My goal with this post is to add an additional perspective to your day. How do you value your organization’s time and work effort?
Like George Clooney’s character in “Up in the Air”, I have a number in mind.
This number represents the least amount my company needs to get paid by the hour, per employee, in order to sustain my business.
In large organizations this number can vary dramatically depending on the person and skill set utilized.
In small organizations like a boutique marketing agency, they sometimes use a blanket rate or range. This can be the minimum hour per person divided by the cost to run the business. Business owners who crunch numbers for fun will have complex formulas to find this number.
The next number I have in mind is the market valuation for my services. That number is significantly higher (hopefully) than aforementioned number. Organizations like the RGD and Marketing Magazine love publishing lists of going rates for talent or services.
The number to consider after that is the value of my company’s to a specific client. When you spend years getting to know them, you understand the processes, you build things the way they want them built. That has a value, which is not unlike “shadow equity”, meaning it exists while you are there only. Some clients believe that the longer they work with you, the less things should cost. Which is strange. Imagine if the brands we purchased priced their goods based on long term undivided loyalty. (ie. the longer you buy Tide, the cheaper it gets)
As a marketer, I spend a lot of time negotiating for the value of my time. I have some clients who they feel that work should cost less depending on what they paid in the past for seemingly similar work. Or their interpretations of what our skilled work efforts should cost. We have other clients who are happy to pay whatever we charge because they know they get the value for work done. They are unicorn clients and we service the hell out of them.
Now when a negotiation happens between a customer and a supplier a few things are said:
The supplier says: this is how much we want you to pay us to get the work done properly.
Hopefully that supplier has their pricing at a level where they are billing for the value of the work keeping sustainability and growth a priority.
The client then can come back and say: well this is how much we want to pay to get the work done properly.
They will layer their negotiations with things like well there’s no budget for it, or this is a very quick project, not many people will see it, it’s just quick update of something you’ve done before... they will find an excuse to get the price down.
As a business owner I have to decide how much I want this business, and deal with the compromising value in order to keep the business long-term with this client. Just charging your clients what it cost you to operate your business doesn’t leave you room for when things are quiet. It’s also hard to grow your business without money in the bank.
Let’s state the obvious for fun. Your client’s business is also a business just like yours. They have the same interesting value scale with their customers. So technically, they speak a similar language in regards to cost/value of services.
What a client is actually saying when they cut the price down is this is how valuableI feel your work is and I am willing to pay this much for it. This is fine and that’s their prerogative. They can say “it’s not personal and we just can’t afford that” but in reality if something incredibly pressing was needed to be purchased, they would pay whatever the seller told them it would cost.
As a supplier we’re saying when we acquiesce to a negotiated price reduction, this is the minimum I value my work effort. Receiving any less than this will be considered undervalued and not acceptable. I know this sounds a little harsh but it is a reality. If that number is the first number or lower you will run into challenges keeping your business afloat, let alone in a position for growth.
The frustrating thing for new businesses, and small businesses, is we often undervalue our time. We will do things cheap and do things for free. We have no problem making these compromises in the short term. In reality if we were to look at a decision made, scaled out based on a five-year impact, and see that it actually would put the business out of business would we still make the decision to let our work be undervalued?
I have spent the last 15 years professionally valuing my time and having to put a price on every minute of it. I’m at a point now where the value of my time includes the growth that I need, and undervaluing my time will not make my business succeed. I’m not willing to make that compromise so my shop ends up being more expensive than a lot of competitive shops.
The challenge is walking away from business. That is hard to do and I am not saying there aren’t times we take work at a discounted rate. It doesn’t feel great and it is really hard to get excited about the work. What ultimately gets compromised is our time. We are also teaching people how to treat us when we do this.
Here is an example in action:
Your client needs a brochure. It will be 16 pages, require photography, a pleasing layout, and absolute accuracy around getting all of the content correctly utilized. Based on the collaborative style of the client, the layers of approvals, the billable resources needed, the non-billable resources needed; the project will require a specific amount of time to complete. That will not change. It will take as long as it takes to make. The sliding scale in this case is the value of this time to the company procuring it vs the company producing it. When these two values matchup, the work can begin.
But when a client doesn’t want to pay what your time is worth, why does the negotiation need to scale back only in their favour? If the project should cost $2,000 and they can afford only $1,500, how can they provide the difference to your company to make sure the value is met? If they don’t actually believe the work is worth $2,000, that is one thing and they may have to go elsewhere to get their price. But assuming they do agree the work has a $2,000 value but don’t have the capital to cover the cost, are their other options for compensation. Product? Equity in their business? Barter?
Budgets seem tighter than ever before, and when we negotiate around them we set a tone for the relationship with our clients. I believe that there are a huge amount of opportunities to set a new precedent for compensation in lieu of flush budgets. As suppliers of ideas we need to lead this charge.