Half a million pounds for branding and app design?!
Last year I saw such a proposal for the first time. And the client seriously considered it. They just didn’t have the money, so they had to look for a different provider. After seeing half a million pounds of design proposal everything looks cheap after that.
But how can some people charge that much for design?
There are three main methods by which you can price design.
#1 Price Inputs
Your time spend is multiplied by your hourly rate plus expenses.
I guess this sounds familiar. It is what most of us do. You make a time estimate of how much time it might take. You give this to the clients with the agreement that you will give them a monthly time-spend report and you will charge them this way until you finish the project or they fire you.
In this case, all the risk goes to the client’s shoulders.
#2 Price Outputs
Your time spend is multiplied by your hourly rate plus expenses plus buffer.
The buffer could be 20, 30, 50 and sometimes more than 100% in addition to the time and materials price. This is your profit or your safety net in case something goes wrong. Your promise to the client here is that you are going to deliver a finished product at that fixed price no matter what.
Here the risk is split but in return, the client gets a price certainty that they can plan for and you get a bigger profit if you play your cards right.
#3 Price Value
Your price is a percentage of the client’s desired future state — a $2M increase in profit.
If the clients will potentially make an extra $2M in profit in the first year of realising this new app you design for them, $200K seems quite a reasonable price all of a sudden. To be honest I haven’t seen such contracts yet but for all I know, people make them. In this case, contracts are structured such that if you miss the mark, you get paid to cover your time and materials. In some cases, you don’t get paid at all. It’s all a matter of negotiations.
So next time your clients ask for guarantees and you know what you are doing, this is the way to go.
Guess which of the three pricing methods was used in the half-a-million-pounds proposal that I mentioned at the beginning? Nope, it wasn’t #3.