Welcome to five minute magic from Creativity For Sale Podcast. A quick fire episode, sharing tips and tricks from the pages of the book of the same title. 

Every week I'll be sharing one or two ideas that can give you. And actionable take away for your creative career, your business, or just the food for thought for the weekend ahead. These are taken from the audio book, and you can find the full version below. ~

One of the biggest challenges for any creative professional or freelancer is figuring out what to charge for their work. Should you bill hourly, daily, or by project? How do you put a price tag on creativity?

In this episode, we're diving deep into the thorny topic of pricing. We'll explore different pricing models like hourly rates, day rates, project fees, and even equity deals. You'll learn the pros and cons of each approach so you can decide what makes the most sense for your creative business.

We'll also discuss some key considerations - like calculating your baseline costs, factoring in the value you provide, and avoiding pricing games where you and the client dance around budgets. You'll get practical tips on negotiating rates, defining clear deliverables, and guarding against scope creep.

Whether you're just starting out or a seasoned pro, this is an episode no creative can afford to miss. Having a solid pricing strategy can make or break your ability to get paid what you're worth. Tune in to make sure you're on the right track when it comes to monetizing your talents.

Daring Creativity. Podcast with Radim Malinic

daringcreativity.com |  desk@daringcreativity.com

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Radim Malinic: [00:00:00] Hello, and welcome to five minute magic from creativity for sale podcast. A quick fire episode, sharing tips and tricks from the pages of the book of the same title. [00:00:10] Yes. Creativity for sale. Every week I'll be sharing one or two ideas that can give you. And actually we'll take away for your creative career, your business, or just the food for [00:00:20] thought for the weekend ahead. These tapes are taken from the audio book, and you can find a link to the full version in the show notes.

 one of the biggest challenges for any creative [00:00:30] professional or freelancer is figuring out what to charge for their work. Should you build hourly, daily or by project? How do you put a price tag on your creativity? [00:00:40] In this episode, we'll be diving deep into the thorny topic of pricing.

We'll explore different pricing models like hourly rates, day rates, project rates, and even equity [00:00:50] deals. You'll learn the pros and cons of each approach so you can decide what makes the most sense for your creative business. We'll also be discussing some key considerations like [00:01:00] calculating your baseline cost, factoring the value you provide, and avoiding pricing games where you and the client dance around the budgets.

 You will also get practical tips on negotiating [00:01:10] rates, defining clear deliverables, and guarding against scope creep. Whether you're starting out or you're a seasoned pro, this is an episode no creative can afford to [00:01:20] miss.

Having a solid pricing strategy can make or break your ability to get paid for what you're worth. Tune in to make sure you're on the right track when it comes to monetizing your talents. [00:01:30] As you can see, this is a bumper episode for Five Minute Magic. In fact, it's three times the length.

Enjoy.

If [00:01:40] the first billion dollar business question is, where do I get clients? Then a very close second is, what do I charge? To answer that question, [00:01:50] many people ask about what everyone else charges, and likely wonder why so few people talk openly about what they earn. That's why this chapter discusses the [00:02:00] topic of money, and in an open and transparent way.

Calculate your baseline. A creative business is considerably cheaper [00:02:10] to get off the ground than many other sectors. You don't need a car or a van, expensive machinery, huge premises, supply materials or a warehouse full of [00:02:20] stock. And while a reasonably powerful laptop can be more expensive than a second hand Ford Fiesta, it's not out of reach like it was a few decades ago.[00:02:30] 

To find out your basic survival budget as a one person creative business, add up the following. Some won't be relevant, of course, and other things [00:02:40] might need to be added. Business expenses. Hardware and software. Business insurance. [00:02:50] Studio space rental plus office supplies plus overheads. Cost of commute.

Bank or transaction [00:03:00] fees. Tax, Personal Expenses, Travel plus Food plus Rent or Mortgage, [00:03:10] Mobile Phone Bill plus Internet Connection, Clothing plus Social Life Budget, Gym Membership. [00:03:20] Knowing your costs should serve as the baseline from which you start building your price. In employed jobs, your desired salary is often [00:03:30] based on years in work, experience, job and location.

In a small creative business, the flow of incoming work and steadiness of [00:03:40] progress is usually far more unpredictable. No two projects will be the same, and they won't have the same budget or take the same amount of time to [00:03:50] complete. However, knowing your costs will guide you because you'll know how much you need to earn to survive.

And from there, you can work out how [00:04:00] much you'd need to thrive. The aim here is to spend more hours working on your own business rather than working for someone else's. [00:04:10] Put a value on your creativity. Once you know how much you need to make, then you can start costing your work. [00:04:20] With pricing, it's about balancing the time it takes to do the work with the value of the work, and there are different ways to calculate this cost.[00:04:30] 

Most people start out with their own preferred method of calculating costs, but as they start taking on new clients, they might switch things up and move to other [00:04:40] methods. And of course, each method has its pros and cons. A freshly set up creative business is is more likely to bill [00:04:50] by time per hour or per day.

So at least at the start, understanding how much time it takes to produce creative work is usually the main [00:05:00] driver of how it's priced. However, once you've established your brand of creativity and defined your offering clearly, then the [00:05:10] value of the project might dictate the overall cost. Though it might take a few years to get from the former to the latter.

Cost per [00:05:20] hour. In my opinion, charging by the hour is the messiest way to quantify the cost of creativity. An hour in the life of a creative can [00:05:30] feel like a second, since a piece of work can contain so many unknowns and lead to multiple explorations. So, if you bill by the [00:05:40] hour, the key is to add up the number of hours needed for the work, and add in an extra few.

as a buffer for any possibilities and [00:05:50] issues. One of the positives of charging per hour is the freedom to juggle different projects and work when based on your availability without [00:06:00] too many constraints. However, a downside is that clients often like to negotiate on the rate, especially if the project is open ended, [00:06:10] and they might feel that it's easier to find someone who they won't have to pay as much, particularly If they have a cap on their monthly spending, the [00:06:20] benefits of working in a free flowing way can also be outweighed by having less financial stability.

Charging per hour also [00:06:30] involves having tracking software to help you calculate a final amount that is reflective of the actual hours spent. Quite a few [00:06:40] freelancers run a clock and charge an amount. in increments of an hour. For example, changing a word on a page might take 15 minutes, so [00:06:50] does it really need an hourly charge?

This should be decided by the creative and made clear to the client, who might be more inclined to [00:07:00] run the clock instead of an hour block. Cost per day. This option is more streamlined, although the actual meaning [00:07:10] or expectation of can often be confusing. The first interpretation is that a creative supplier is booked for a full day of [00:07:20] work, i.

e. eight hours of the day. Then, companies hire people for their specific skill set for a number of days per week or month. [00:07:30] The upside is that if there's any hold ups, you're still being paid even though the work is at a standstill. And if you get your work done in a [00:07:40] fraction of the time, you're still paid the full day rate.

The downside is that the deliverables, milestones and expectations need to [00:07:50] be very clear to both parties beforehand. The second interpretation is bulk buying hours in advance. A day rate could be a [00:08:00] guarantee of a block of eight hours that should cover the time to produce the right outcome. The work can be produced across the number of days in small increments as and [00:08:10] when the project requires, just like charging by the hour.

But instead of the client haggling over the hours, they're committed to a chunk of time in [00:08:20] advance. The positive here is the knowledge that you have a set amount of time covered in advance. And it's also the case that companies paying day [00:08:30] rates are often higher ticket clients, meaning there might be a better sense of financial security and planning.

But before you accept a day [00:08:40] rate, make sure it's clear what the expectations are, as you don't want any surprises later. The prospect of having a set income [00:08:50] might be tempting, but you might lose some of your freedom to juggle projects or assist more clients at the same time. [00:09:00] A retainer. This is another form of bulk buying time, but instead of blocking out hours per day or days per week, month, there is an hourly [00:09:10] allowance per month.

The retainer guarantees a set monthly figure against a set of deliverables. The benefit of this method [00:09:20] is an ongoing month to month commitment from the client. In all of these time based methods, the deliverables need to be [00:09:30] clearly defined, as well as the time it should take to complete them. If you exceed the agreed hours or days and present a higher bill, without [00:09:40] any prior explanation or warning, it can make for an interesting conversation.

When extra time is needed, put your hand up and [00:09:50] make it clear why. Project rate. This is when the price may be based on the value of the project rather than the time required to [00:10:00] do the work. For example, a project rate might be based on the market cost and the level of skills, knowledge and experience that goes into making the [00:10:10] idea a reality.

Or it might be based on the number of days and people required for these more intricate and varied services. [00:10:20] Though calculating a project rate based on the average time it takes you to produce such work is tricky if you're new, and this is another reason why new [00:10:30] creatives don't tend to price this way.

Perhaps the best way to think of a project rate is time bulk buying plus an added premium. [00:10:40] But it's also worth factoring in the scope of deliverables, which should be laid out in a project brief specification or statement [00:10:50] of work. Some creatives are near militant in the price quoted for the project specification, so if they agree X, then they are [00:11:00] delivering X and nothing else.

This makes a lot of sense from an admin perspective, but the unpredictability of creative work can make [00:11:10] X become Y pretty quickly. Then, do you start negotiating again, or just do Y? The list of deliverables [00:11:20] can easily change, and creative projects generally require being adaptable and fluid in response to changing requirements.[00:11:30] 

I believe there are many ways to do this.

The main benefit is that both parties have full knowledge of [00:11:40] the overall cost at the beginning of the engagement, and there should be no reason to haggle over small details or have to recalculate if the client adds a [00:11:50] few extra deliverables to the list. It can make you seem more confident in negotiations when you have a clear cost for your work, rather than getting out [00:12:00] the calculator and trying to pin the client down to a specific number of hours.

Equity. The final pricing option is [00:12:10] equity, which essentially means getting a share of a company. In other words, Not getting paid in money right now, but in shares, so [00:12:20] potentially more money in the future. When a prospective client offers you a hefty part of their company, rather than payment, it's often a [00:12:30] giveaway that they are not a trading company yet.

So, you're betting on the future of a company where you don't control its operations or business strategy. Many [00:12:40] new startups are keen to get their launch across the line with next to no money. So they shop around for people who are willing to work for free, meaning the offer of [00:12:50] equity could be a red flag.

The other obvious downside is that you won't get paid for the work yet, or even for a long time. [00:13:00] Having a stake in a company that earns zero is still, well, zero. Even if the company starts making money, equity [00:13:10] isn't liquid cash available when you need it. It comes to fruition only when the company gets sold.

This could ultimately be a [00:13:20] profitable strategy, but it's not a solution to get your mortgage paid next month. On the contrary, there are many success stories of creative services [00:13:30] being traded for shares in companies, leading to very handsome profits. You might also form a business connection that is valuable when the company is [00:13:40] trading, and appreciates what you did for them in the early days.

To make the equity work, you'll have to negotiate the right terms and conditions. [00:13:50] Which takes longer than a napkin sketch at your first meeting. So don't get seduced by a convincing sales pitch and do your research [00:14:00] into the company. Ask your accountant for further tax advice if this situation comes up.

The budget shootout. [00:14:10] Some freelancers approach the issue of pricing like a shootout. They keep their weapon in their pocket.

In other words, [00:14:20] they ask the client what their budget is before sharing their cost. This might be because they want to see the most the client will offer, [00:14:30] or because they haven't taken the time to define their offering and calculate a cost. Either way, this is a risky move. The client will always have [00:14:40] a figure in mind that they can spend.

But they generally don't want to disclose it, in case they can make a saving. They'd rather the creative play their hand [00:14:50] first, so they can see what they've got. However, the creative doesn't want to, in case they quote, too low and the client has a bigger budget. [00:15:00] This is a spectacular showcase of blink first and you've lost.

This is up there with the best of the worst negotiating tactics, and is a source of [00:15:10] very funny memes too. Working for free. Many creatives, especially those first starting out, have a dream client [00:15:20] list, usually filled with global household name brands. Such brands are aware of their shiny status. And some try to exploit this by [00:15:30] offering creative talent laughably small fees, or no fee at all.

Some consider the opportunity, shake their head in disbelief at [00:15:40] how ridiculous it is, then agree to do the work anyway because the brand's power is seductive. From my first hand experience, these projects [00:15:50] often go excellently badly. And the opportunity turns into a spectacular nightmare. But you can learn a lot from the experience.[00:16:00] 

Heavily discounted or free work is often best pursued for an opportunity to learn, explore new media, help a good cause, [00:16:10] or be part of something that has the potential to grow. The work shouldn't feel pressurised or restrictive. The collaboration should be inclusive [00:16:20] and both sides should be working towards the same goal.

If this doesn't add up. Don't dance. Pass.