Pricing Creativity

1. Value is Subjective: Price the Client, Not the Job

To be able to price on the high end of this range, you must first fully embrace this idea that value is entirely personal.

Subjectivity reigns. Value isn't inherent in a service or product; it's a subjective construct of the person making the valuation. This means that the same deliverable can be worth vastly different amounts to different clients. A logo for a local shop versus a global brand illustrates this perfectly.

Emotional contributions. Beyond economic factors like revenue gains and cost reductions, "emotional contributions to value" such as prestige, risk avoidance, simplicity, and peace of mind play a significant role. These emotional factors can magnify the perceived value and justify a higher price. For example, a company facing a critical rebrand might pay a premium to mitigate the risk of failure.

Fairness is a feeling. Fairness is the feeling that the transaction and price paid were positive enough that they would gladly do it again. It's more personal than value because it's purely emotional. Even if you feel your price is high, the client's perception is what matters.

2. Commodities vs. Creations: Innovate, Don't Just Produce

You can have a culture of efficiency or one of customer innovation (value creation) but not both.

Producer vs. Marketer. Businesses operate on a spectrum between production and marketing. Producers focus on efficiency and cost reduction, while marketers prioritize innovation and value creation. Commodity producers aim for fungibility, while marketers seek differentiation.

Culture dictates strategy. A firm's culture will either be focused on maximizing efficiencies or on maximizing customer value. These two objectives cannot coexist harmoniously because innovation is inherently inefficient. Pursuing efficiencies often leads to commodification and an inability to command premium prices.

Embrace innovation. To escape the pressures of commodification, creative firms must embrace a culture of innovation. This means prioritizing customer value, investing in R&D, and accepting the higher levels of risk and messiness that come with creativity.

3. Inputs, Outputs, Value: Sell the Desired Future State

Cost-plus pricing is, historically, the most common pricing procedure because it carries with it an aura of financial prudence … in practice, it is a guide to financial mediocrity.

Three pricing approaches. Creative firms can price based on inputs (time and materials), outputs (deliverables), or value (client's desired future state). Selling value, rather than inputs or outputs, unlocks the highest levels of profitability.

Value-based pricing. Value-based pricing ties the price to the value the client will receive, such as increased revenue or cost savings. This approach requires understanding the client's goals and quantifying the potential economic impact of your services. For example, a UX firm might charge a percentage of the increased profit generated by a new customer loyalty app.

Shift the focus. Value-based pricing shifts the firm's focus from internal efficiencies to customer value and innovation. This long-term perspective fosters a culture of creativity and allows the firm to command higher margins.

4. Multiple Value Streams: Unbundle Your Thinking

You deliver value in many different forms beyond your core offering.

Beyond the core. Creative firms deliver value in many ways beyond their core service, including design quality, prestige, speed, research, testing, project management, and access to senior personnel. Recognizing these different value streams is crucial for effective pricing.

Client-specific value. Different clients value these forms of value differently. Some may prioritize speed, while others may value prestige or access to senior personnel. Understanding these preferences allows you to tailor your offerings and pricing accordingly.

Bundling, not à la carte. Avoid offering value streams à la carte. Instead, bundle them into packages that cater to specific client needs. This prevents direct price comparisons and allows you to maintain higher margins.

5. Options are Key: Control the Comparison

Presenting options changes the question you are asking the client from, “Does this proposal represent good value?” to a better question, “Which of these proposals is the best value?”

Context is everything. Human beings cannot perceive absolute value; they can only make comparisons. Providing options gives clients the context they need to assess value and make informed decisions.

Three is the magic number. Always present three options in your proposals. This leverages the principle of extremeness aversion, which states that people tend to avoid the highest and lowest prices, gravitating toward the middle option.

Decoys influence choice. Not all options need to be equally desirable. Decoys are options designed to nudge clients toward the preferred choice. By strategically placing and pricing decoys, you can influence the client's decision-making process.

6. Anchor High: Prime the Value Perception

It’s not the job of the $500 price tag to sell $500 t-shirts. It’s the job of the $500 price tag to sell $275 t-shirts by making them look like good value in comparison.

Anchoring effect. Anchoring is a cognitive bias that influences our perception of value. By presenting a high-priced option first, you establish a reference point that makes the other options seem more affordable.

Prime the thought process. Anchoring works by priming the client's thought process around the value of the proposal. Starting with a high number skews the entire negotiation in your favor.

Even when you know. Anchoring is so powerful that it works even when you know it's being done to you. Always lead with your most expensive anchor option to maximize your revenue potential.

7. Communicate Orally First: Early Objections are Your Friends

Those who do not talk about it do not make it.

Early objections are valuable. Always discuss pricing orally before presenting a written proposal. This allows you to address any price objections early in the sales process.

Money conversations are essential. Overcome any discomfort or fear of talking about money. The more comfortable you are discussing pricing, the more successful you will be.

Stress comes from avoidance. Money conversations are stressful when you're not having them. By addressing pricing early and often, you can reduce stress and increase your chances of closing the deal.

8. Master the Value Conversation: It's All About Them

If you only read one chapter…

Value conversation is key. The value conversation is the most important skill in value-based pricing. It involves understanding the client's desired future state, quantifying the value you can create, and agreeing on a fair price.

Four-step framework:

1. Commit the client to their desired future state
2. Determine the metrics of success
3. Agree on the value of success
4. Offer pricing guidance

Focus on the client. The value conversation is all about the client and their goals. By focusing on their needs and desires, you can build trust and establish yourself as a partner in their success.

9. One-Page Proposals: Respect Their Time

The proposal is the words that come out of your mouth.

Proposals are conversations. The proposal is not a sales document; it's a conversation starter. The one-page document serves as a visual aid to support your discussion.

Keep it concise. Limit unpaid proposals to one page. This forces you to focus on the essential information and respects the client's time.

Paid proposals. For complex engagements requiring extensive discovery work, charge a fee for the proposal process. This ensures that you are compensated for your time and expertise.

10. Never Discount (Unless You Do It Right): Preserve Value

It’s not the price you charge, it’s how people feel about the price they have to pay.

Discounts devalue. Discounts can devalue your services and undermine your positioning as an expert. Avoid discounting to win business.

Loyalty rewards. Reserve discounts for loyal clients who deserve a break. Frame the discount as a favor and document it properly to prevent it from becoming the new standard.

Trade value, don't just cut price. If you must offer a lower price, take out some value in return. This maintains the integrity of your pricing and ensures that you are still fairly compensated for your work.

11. Remove Pricing From the Front Lines: Centralize Authority

It’s not the writing that’s hard… What’s hard is sitting down to write.

Empower the right people. The person doing the selling should not always be the one setting the price. Remove pricing authority from those who are overinvested in the sale or lack negotiating skills.

Invoke policy. Use policies to protect your pricing and prevent clients from demanding unreasonable concessions. A policy is a predetermined decision that cannot be easily negotiated.

Create a pricing council. Consider creating a pricing council or appointing a chief value officer to oversee all pricing decisions. This ensures consistency and prevents ad hoc discounting.

12. Untether From Time: Embrace Value-Based Metrics

It’s not the writing that’s hard… What’s hard is sitting down to write.

Time is a poor metric. Tracking and selling time reinforces a cost-based mindset and limits your profit potential. Untether yourself from time by focusing on value-based metrics.

Transition gradually. If you're struggling to let go of time, start by value pricing the strategy phase of your engagements. This allows you to test the waters and build confidence in your ability to price based on value.

Embrace alternative models. Explore alternative pricing models such as retainers for strategic guidance, leasing, and performance-based fees. These models can unlock new revenue streams and better align your compensation with the value you deliver.

Last updated: April 17, 2025