to the manufacturer to determine how to set a price to be competitive in the marketplace while still earning a profit. Naturally, I expected different models to vary in price, depending on their features.

Creative products are no different. It does not matter to the client how long it takes me to create a website or an annual report. What is important is the final product, not whether it took me two hours or twenty hours to achieve it.

I learned this lesson the hard way. I specialize in production of financials for annual reports. It's very tedious work, creating dozens of perfect charts and hand-ragging every single line in a book that's anywhere from 24 to 72 pages. When I began this work, I was working on a independent contractor basis through design studios, at acceptable hourly rates. I'm fast and efficient, and became an expert at this type of project, both from a design standpoint and a production/software standpoint.

I soon learned that I was an idiot. I should not be charging hourly, but per page. Next, I'll explain why.

The pitfalls of hourly pricing
Let's look at some hypothetical numbers to illustrate pricing structures. Assume that I make $500 per annual report when charging hourly. Now, the freelancer sitting next to me does the same work, is paid the same hourly rate, but annual reports aren't his specialty. While he's a fully capable professional who produces excellent work, it takes him twice as long to do the annual report. He makes $1000 per book. I just got screwed. Why? If I were worse at what I did, I'd be rewarded! And the client got screwed as well. He's paying two very different prices for the same product, thanks to an hourly pricing structure.

Instead, let's charge on a value-based structure rather than an hourly structure. I'll charge $20 per page for a 48-page book. The designer sitting next to me will also charge $20 per page. Our client is receiving the same product no matter who does the work, and the $20 per page fits his budget. As long as deadlines are met, it's irrelevant how long it takes to complete the 48 pages.

Assume it takes me an average of 15 minutes per page to complete the 48-page financials. My effective hourly rate is $80 per hour for 12 hours of work. It takes the other designer 30 minutes per page, and 24 hours to complete the work. His hourly rate breaks down to $40 per hour. Is this important? Yes, but only to the designer. Each designer is being rewarded based on his experience and talent level for a given project. Is this important to the client? No! The client is interested in the final product and the ultimate results achieved by the product.

From the client's perspective, value-based pricing is advantageous because client is assured that he will pay an exact amount for the creative product. He will not suffer because it takes one designer three hours to create a concept, while it takes another designer ten hours. The client is no longer at the mercy of the production speed of a creative professional. There are no surprises when the invoice arrives. As long as the deadline is met, the client should have no interest in how many hours the creative professional sits at a desk to complete the product.

Determining project pricing

But how do you determine pricing for a project if you don't base pricing on your hourly rates? Naturally, your hourly rates and the amount of money you need to make to put food on your table will play a part in your project quotes. But you might also want to take a look at the Graphic Artists Guild Handbook: Pricing and Ethical Guidelines. This invaluable resource lists pricing information based on industry surveys, including pricing structures based on the client company's size and strength in the international marketplace. While the New York City prices in this publication may be extreme for some markets, you'll note that the book prices a logo based on the logo as a product, and doesn't tell you how many hours the Graphic Artists Guild thinks it should take you to create that logo!

And let's face it, it's virtually impossible to determine if it will take you two hours or twenty hours of concepting and thumbnails to finally hit upon the perfect solution to a creative problem. It's not your client's responsibility to pay for the exact number of hours it took you to reach that design; they are paying for the final product. If it takes you two hours, then great! Go play a round of golf that afternoon, or better yet, work more to refine that concept, or go out and generate additional business. If it takes you twenty hours, that's fine, too. Your profit margin may be less for this particular project, but your main objective is to meet the client's expectations, no matter how many hours it takes you.

In the end, you want your client to be pleased with the final project, and be happy that they are paying exactly what they expected to pay based on your original quote. There's nothing worse when you're buying that television than to be told, "Well, it took Sanyo ten more hours to make that television than they originally thought it would, and since they price their televisions on an hourly basis, you owe an extra $400. Thanks for shopping at The Hourly Electronics Store - we appreciate your business!"



© 2004 Valarie Martin Stuart
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