A look into how we price and value our services
How much? It’s a question that we’re faced with constantly. How much do you charge for your goods and services? This question is especially true in the service industry – and, like in commodities, it’s a question of supply and demand.
I get this question most often in the context of “How much does a website cost?” or “How much does it cost to build a mobile app?”
Most industries, in one form or another, use time as the core measurement of value. The value of that time is what fluctuates, but estimates are created based on how much time we think a project may take. We then pay our pool of talent based on another scale of time. And it’s this cycle that often gets in the way of great work.
To make sure we’re getting the value promised, we provide detailed records of how much time it took us to accomplish a task or set of tasks. But that number is arbitrary. We have to trust that the time reported is accurate. Not only that, but who’s time are you paying for? How efficient and effective were they with that time?
In the advertising industry, we not only present reports on time, but also on success. Many clients don’t know how to interpret these reports, and the agency is more than happy to interpret for them (of course, spinning the data to reflect positively on how well they are performing.)
All of this leads to a lot of inefficiencies and confusion as to the value versus cost marketing and advertising adds to a brand. Many companies select an agency based on the perception of that agency. Just like you might buy a pair of shoes based on the brand, a company will hire an agency for the same reason. (A little nugget of wisdom one of my clients at Merck shined some light on for me years ago.)
Is there any validity and value to this old model?
Yes, is the simple answer. We value our time as we should. It’s a limited commodity. What if you had a bank account – and every day, when you woke up, there was $1440 in your account. (Or $86,400). And at the end of the day, your bank account was at $0. It didn’t matter how much of the $1440 you spent that day. You could spend it. You could keep it, but you could never save it. But, the next day, you, again, had $1440.
We all want time. It’s personal. And when someone wants to take that away, we want to be compensated for it. But we can’t all charge the same for that time. So, it’s a very useful starting point for trying to figure out what a service that takes time is worth. But value and cost are two very different things. When someone pays you for working 40 hours, they’re not looking to break even. They expect to pay to make something off of your time and efforts. So, determining the value / cost equation can be very tricky indeed.
There’s got to be a better way!
The same statement that every infomercial begins with is always true. We’ll never get to the point where the way we’re doing it can’t get any better. But, for some reason we sit back, satisfied, with a model that’s been broken since Mad Men. At O|SIGN, we want to always be open to change – to challenge the way every else is doing it to try and improve with every step forward. So, I don’t claim to have an answer just yet. But I know it’s out there. I’d like to challenge everyone service fields to begin to look for solutions that satisfy the time quotient without being prisoner to a model that might be broken.
Wins Above Replacement
Baseball is a game of statistics. Stats are what give continuity of a sport across generations. And the number of stats that baseball statisticians collect and analyze make a game and a sport into so much more. It’s one of the traits that make baseball such potent sport in our society. Stats beget stats. Because of all the stats baseball has captured through the years, many combine stats to produce deeper insights into the sport. The one statistic that has gotten a lot of press lately is one they call Wins Above Replacement – or WAR. This stat essentially sets out to show the true value of a player. It’s the number of games a team won over a period of time more than the number of games they would have won if one particular player were replaced by an average player in the game. And because we’re working with averages, if you were to add up every players WAR, the sum total would be zero.
The reason I bring this up is because I’m curious if there is a similar way that professionals selling their time could begin to look at value of the services they provide. At one agency I was at, the leaders would put together stats to show their success in the social media realm. They would show how many fans they captured for a Facebook page, for example. But that stat really doesn’t mean a whole lot because they’re comparing it to the number of fans they would have gotten if they didn’t do anything. But there are a certain number of fans that come with just setting up the page. So, the question becomes, how many fans did this strategy / agency provide over and above what an average agency with average work would provide. In addition, what is the value of that Facebook fan to the brand?
I bring this up to say that when we’re looking at the question of value and cost, there are a lot of questions we need answered. And our industry doesn’t have the same consistency of stats that baseball has – but we do have a lot of stats. The web is built on it. So much so that the stats behind the content we built could be considered content itself (a completely different topic I won’t dive into here.)
What do we do now?
So, how do we get to a better place? Is there a better way? I contend there is – and over the course of the upcoming months and years, I want to return to this topic. But, to help me get there, I need the help of others. Please let me know your thoughts on this topic and what you think our industry could do to begin assessing value and cost to the services we provide to our client.