In my mentoring and workshops the question of pricing always crops up. It is a constant concern for studios of all sizes.
Senior business managers talk about three levels of pricing that need to be managed:
- industry level pricing
- product/market strategy level
- transaction level.
Industry level pricing.
The broadest view of pricing comes at the industry price level; what your clients' expect a job to cost. Here studio managers must understand how supply, demand and costs interact and affect overall prices. Studios that excel at this level avoid unnecessary downward pressure on prices and often emerge as industry price leaders. For example a public sector client will expect a much lower cost than a large corporate where the design requirements are very specialised.
Product/market strategy level.
The primary issue at this second level is pricing a product or service relative to the competition. To do so, studios must understand how clients perceive all offerings in the market and, most importantly, which attributes—knowledge, skill, service and intangible attributes—drive purchase decisions. With this knowledge, studios can set prices that accurately reflect the competitive strengths (or weaknesses) of their offerings.
The problem for studios is that they often find it hard to get a grip on competitor pricing. Often it is not just the price, it is also the services and knowledge that the competitors bring to the job. They ask clients for feedback but are often sceptical when they claim that the competitors price was lower.
The focus of transaction pricing is to decide the exact price for each transaction—starting with the core hourly rate (cost plus margin) and determining which discounts, allowances, payment terms, bonuses, and other incentives should be applied. For a majority of studios there is always a level of transaction pricing, which if managed correctly can be a steady cashflow.
Of these three levels product/market strategy pricing is the one I think a studio can gain the most particularly if they sell design value.
You can build up a list of competitors that are geographically placed or who you know also pitch to your clients and then try to understand their pricing and offerings.
The other source is the to take part in dmzine annual graphic design survey. This survey gives you the latest results for your competitors in your city or region.
Greg’s passion is the research and development of methods that improve design management and the role of design in business.
Greg has developed a series of business tools to help designers manage their business better along with a series of workshops that show designers how to use these tools.