~ with Alan W & Candice R
Alan, will you kick this off with some clarity, what is CREATIVE PRICING all about anyway?
Alan W:
I’m sure we have all experienced what it feels like when we get our costing wrong. We suffer financially and experience stress and in the end ask ourselves if the project we undertook was even worth it. And sometimes we end up neglecting the client or the work as we carelessly try to find additional work to make up for lost money and time. And naturally we tend to focus on the job that brings in more money and less stress. Creative Pricing is all about useful hacks that we can apply when we’re in the costing phase of a client engagement.
Candice R:
As Creative Entrepreneurs, by our very nature, we can sometimes be too optimistic, and optimism can often be a good trait, but when it comes to pricing, optimism can mean you fall short in the end. I am specifically talking about B2B Service Providers but there are lessons for us all when it comes to pricing but for the SP’s, there are some cardinal rules to consider when costing your next piece of work to facilitate a better experience around your commercials:
Rule number 1: TALK ABOUT MONEY EARLY.
We have money conversations upfront because we need to know if our customers can buy what are selling. We must get a feel for their budget. Questions around ‘what similar projects have cost them in the past’ or ‘what amount do you expect to hear’ can unlock those commercial conversations. Sometimes you have to get creative in how you get hold of this information and how you get clients to talk openly/reveal SOMETHING. Try putting a number out there and closely watch their reaction, if they don't fall off their chair you might be closer than you think with your ballpark. This is really about upping your soft skills and building trust with your client so you can talk openly about where you stand budget wise.
Your thoughts on this one Alan?
Alan W:
Let’s bring this back to a real life scenario we can all relate to.
When we walk into the grocery store, the price is evident, never hidden. Right from the start. We expect to pay a price for what we want to buy. It is part of our shopping experience. Openly and transparently communicated to us. In fact, we get annoyed when there is no price tag, we don’t want to fall in love with a product only to find out that we can’t afford it. Being informed helps us as the purchaser to make an informed decision.
Candice R:
Rule number 2: ADD 10-20% ON TIME AND COST
When we underestimate our efforts, time and cost, WE take the hit. The risk is 100% on us. This is not smart business. Add 10-20% of your original calculations to your estimated time as things often take longer when you are in the consulting or b2b realm of work. Add 10-20% to your initial price estimate as things always run over and complexities mount.
Alan W:
I’m not a fan of per hour billing or getting paid for our time, but it does happen simply because prospective clients don’t know any other way or because”other vendors” get paid for their time and it is the easiest route to follow. But that is another discussion for another day. How often have you realised that you have underestimated the price because the project took longer than you thought or you simply did more than what you anticipated? It does happen from time to time. Humans are just bad at estimating. So, why don’t we cater for this like they do in the real world? The grocery store has to factor in all the costs undertaken to get the product in store for purchase. If a shelf needs replacing, or batteries bought for load shedding, or fuel costs go up, even covering themselves for defect products or those products that aren’t sold before expiry, or different prices for goods depending on the shelf position and shelf visibility, and so on. They factor in all these costs and values added. They don’t just push up the price for a loaf of bread, they find alternative ways of earning more money, like the shelf positioning or the promotion you see as you walk into the shop door - they CHARGE their suppliers for that extra exposure, these are all creative pricing methods.
Candice R:
Rule number 3: PROVIDE PRICING OPTIONS
Challenge yourself to come up with three options. Often we realise what we were actually going to offer the client was at the lowest cost for the most/more complex work. When we break it up into three options, we start to show them the value when options are placed next to one another and they’re able to compare pricing vs outcomes or value. We typically have three options that incrementally increase in value. So when a client asks if you can do the job at a lower cost - you say yes, sure, but you will get less!
Alan W:
As consumers, we are used to having options. When I buy butter at that grocery store of ours, I can choose the more cost effective, standard or premium option. Or when I buy a cake I can either buy all the ingredients to make it myself from scratch, or I can buy a ready made cake mixture which will save me time and lessen the chances of a flopped cake, or I can just buy the already baked cake.
Candice R:
Rule number 4: SET BOUNDARIES
Set boundaries around client time delays by costing in penalties for these time delays. It is a business risk to turn other work away in order to be available for a project that is delayed for any length of time. There must be a penalty cost to cover this risk you take. Don’t let all the risk be on you.
Alan W:
Have you ever been to the checkout point at a grocery store and asked if you can pay half the price for a loaf of bread or get a discount for that bread? If you have, they’d say, sorry this bread costs x. Or they will just look at you weirdly. If you can’t pay for it, you simply can’t buy it. The next customer will come and buy that loaf of bread at the asking price, no questions asked. So yes, we as creatives need to apply the same rules, no matter how hard - it will get easier.
How did you even come across this topic of CREATIVE PRICING? What's the backstory/your personal experience?
Alan W:
I once hired someone to fix the kitchen fridge and while trying to find someone I felt comfortable with and that I thought is up to the job, I found myself not going for the cheapest option, I was prepared to pay more if I felt they could fix the fridge and that I could trust them. Being too expensive or charging too low are the wrong options. I realised that experience, insights, knowledge and skills, amongst other, makes my services worth more. I also learnt that clients are prepared to pay more for better services and for someone they trust. If there is value in what you do, then charge for that. We are willing to pay more for certain types of cars, aren’t we? So I started charging differently for different clients. And it is important to figure out the pricing for each client and the type of product you sell or service you render. Back to what I said in the beginning, if we apply creative thinking for pricing, it reduces stress which leads to better delivery from our side.
Candice R:
Creative pricing strategies are actually all around us. Have you ever exchanged a skill? I have helped someone with some research into their business and they have helped me with some design work for my business. This is bartering and alludes to how one could receive payment in terms of business services for example. One of many creative examples of how one can approach pricing in unusual ways if only we apply our minds. Of course there are creative pricing specialists too who can really bring good change to your pricing approach in surprising ways, you can also consider working with someone like this to figure it out for your business.
Is CREATIVE PRICING something that CE’s should be considering?
Alan W:
Most certainly. I want to use another example: I have a guy that does the gardening and he charges x for doing the garden work. One day I asked him if he could do some painting for me. Sure, he said and he asked the same price: a daily rate. I then told him there are many others that can do the gardening and it requires a certain level of skills. But, there are much less people that can do painting and that painting requires a whole different set of skills and that he should charge differently. Now 4 years later that is EXACTLY what he does! He renders both services now at different prices and neighbours are prepared to pay that. So yes, make pricing part of your business strategy, don’t just focus on the product or service you offer. Don’t copy others.
Candice R:
What you talk to here is how pricing is not a one size fits all, we need to approach it in a way that suits our business, and the services we are offering. Traditional mindset says work with a set price based on what the market is doing. CE’s can make pricing work for them AND their clients/customers. The emergence of subscription models, bartering, value based pricing, collaborations and so on, pricing IS fundamental to your business and requires just as much creative thought as your product or service development does.
What are the benefits of investing in/doing CREATIVE PRICING?
Alan W:
Less stress, feeling more valued which leads to better delivery of the service or product we offer, the ability to take on less work and make the work we deliver better. By taking on less work I mean that we don't have to overwork ourselves just to earn enough so that we can make ends meet. It distinguishes us from the rest.
Candice R:
And on that note, it can be our competitive advantage when we get it right, and I don’t mean being the cheapest, I mean structuring it in a way that fits your business as well as the buyer. It is also about smart business, where value as you say is recognised and your commercial model mirrors this. Lets not forget, business IS about making money.
What are the questions I should be asking myself, if I'm considering pursuing CREATIVE PRICING for my business?
Alan W:
Creative people should be paid for their skills and talent, and the problems they solve, not for their time. WIth all respect to the labour force, it is about how much I can do in the time allocated and it is mostly repetitive tasks. That was the industrial revolution. So that is where I would start - to make that mindset change on how to charge. How can I be creative about it? Things to consider include not charging everyone the same as everyone that comes to us with a challenge they need to solve doesn’t have the same challenge to solve so how can we charge everyone the same. Charge for the value of the challenge you solve. Price the client, not the project. Also ask yourself when you’re selling a product or even a productized service, how do i charge for the value of this product? Then look at processes and governance. If you for example change from charging by the our to a value based type of pricing, how does that impact my billing, my processes and so on. But not only for you, how does that impact my clients’ processes, for example: in the service delivery b business many organisations have big systems in place to handle timesheets and so on so it is important to consider the impact changes in pricing methods will have on your clients.
Candice R:
It is about challenging your thinking, asking yourself if there are other ways you could approach pricing that make sense to your business and your customers/clients. Take a look at the amount of effort, time and resource you are putting in and what your business gets out of that at the end of the day. IS there a smarter way to approach it by working smarter not harder?
Final pearls of wisdom to share on this topic?
Alan W:
There are many creative pricing strategies when you allow yourself to think openly about how you cost and engage with the proposal and costing phase of a client engagement. As creatives we should apply our creativity to our costings methods too! I’d even go as far as to say take each opportunity and figure out the pricing, be careful of by default implementing a “productizing” type of approach by having standard pricing especially when it comes to selling services or skills.
Candice R:
Creative pricing could mean bartering, it could mean a subscription model or a platform model whereby you hold transactions, it could mean moving into value based pricing, the list is endless. Pricing can be fun and creative and work FOR your business but this requires that out of the box thinking. Our aim as CE’s has always been to approach any facet of our business in ways that may not have been ventured before, we are CEs after all!
~ From the podcast, "CREATIVE PRICING FOR THE CREATIVE ENTREPRENEUR", take a listen over here
Work with Alan W
Work with Candice R