I went to see Hot Tub Time Machine on Saturday — an incredibly silly comedy about going back in time to 1986. No Internet, no cell phones, no Ipods, almost no device that we all rely on today to manage, inform and entertain us. Literally, I think many of us would be lost in 1986 as to how to actually function in that world.
Yet, when I look at so many of the models for creative businesses operating today, they look more like 1986 than 2010. Cost plus pricing still rules the day for so many of you delivering actual goods. An ephemeral “fee” (no matter how many line items you put on your proposal) prevails for those of you who focus on providing services. Underlying all of your models is the presumption that you do not have to be transparent with your client – they will just have to trust you to be fair with them. In 1986, you could rely on your reputation and referrals to legitimize your prices and how you operated. It simply was not worth the effort to check up on you. In 2010, your clients often know your costs and your competition better than you do. Google makes it that easy.
What it means is that you have no choice but to be completely transparent with your clients. They need to know how you derived the cost of your goods and/or services and how it is that you will deliver them. You do not have to be the lowest cost provider or apologize for what you charge. However, you do need to be able to defend why you charge what and how you do, more than “that’s what the market will bear”. Vicente Wolf wrote a post recently about how he prices his interior design work. Whether you agree with how he does it or not, you can absolutely see that his clients know exactly what they are buying and how his business works.
Transparency is integrity, respect for your clients and your art. The grace of today’s technology is that, regardless of your reputation and talent, your success depends on your ability to be fundamentally fair and candid in everything that you do.
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I’m not sure if this was a coincidence or not, but a few minutes ago, ShootQ posted a massively transparent and open statement on their brand and business (http://twitter.com/ShootQ/status/11706509522). I think their post touched on slightly different aspects of transparency (partners, referrals, commissions) but I was thoroughly impressed with their willingness to share facts and clear up whatever miscommunication or ambiguity was clouding their brand and company.
I did not see this and have no idea if it was a coincidence, but I LOVE IT!!! Huge hats off to ShootQ
I don’t know anything other than cost-plus……. Help?
I slightly disagree with you. It seems that the new buzz word in the last year has been on transparency. I myself did a blog post on it about four months ago. But consumers seem to think they now have the upper hand and feel they can run your business. Most consumers have never owned their own business’. They have no idea what overhead is. That a business requires staff, insurance, rent, etc. And when I explain it to my clients that I must charge this fee because of these costs, I don’t always win the battle. I get the remark, “well so in so does it for this amount”, or worse “so in so does it for free.” I have structured my fees several ways over the years. But after a huge legal debacle with a client that was on a cost plus basis I no longer charge that way. My fee is what it is, and my prices are based on my overhead. Nordstrom doesn’t disclose their costs and I don’t feel I should have to either.
Thank you for the comment Amanda — I do understand your dilemma and wanted to say that I agree that you should not have to defend (or reveal) your overhead. That said, I hate when consumers comparison shop creative businesses. Fundamentally, they are not comparable. I do love your last sentence — my fee is what it is and is based on your overhead. It implies that you need to earn a fair return and are not willing to work for less. That is transparency to me.
As a new business owner this article was so helpful to see what I should be disclosing to clients. I really love the idea of transparency, and think it will be a great tool to a successful business. Thank you!
This may be a good solution if you are selling a commodity which can be compared with the same anchor point of competitors. However, if you are selling an experience which can be unique (since there is only one YOU) as part of the product or service, how do you put a value on that? Im my thinking, you do not. It is the difference between working for wages (my cost, my markup, my price) and working for a profit (your experience which provided a value to you greater than what you paid).
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