Survive the Price Wars

Editor’s Note: HOW originally published this article when the design industry was suffering the effects of the dot-com meltdown. Today, the lessons seem even more relevant. The bottom line? Hold tight to your pricing and negotiate with your clients on services and benefits. When the economy picks up, you’ll be in better financial shape than ever.

While a down market, record levels of competition and increasing price pressures have led many design firms to lower the fees they charge for creative services, they’ve also inspired a new form of creativity: how to maximize profit and negotiate with clients.

The key in this money-tight environment is to price yourself competitively without pricing yourself out of business. That’s not easy to do with so many players out there, says Jack Harris, vice president of Eureka, a Wilmington, DE-based design firm. “The number of competitors is larger not only because there’s less work, but also because designers laid off from larger firms have started their own businesses. Bigger firms that wouldn’t historically mess with smaller projects are reaching down to keep their cash flowing.”

The result: Clients are shopping for design services based on price.

While a few creative groups have managed to hold pricing firm, most have made financial concessions to get work, say Harris and David C. Baker, management consultant and principal of ReCourses Inc. in Nashville, TN. Enterprising firms have developed creative ways to maximize their profits while working for lower rates. Others have negotiated inventively, winning concessions that add value beyond the monetary. Here are some of your options:

Write a clear, responsive cost proposal. When gathering information to write an estimate, listen carefully to the client. Don’t recommend services they don’t need, because that will increase the scope and costs. Provide an estimate for precisely what they requested, adding options only if you’re adding value. “We recently won a project from a high-profile client because we were the only firm to pay close attention to their needs and provide a well-designed, easy-to-read proposal that addressed their specific needs without any extras,” says Lisa Harris, president of Eureka. Hold your price firm (if you can). Options are the key here. If you have plenty of other work lined up and can afford to lose a client based on price, stick to your guns. Or if you’re in the enviable position of being able to provide a unique service your competitors can’t match, you may also be steadfast. “But the only way to hold firm is to have a steady stream of prospective clients,” Baker says. “Otherwise you’re playing a game of chicken.”

Hold your price, but add services. Many firms have managed to maintain their rates by being flexible about providing added services and benefits to the client. Identify value-added tasks you can offer your client for free. If your assignment is a branding program, for example, offer a facility audit to determine if the client’s space supports branding objectives. Other value-added options include offering them a credit toward a project down the road, helping them with a pet pro-bono project, offering to combine trips to save on travel expenses, or compressing the project timeframe.

Lower your rates—as little as possible. Lowering your fees may become a reality, but do it only on an as-needed, case-by-case basis. “It should never be your first choice,” Baker says. “But in times like these, it can be appropriate, as long as you realize the long-term effects.You’re essentially wasting that client, because you won’t be able to come back later when the economy is better and raise your prices.” Given the choice, he advises helping existing clients with price concessions rather than starting out on the wrong foot with new ones. Don’t even consider an across-the-board reduction for all clients. “Lower prices as little as you need to get each job, and only on a selective basis,” Baker says.

Protect the integrity of your positioning. While you may need to lower prices to maintain your cash flow, never aggressively market yourself on price or do anything that compromises your firm’s integrity or reputation for high-quality creative output. “The emphasis should always be on the quality of work you do, not on the great deal you’re offering,” Baker says. “Never devalue your services to the point that it will affect the value of your brand.”

Build wiggle room into cost proposals. Jack Harris suggests specifying a range of options in your pricing proposal to give yourself padding if you end up with a lower fee than expected. “For example, these days I’ll specify three to five logo options in my proposal. If I end up with a smaller fee than expected, I’m only bound to create three options, not five.”

Negotiate favorable concessions. If you must lower your rates, try to recoup part of your losses through favorable concessions. “The net result is the same: You’re doing more work for less money,” Baker says. “But negotiating these types of concessions protects the integrity of your positioning by adding value beyond the monetary.” In return for lower rates, ask for:
• Additional work at a later time (put this agreement in writing)
• An accelerated payment schedule (every 15 days instead of 30, for example)
• A narrower project scope (“I can do Tasks A, B and C for that fee, but not Task D.”)
• In-kind payments. If your client has a product or service your firm could use, ask to receive it as part of your compensation.
• Use of client resources, such as support staff or equipment
• Inclusion of a credit line in printed pieces or a link to your Web site from theirs
• Referrals to other clients (but only after you’ve proven your value)
• The right to show the work in your portfolio (some clients don’t allow this)
• Ownership of digital files. (“The pressure from the marketplace is for client ownership, but [project files] have significant value beyond the job, and I try to keep them,” Jack Harris says.)

Listen to your gut. “If you think lowering your price will help you win the business, but the client will be overly demanding, move on and seek other prospects,” Lisa Harris says. Otherwise, you may enter a lose-lose relationship that costs you more than you imagined