How creative agencies go over budget before they even start the project!

August 13, 2022

Every single creative agency is unique, and as such, they have different challenges. Where one may struggle to attract the right clients, another might find staff retention tricky, and so on. However, there are a few key issues that tend to come up time and time again. In today’s blog post, we’ll be discussing one of them: pricing projects.

The problem with pricing

Pricing projects is a challenge for the majority of creative agencies, particularly if it’s a new client. Go in too high with your pricing, and you could lose the project. But, go in too low and you won’t be able to fully cover your time with the allocated budget.

This can be an issue because, if projects are constantly being priced wrong, they will struggle to be profitable. And, a business that’s not profitable isn’t going to be able to sustain itself for long…

Creative agencies need to have the courage to cost the projects accurately, just as other professional services do. Let’s look at lawyers as an example. Some lawyers don’t even give you a set fee upfront, but charge per hour, no matter how many hours it takes. Or accountants: they know the true value they bring and don’t feel embarrassed to charge correctly for their time.

What hasn’t helped is the likes of Canva, which now gives amateurs the templates they need to produce their own graphic designs or social media posts. Some clients might even question how difficult it really is to produce a graphic identity, website, or social media campaign. In fact, they have a niece that has a Mac, they could ask her to give it a go!

I don’t need to convince this audience of the importance of using a professional creative agency, but do feel I need to raise the importance of accurate proposals if an agency is going to be profitable.

What’s the solution?

It can be tempting for the client servicing team to submit a proposal that they think will meet the client’s budget. In some cases, the client will have indicated how much they have got to spend. However, this usually isn’t the best way forward for the agency.

For starters, the team that will be doing the creative work should be consulted. They are the experts and will know how much time they will need to deliver the project to the client’s budget, deadline, and - just as important!- to the agency’s high creative standards.

Ultimately, these creative standards are why the client chose the agency in the first place. No client will thank you if the project was delivered within budget and on time, but was crap! So, all three of these standards (budget, time, and quality) must be met for a project to be truly successful.

It’s common for the client servicing team not to consult with the team when producing a proposal because they know the client’s budget is not adequate to really cover everything. Alternatively, they might refer to a previous proposal. The issue here is that the previous proposal may not reflect the actual time spent on the project. So, the client servicing team should go back and check how much time was actually spent on the previous project as a true guide to what they should charge the client. However, this does rely on accurate timesheets, which are always easier said than done, and a blog in their own right!

The chances are that the creative team will request more time than is available, and some internal negotiation is required. If that does not solve it, then the deliverables will need to be tweaked and agreed upon. If the client cannot increase their budget, then they must compromise on the end deliverables.

For a new client, it can be tempting to make your proposal as competitive as possible. But this is a slippery slope. Anybody who has been in the creative industry for many years will tell you that it is very difficult to raise your prices once you’ve given a client a bargain. As such, you could end up with a demanding long-term client that does not cover your costs. This is a recipe for disaster when it comes to profitability and the team’s happiness at work.

A way around this is to set a formal internal investment for the project. For example, if the client’s budget is £30k and you need £40k to complete the project to meet the client’s requirements, you may decide to invest £10k of your time. This should not become the norm for every proposal but instead, be reserved for clients that have the potential for a long-term relationship with your agency. The important factor here is to let the client know that you are investing in the project as their budget is limited, but the agency wants to deliver the best work and build the relationship, so they are willing to do this. However, any future projects will have to be costed for the full amount needed.

Creative agencies aren’t special!

Ultimately, creative agencies need to know their true worth. If they are any good, they should stick to the time they need to deliver work, do it to the standard that clients request, and without losing money. At the end of the day, creative agencies are businesses like any other, and they need to make a decent profit to survive.

In 1985, when Steve Jobs was ousted from Apple, he founded NeXT, a high-end computer platform. He recruited renowned designer Paul Rand to create a brand identity. The cost for this was $100,000. Jobs recalled, "I asked him if he would come up with a few options, and he said, “No, I will solve your problem for you and you will pay me. You don't have to use the solution”’.

Perhaps this is something that more creative agencies should channel into their future projects? It would certainly help with the pricing problem that can damage profitability, growth, and morale- a disastrous combination for any agency that wants a sustainable future!

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