In my last article, I touched on the fact that I don't bill by the hour. In summary, hourly billing is a loose-cannon way of determining the value services bring to the table and one that favors things taking longer rather than being done efficiently and strategically.
It begs the question though, how do you structure payment for such services? The way I see it, there are three options:
Pay for design services up front
This is the most common method of paying for design services. It's pretty straightforward, client and designer decide on a price based on the value created through the services, client pays for the work, and the designer does the work. Usually the payment is made upfront or on a specific cadence like 50% to start and 50% after 30 days or before deliverables are transferred.
Lease the design work
It's no secret that good designers charge a pretty penny for their work. At least, they will charge a pretty penny to part ways with ownership of it. This is where leasing becomes a viable option to get quality work, but without the initial upfront cost of buying the rights to the work out-right. For example, let's say an identity package of a new logo and style guide will cost $6,725. Rather than paying for the entire thing upfront, the client could pay 8% of the total cost per month to get up and running. If the client decides they want full ownership of the work, there is a clause within the contract stating how much the buy-out fee will be in addition to the lease payment.
If the client is willing to share profits based on the impact the design work has had on the business, then a third option becomes available. Similar to trading equity, profit sharing or performance-based compensation puts everyone's time and resources on the line. The designer and client establish the key metrics they are looking to improve and then share profits based on the value generated from the change.
When it comes to pricing design services, the key is to be as creative and nimble with pricing as would be expected in the actual work. The next time you speak with a designer and you want to work with them, but can't afford to pay their fees, see if they are open to these alternative pricing structures.
My mom is a sales rep who works with pet store retailers. Some small and some large. She told me recently that a store she visits has over 6400 items on sale. 6400!
But that means they sell a lot of stuff, right? They probably need all of those items. Still, my curiosity wasn't satisfied. I asked, "why sell so many?"
Apparently people are more picky about their dog's food being gluten-free, paleo, with/without certain ingredients than most people are with their own nutrition. In short, they are trying to please everyone by having all of those needs met. No matter what pet you have, no matter what its needs are, they are trying to sell it.
I can't know for certain, but I'd imagine 80% of their sales comes from 20% (or less) of those 6400 products.
When Steve Jobs returned to Apple in 1997, the first thing he did was strip away 70% of Apple's products and got them focusing on what really mattered. Surprisingly, despite getting rid of a bunch of products, Apple turned its first quarterly profit the following January (see timeline for comparison). Apple didn't even have 50 products and they still struggled to keep their head above water. Can you imagine the crippling weight of 6400 products?
In-N-Out, the most successful burger chain on the west coast, sells cheeseburgers (with varying amounts of meat/cheese), french fries, shakes, and soft drinks. Each store does about $4.5M in annual sales and they have over 300 across the country. When people come to In-N-Out asking for a change to a menu item, they say "sorry, this isn't for you."
By turning away some people, they have a streamlined business offering and they become known for it. It exudes confidence and even people who can't or won't eat a cheeseburger respect that. The same could be said of Apple and people who want to change their offerings.
In the words of Seth Godin, have the courage to say, "this is not for you, but it is for someone who believes this."
Brands are best served when made for specific people. For years, I've been encouraging founders to focus on building a brand for one person.
In reading the Lean Startup, there was a moment of clarity: the person you build a brand for is the early adopter. Prior to reading this, I'd be referring to this persona as the ideal customer, but that isn't as objective as early adopter. Here's why:
Early adopters seek out uniqueness and difference, they are very particular with good taste, they have strong tribal associations, and they are willing to go out on a limb to try something new. Furthermore, they are the first dominoes to buy into a product that will eventually spill over into the early majority and late majority. You cannot impress the majorities if you have not impressed early adopters.
Build a product for your ideal early adopter. Not the average or ideal customer.