Why Does This Cost So Much?

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Pricing services is one helluva challenge. If you're running a business, you need to factor in all sorts of costs of their labour and everything else that it costs to run a business, then mark it up enough to make a decent profit. Seems pretty straightforward, right? Take the person's salary (should be commensurate with their experience and skill), add in the cost of hiring (equipment, software, office space, furniture, etc), make sure you account for a bit of idle time and those times that they will, inevitably, have to overdeliver to please a client, then add a percentage that you can put in the bank.

Oh...if it was that straightforward.

Factor #1: The Cost of Client

I work in an industry that creates a lot of intangibles. One of the best pieces of advice I ever received was:

If you are in a business that produces a lot of intangibles, you need to account for the production of a LOT of tangibles.

(She also told me that the opposite rule applies, which is equally true)

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It stuck with me ever since and she was bang on. The amount of time my staff spends building reports, having meetings to go over the smallest things, and writing emails that explain all of the things that clients can't see is enormous. It's probably the same amount of time they spend actually doing the work we're being paid for. It's SUCH an inefficient process and drives up prices, but when we try to reduce or eliminate them, we get in trouble.

I read an article recently, where a CMO was talking about why he was bringing everything his agency did in-house. Why? He was sick of paying for meetings and other inefficiencies. I nearly choked. I've worked in agencies and I've worked on the client side and, I've got to tell you, agencies (or at least the good ones) are the most efficient engines in the universe. You can't afford to - be inefficient.

Everyone knows the client-side is "cushy" and there are way more inefficiencies. 

When estimating a cost of a mandate, there is no line for "admin" (if it was, it would be struck). I've seen clients ask why there needs to be an account manager. One of the first firms I worked at years ago wouldn't move forward with signing a contract until they could work directly with the graphic designers. The outcome? Instead of spending $60/hr for 30 extra hours on the back and forth with the account manager, he spent $125/hr for an extra 30 hours of the creative director's time. So efficient.

I have another rule that I've followed since then, "people who undervalue the benefits of the intangibles are often the people who need them most."

Factor #2: The Cost of Originality

 Everyone wants to have successful content, very few know (or value) the insights and time it takes to find the right strategy to make it.

Everyone wants to have successful content, very few know (or value) the insights and time it takes to find the right strategy to make it.

This one is incredibly tough. No matter how much experience you have or tools you integrate, creativity takes time and it isn't something you can easily estimate.

We spend a LOT of time keeping up to date and gathering inspiration. Everybody has to set aside hours in their day to learn and research. That isn't billable, but we are doing it so that we can be ready for when we need some inspiration.

Also, we have a strong focus on insights-driven strategies (and not just "that would be cool" ideas). Specific, targeted audience research needs to be done. If a client comes to us with lots of insights and understanding of their customers, it can help us narrow the direction, but that rarely (if ever) happens. In fact, I'm always baffled to discover that most companies have NO CLUE who their customers are. So, now we need to go and research this and then pull insights to get to the strategy.

Only problem? Nobody wants to pay for research. They just want the strategy. Now. But where do they think a strategy comes from? Thin air? A hat? A random idea we had kicking around? The fact that too many people think a few brainstorms and random ideas lead to a strategy is why so much marketing out there fails to hit its mark.

So, if you want to be a firm that achieves real results? You need to find a way to build that into the pricing, too.

Factor #3: The Cost of My Cousin's Kid

 Though there are definitely exceptions to the rule, you often get what you pay for.

Though there are definitely exceptions to the rule, you often get what you pay for.

This one is especially hard-hitting in the realm of social media. Everyone knows someone who is a social media whiz kid or guru or the like who said they could do the same stuff for them for a couple hundred bucks. So, then, why would they spend thousands or tens of thousands on you?

Marketing, in general, is one of those areas where everyone thinks they are an expert. I get it. Marketing is a bit of a hand-wavy looking thing that seems like pretty much anyone with a decent imagination can do. And if you're into the basics or just trying a bunch of stuff out and have time and money to burn, hire the cousin's kid. He's cheap, has some innovative ideas. You never know.

My business can't afford to compete with that. But I will say, if that doesn't work out for you, we do everything we can to make sure we use the time you pay us for to dig into the research and insights into the audience to put together a strategy and plan that is more likely to resonate with that audience and then have a team of really smart, talented people with lots of experience who can expertly implement that plan, measure it, figure out where to adjust on the fly, and are way more likely to get that ROI you need to justify your spend.

The Costs Added Up

I've made a lot of mistakes over the years. I've underestimated the time it would take to do something. I've decided to let it go that I spent 5x the hours that the client agreed to because I thought I was investing in a long-term relationship that would pay off, but when I said, "Okay, I've spent 50 hours and you paid for 10, so next time it'll cost 50 hours," they walked away (even after delivering results). In one year, my time sheets reflected that we under-billed $400,000 worth of hours. As you can imagine, my business didn't turn a profit (but the clients were happy!). The following year, I upped our rates and lost two clients.

On invoicing days (and even while haggling estimates), I wish I had gone into law. My lawyer says, "My fees are $750 an hour." It's not negotiable. I know that the minute he picks up the phone or opens my email, the clock is on. I don't question that fee. I watch my time. He has a degree and experience and specialized expertise and I don't want to read that 78-page document full of language that I don't understand. (though I do think they do that on purpose to keep in business)

But I also have a degree and experience and specialized expertise and my clients don't want to spend the time trying to figure out how to reach their customers on the web, and then learn how to design and produce videos and write and build up relationships with influencers and keep up to date on the daily changes that affect their ability to reach those customers and all of the things that take "too much time" for them. But then I say, "My fees are $200 an hour" (or my multi-media producers are $100/hr, or my illustrators are $125, or my content coordinator's are $75/hr, etc), I all too often get, "That's too high."

Which brings me to my final factor: the cost of my own mental health.

There is an insane delta between what time and expertise it takes to do something and most of the world's understanding of this. I know that this problem runs deep and has a long, vicious history of scope creep, fee inflation, squeezed budgets, creative accounting, and now bringing it all in-house. All of that will implode at some point in the future and we'll start another vicious cycle.

And yeah, the agency model is in trouble and it turns out it was a really terrible time for me to build a business in this industry. I love and am passionate about what I do, but at some point, I need to make sure we bill to actual, because, wow...it sucks to lose money when you're working 80 hour weeks. I'm determined to fix this.

I plan to put together some transparent, open explanations of the time that things take and what different levels of expertise cost. I think everyone could benefit from this. Part of the issue that marketing faces are nobody talks about costs (unless it's a bargain). I know there aren't one-size fits all cost structure, but comparisons would be good.

This way, everyone can see if they should be investing in an agency, an in-house team, or, if you're not quite there yet, your cousin's kid.

Tara Hunt