Before the end of the year, we started weekly chats in our Streamtime VIP channel with customers. The purpose? To put the world to rights on how to get better at running our businesses, working with clients and supporting our people.
These “Slack chats” were a first foray into gauging the appetite for conversation and if you’d be willing to share ideas and strategies with each other. And guess what – you were!
What follows is a 3 post series on the topics we picked to get conversation going before the end of the year. If you’re interested in getting involved, and are a Streamtime customer, give us a shout to apply and become a member of our Slack channel.
Below is a summary of our first chat – “How to build more profit into your job planning.”
Questions to kick us off
Is there a future for pure time and materials if you want to be more profitable?
What’s your target margin on a job?
At what point will you walk away from a client (if you can’t sustain a healthy margin)?
These were the questions put to the group to get us started.
Sam got us started, identifying that like many creative business owners, there’s a desire to move to a value driven pricing model, but that, at times, billing by time and materials towards the end of a project can be “exceptionally profitable”.
We’ve seen that many customers plan to achieve a 20-30% margin on their jobs. Sam was very clear on his reasons for doing so. “…to provide staff with the ability to explore creativity outside of ‘billable time’.”
Of course, there are times when clients can slide below the target margin, and there can be many reasons for that, but ultimately, “We walk away at the point where the client understands the cost of everything but the value of nothing.”
The mix of customers in our chats adds to the diversity of ideas and conversations, but sometimes there’s the reality that any ‘professional service’ is going to work in a similar way.
Andrew (who runs an I.T. Services consultancy) agreed that the additional out of scope or additional work at the end of a project can be a great way to claw back margin on a project. Andrew also referenced being willing to run Not-For-Profit clients at a much lower margin due to the feel-good and cause-worth factor of working with charitable companies.
At this point in the chat, Sarah (a member of our design team at Streamtime) jumped in with an interesting question.
Would you consider combining different pricing models on one project or client? And could the creative industry effectively persuade clients to pay for different models?
Nic joined the conversation at this stage to share the way his agency works. They’ve been using the hybrid model for a while now, charging with value-based pricing in the concept stage of a project and moving to time and materials towards the end as deliverables get more tightly defined.
This has been a pet passion project of mine for a while now and so couldn’t help to dive in. I replied, “I feel like the value based pricing model has been around for a while now, but I don’t see too many agencies implementing it successfully. I guess, first step is to try and get to fixed prices that have more room to explore / mix resources on the agency side. But how many people are actually having successful conversations asking, “what is this worth to your business? Ok, well here is our fee then.”
As this conversation progressed, the slippery end of the pricing dilemma emerged – discounting. One of our community of customers shared a story…
“So…..the way it works right now (which I don’t like…..but I don’t own/run the company)…..is we go in with a rate X, and say “coz we like you, we’ll give you 10% discount off X”…. I find this a stupid approach and one I’m keen to stamp out….lest it become a race to the bottom (ergo no margin).”
“They always accept the discounted rate….. which begs the question….why don’t we just raise everything by 10%, then offer 10% discount! They get the illusion of a discount, and we get a better margin……happy times! 🎉”
There’s no doubt that discounting – and worse, free pitching – results in a race to the bottom for the creative industry and it’s something we need to weed out.
Charge up, not down
The conversations we have are great for testing the waters on new ideas. So at this stage of the chat, I thought I’d throw in an idea we had at Streamtime HQ.
Sometimes, if you don’t ask, you don’t get. Many creatives find it notoriously difficult to negotiate pricing, let alone ask for more. So we’re investigating a special button. “THE 20% BUTTON”. It might sound a little too easy, but it’s a simple way to build greater fees into your quote without having to play with hours and calculations – and we’ve all had that client that needs a 20% tax on their projects right? 😉The response? “Bingo!” Watch this space.
Wrapping things up – top tips
Our chats last roughly 30 mins. As we neared the end of this one, I asked for the group to share their top tips for improving profitability.
Here are a few of the best:
- Charge meeting time and preparation properly
- Know where your money is being earned and spent, at all times
- Charge for everything
Too often we give away things for free, such as just one more thing, or can we have a meeting about x, or the CEO has requested a change to this. This all costs us money and needs to be charged on to the client. There might be 10% in the uncharged alone. I know we heard this from a few customers when they moved over to Streamtime, that when they were using ToDo’s properly they started charging for things that had traditionally fallen through the cracks.
If you’re interested in more reading / thoughts on building more profit into your pricing, check out some of the links below:
Setting growth targets and increasing profitability webinar
Planning and pricing with Design Business Council
Creative industry meets venture capital
Emily Cohen’s book – Brutally Honest
Want to join in and are already a Streamtime customer? Just jump into the help bubble and send us a message. If not and you’d like to find out more, why not request a demo.