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To What End Gatekeeper?

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This articleabout how a Maui venue, Haiku Mill, is redefining the fees and obligations it requires of its preferred photographers.  Photographers have to pay a fee to shoot there, keep the venue in the loop on all email conversations, get approval before posting images and include venue required shots in their shot list.  While this is about the event business, this post applies to all creative businesses.  Gatekeepers matter if those validating are worthy of the role and maintain their commitment to get narrower and narrower in supporting what matters about those they speak of.

The article talks about calling the strategy by Haiku Mill a commission by any other name.  Ok, I guess but the issue is so much bigger.  This venue is actually seeking to control the photographer and standardize the images that are produced there.  The venue is also trying to control the release of the images.  What is missing is the promise of the venue on the other side to promote the photographer and their work at the venue.  Go to the venue’s site and the only way you see credit to the photographer is if you click on the image to get to the venue’s Instagram page.  You will not see the preferred photographer list anywhere despite the fact that only preferred photographers can work there.

I just love every part of this discussion.

On the one hand, Haiku Mill is an iconic property where weddings are certainly high-end.  They have every right to control how the property is presented.  On the other hand, photographers having to pay to effectively market for the venue is a valid point, especially when the photographer themselves have an almost equivalent social media reach.  On the one hand, Haiku Mill is controlling the photographer by dictating shots and distribution.  On the other, they are creating a standard by which they are confident that the venue (and image) will be appropriately high-end.  And I could go on forever.

The point: for those who still have student loan debt or belong to any kind of club that you pay to be part of, you paid for the right to be associated with an organization that would have you, so that you can reap the rewards for being incorporated into such an association.  This is Duncan Hineseverywhere.

My specific issue with the article is that it does not point out what Duncan Hines and every other validator worth anything does: why do they belong on the list beyond their willingness to pay money and do what you say?  Do existing preferred photographers get to evaluate potential photographers?  What are the evaluation criteria?  If you want to run a TEDx conference, hereare the standards to which you need to adhere.  If you want to be a Leading Hotel of The World, hereis the standard you need to meet to even be considered.  And, yes, you have to pay TED and The Leading Hotels Of The World to be associated with their organization.

All of which to say, I have absolutely no problem with any venue charging a fee to vendors (it is a whole other conversation about the extent to which clients should be informed of these fees).  My problem is that the fees really mean nothing if there truly is no validation of “preferred” other than a willingness to meet the criteria of Haiku Mill.  What it says is that if you are willing to jump through hoops, you can play.  It says nothing about whether you are, in fact, good enough to play.  Assuming those who meet the criteria are good enough is the heart of the issue.

The answer is not to cry foul over Haiku Mill’s practices, but to encourage things to go further.  The proof would be in the pudding – if Jose Villawith his 366,000 instagram followers (vs. Haiku Mill’s 15,000) got hired to shoot a wedding at Haiku Mills but refused to meet the criteria set by Haiku Mill, are they really going to turn Jose and the wedding away?  If they do not, then all they are talking about is a sham and it really is just a vendor shakedown.  But if they do?  What would everyone say then?  The purity of a validator is what matters regardless of money exchanged.  That is what makes Harvard Harvard.

If we are to solve the age old commission problem, we have to redefine it.  The hidden money is a ruse.  The issue is who should have the right (obligation?) to set the standard and why?  We all seek validators when there is overwhelming choice or we are just plain scared about getting it wrong (or, in Duncan Hines’ case, dying from getting it wrong).  This is the very definition of most creative business — how to evaluate the artist asked to create on a client’s behalf?  If we start there, we can create a much more interesting and significant conversation.  To what end gatekeeper?

Compromise and Accommodation Are For Suckers

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Negotiate, be flexible, make the deal, do not let the client go. Or, better, these are friends, relatives, colleagues of your biggest client.  If you want to impress the real client, best to take care of these associations.

Amateur hour.

Why? Because amateurs have not done the work of understanding who they actually are as artists and creative business owners. Their story is a permutation of the same story every other amateur is telling:  I do pretty (and easy, stress-free, customer-service oriented, blah, blah, buh blah).  Professionals, on the other hand, know that on which they stand.  Professionals know who their art is for and, more importantly, who it is not.  Professionals align everything to signal to the right client that this is their home: price, process, budget.  Price is a reflection not just of value but relative scarcity — how many projects will it take to earn what is necessary. To the client, how big is their group matters more than just about anything.  Do you have the time to give me the attention I require?  Process is the idea that there is never a time you do not know where you have been, where you are and where you are going.  Oh, and why.  Budget is knowing that it can ALWAYS be done for less, just not by your creative business AND that it can ALWAYS be done for more, just not by your business.

If you can appreciate the foundation above, how exactly would you compromise that foundation and still expect it to be structurally sound?  Of course, you cannot.  That said, compromise is not flexibility.  Flexibility is like a slinky.  You can stretch it, twist it, smush a slinky.  It looks completely different each way you move it, however, it is the same toy.  So too with your creative business.  You can complete projects in record time or extended time, work at the top of your budget range or the bottom, this style or that, but the structure, the ribs of the slinky never change.  Bend or break a rib and you destroy the toy and your creative business.

All of which leads me to a situation I see all too often.  You have a fantastic client who values and appreciates everything about you, your art and your creative business.  An association of the client — relative, friend, colleague — shows up and trades on the relationship you have with your amazing client.  You assume (wrongly) that assisting these associations will serve your relationship with your amazing client.  So you go down the road of doing what you do not do in the name of supporting your client.  It almost never works out.

Unless associations are clients who, themselves, care and value what you and your creative business offer, they will never give you what you need to be remarkable for them.  Simply, they do not care about what you (and your amazing client) care about.  And because they do not care about what you do, they cannot appreciate what you built (ahem, you did not build it for them).  You will then be caught in the middle — trying to serve your amazing client through their association, which association is working with you because of the amazing client but is not, in fact, an amazing client.  A disaster waiting to happen since you will likely fail with the association and alienate your amazing client because of that failure, all in spite of the fact that you were doing what you were to impress them.  Complete backfire.

The solution? Evaluate each client on their own merits.  If the potential client does not fit — budget, style, sophistication, etc. — then simply allow them to go and acknowledge that any anger that may come from your amazing client will quickly dissipate as they remember why THEY love you.  The frustration of failing their association, however, will linger for a very long time.  Understand that not serving the association creates exactly zero risk that the amazing client will go to those that would.  And if they would, a) they were not so amazing to begin with; and/or b) they will be back when they realize how much THEY do not fit with the association’s selected creative business.

Being ever more true to you, your art and your creative business is its own reward.  Leave compromise and accommodation to the amateurs.

What You Need Really Matters

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In my Business of Home column this week, I talked about when it might be time to call it a day.  On Facebook, there was a ton of conversation about how a baker decided to stop making wedding cakes because she just could not make a living doing it.  Unfortunately, she took down her post describing her decision.

In both cases, many well meaning people, advisors, colleagues effectively said that if the designer or the baker had charged more, made an appropriate profit, the problem would be solved.  Others talk about value and how you have to be able to sell your value to get paid the right amount of money.

Of course, this advice is, on its face, accurate.  It is just that it is not nearly enough.  I will say it plainly:  without the courage of conviction, the faith in your ability to transform, to create meaning with and in the work that you do, you will never find the humility and humanity in your art.  And it is in the humility and humanity of your art that you will discover the power to ask for what you need to do the work you are called to do.

The baker was profound in her ability to know that she was undercharging and yet she persisted.  What she did not do was to ask why she was not willing to get paid for what truly matters — the art first, its manifestation second.  So she allowed herself to say that if only she stuck to her guns and charged more she would have been okay.  It was not and it never will be.

As Bill Bakerwould say, a ship without a purpose, a profound story, is lost at sea.  While that ship might find its way to shore, just as likely it will crash on the rocks, or worse, float aimlessly forever until only the shell remains with no life inside.

If you can come to the place of conviction, you can own your story as deeply your own.  With that in place, and only then, can you set about talking about what you need to do what you do.  Truly, that means pricing from the top down, being responsible for the necessary irrationality inherent in all creative businesses.  You get paid what you get paid because it is what you need to get paid to feel empowered to take on your next project.  You are fed, neither a glutton nor a pauper.

No matter the strategy, structure, technique, formula or other “do it this way” advice, the end boils down to this:  your creative business must exist to nourish your art and not the other way around.  Unless and until you acknowledge the absolute truth of this statement, you leave yourself open to possibility of compromise.  Compromise are the never ending cuts, each relatively painless, but lethal in the accumulation.  By the time your realize your peril, you are already dead no matter how much you think you know that the answer is right around the corner with a higher price or a better definition of value.

Instead, see courage as being willing to admit you do not know what you do not know.  Callouses provide toughness and grit, sure, but they also create blinders to what might be possible.  More callouses, more blinders, until you are, in fact, blind.  Go the other way.

So many of you are lost in the idea that somehow your art has to be “worth it” to client with no mechanism as to how to define that value.  This is especially true for social or individual clients.  How about the idea that the return on an emotional investment by both you and your client in your art must be exponential to merit the investment in the first place.  Translation:  you are in the business of transformation, not pretty.  Pretty died the day mobile arrived.

As Seth Godinwould say, talk to the smallest possible audience.  Those that really really care about you, your art and your creative business. Make an outrageous promise integrally connected with an outrageous demand.  Get paid for the outrageous promise(s) as you need.  Then keep that promise(s).  Rinse and repeat.

Expanding Your Creative Business

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Before we jump into the conversation about expansion, let us first define some terms.  Expansion as we are going to talk about here is going into another line of business, hopefully based on your current line of business — a wedding planner doing day of coordination, an interior designer doing styling.  An entirely other conversation is growth which is doing what you are doing now somewhere else too.  Quite literally opening a new office in another location but doing the exact same thing.  We will leave the growth conversation for another time.

Just as many shiny apples fall from a mature, healthy apple tree (many more than can be consumed), so too with new opportunities.  The point is not to try to pick all of the apples, only the shiniest ones.  Of course, the assumption must be true, the tree has to be healthy and mature.  Your creative business needs to own its space and be solid in its niche by way of reputation, value and process.  If you are all over the place in any of these categories with the core business, piling on a new business is at best a distraction, and, at worst, the straw that will bring everything down.  Why? Because the core creative business needs to support every other endeavor, not the other way around.

Yes, before starting any new business line, you must do your own Perfect Egg analysisto decide what it looks like to leap and whether leaping will be worth it.  If all is great with the core business, leaping just to leap is silly.

Presuming that analysis works out though, the real question is whether you are going downscale, upscale or staying even.

While I understand the temptation to go downscale (i.e., provide a cheaper, lite version of what you do), it really does not make a lot of sense to me.  Examples would be planners who offer partial or “day-of”, caterers a set cheaper menu, entertainers a smaller band or shorter set, interior designers offering only rooms instead of an entire house. The reason it does not make a lot of sense is that you are selling your weakness instead of your strength, the place where your art does not make as much of a difference as it does in your core.  When you go there you are literally begging for competition and you are hoping your name in your core is a differentiator, except it cannot be since it is not really your core that you are selling.

What I would much much rather see is you develop businesses that serve your core and vice-versa.  The essence of The Perfect Egg.  Get permission to be specific as to what you are going to do.  Consumers by ready-to-wear because the designs are already proven and the combination of these designs is what matters.  How can the new part of your creative business look like that?

For those that would seek to stay parallel or even go more upscale, I love the challenge, but understand the value point is differently.  If you are accustomed to a certain scale and volume, entering a business with a larger scale and smaller volume, regardless of the type of business will require a new language and a different set of promises. Selling even or up is awesome provided you can use your core as the basis to go higher without losing it or the clients who support it.  The phrase “too big for your britches” comes to mind immediately.  However, discovering how you can mean more to clients who already care the most is music to my ears.

No matter what, chasing volume and cash flow is a fools errand if neither is enough to justify the journey.  Perspective matters and if the new business is about saving the existing one, there is truly no point.  If the core is broken, then it must die if you cannot fix it.  If it is fixable, fix it first, then see how the new business can make it better.  Build on your strength, not your weakness.  And, of course, value is value and it needs to be distinct wherever you place it.

Managing Production

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Here we are in the dog days of summer and out comes the, well, outliers.  People behaving badly, meaning those clients who look for cracks, find them and turn on the jackhammer.

Whether it is a client refusing or just plain ignoring the necessity of having to make decisions to move your design process along or questioning payment and the value of your art during (or after) production, there is no more frustrating experience.

I talked about client ghosting in my latest column for The Business of Home.  While not all decisions are the same, it is not up to your client to determine what is important and what is not; that is your job.

Managing and valuing production, however, requires a whole other level of conversation.  Suffice it to say that many many creative business owners fall down here because they have not done a good job of differentiating between objective and subjective.  I am sure you thought I was going to talk about production and how you have to justify the value of what you are creating and the necessity to be paid, fully and unconditionally beforehand.  Of course this is important, but if you do not separate the proverbial wheat from the chaff, there will always be an element of distrust since you are trying to get paid for the ideation of your art through its creation.  Will never work out.

If you do not understand, and/or cannot articulate, the difference between conceptualization and execution, you will be forced to accept that some of the so-called value you are providing for the creation is really what it costs for you to think about it.  And in our digital world, the premium on the thing disappears when I can see ten other things that look just like it.

It leaves you with selling fear.  What I do costs this much because of the quality it represents and if you do not have this quality you will not be happy.  This may very well be true, but clients will never believe you when they can see all of the alternatives and because you have not charged them appropriately for conceptualization.  Your desire to sell the fear of not doing it as you say will backfire.  The answer is to say definitively that what I imagine for you will cost this much to create.  Period.

Even though I have been talking about the difference between subjective and objective literally since I began as a consultant in 2009, we have now reached the time when your refusal to distinguish between the two (because, hey, it does take work and forces you to say why what you dream about matters) is what will force you, your art and your creative business to the bottom.

Clients may be gross and try to reverse charges or undercut your intrinsic value.  However, they do it because they can or at least feel like they can.

All of which leads me to the ultimate point, in creative business, the client is NEVER right.  Good service is about mutual respect, not acquiescence.  It is about a willing on both sides to engage in honest communication with what it will take to imagine and produce art.  Your job as both an artist and creative business owner is to lay it out plainly and specifically how EXACTLY that is going to happen.  Your clients’ job is to show up, make decisions and pay you.  If either of you do not do your job, you need to be fired.  Pretty harsh?  Maybe, but the alternative is to hand the keys to the inmates in an insane asylum all in the name of good service (the client is always right).  Accommodation is just another word for mediocrity and has no place in creative business.

Accommodation also leads to the right client never showing up.  You are left with those clients who believe your best is determined by them and not you.  And when that happens you really have no business at all.  So be intolerant before you ever need to be and convicted in why it matters to everyone, you, your employees, your art and, most of all, to your client.

To What End?

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Seth Godin had a great post on Wednesday about the power of productivity talking about business/busyness.  It really is a conversation about intention.  Are you able to move towards the goal you set out for yourself with singular purpose?  Yes, I am a powerCapricornso this everything to me.  However, even if moving towards an intended goal is not your jam, there still has to be an element of intention in your creative business.  To have real intention though, you have to have real goals.

I am guessing you think real goals are attainable ones, like in any good business plan — number of projects, project size, revenue for this year and beyond.  And partly you would be right.  Knowing what your business looks like at the most basic nuts and bolts level is important for you to have your feet on the ground.  But it is not what I meant by real goals.  By real goals, I meant who do you want to be?  How do you wish for the world to perceive your art, the way you conduct your business?  Who is your art for?  More important, who is it not for?

When you reach a certain point in your creative business, you let your portfolio and your reputation do the talking for you.  You are hiding and it is a mistake.  Same if all you are doing is projecting the future on where you have been.  Ten projects this year, hope for twelve next year. Instead, name your goal in a way that is profoundly you.  Perhaps that is based on a project, perhaps on a vision, perhaps on personality trait, it really does not matter.  For instance, if you want your clients to live their best lives because of what you do, that is awesome, but what does it mean?  Form? Function? Combination?

For too many creative professionals, your goals suck because they are derivative of either what history has dictated or what the world around tells you you can become.  So the goals are not really yours as you stand today.  Being productive to get to those goals then is fools play since you may not want to be there anyway.  Better to set out using the (re)definition of what makes you relevant as an artist and business owner and then building the path that will get you to embody the definition.

It is all about investment.  Anything is possible but not if you are investing in the very thing that will never let you get there.  None of us have unlimited resources and using your resources without knowing your goal and without really giving yourself permission to own the authenticity and singularity of the mission will inevitably be a lot of wasted energy.  Ten thousand likes with no clients is a very sad story to tell.

I have been trying to teach my eleven year old son lately that courage (he says bravery and that works too) is being able to say that you know you do not know.  It means two things.  First, ask for help from those who might.  Second, the future is uncertain and nothing any of can do will ever make it otherwise.  Put the two together and it means leap.  Challenge yourself, your art and your business to be the version you could never imagine it to be.  Do you really think Steve Jobs or Jeff Bezos really knew what Apple or Amazon would become?  Of course they did not, they just knew they had to leap.  Along the way, they asked for help.  A lot.

Achieving goals, that is the doable part.  Defining what those goals should be, that is where the demons live.  The value of authenticity is limitless.  Choosing to go there means being plainly naked for all to see and judge.  There is no greater risk and all of us run from it at some point.  The question for today is are you willing to come back? Pretty can beget pretty but it will never be real (or sustainable).  If you are to get where you truly want to go, you are going to have to imagine what you and your creative business most want to be and let go of the rest.

Transition

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Change sucks.  The only reason to ever change anything in your creative business (or your life for that matter) is if the (potential) benefit outweighs the pain you will have to go through to get there.

The part to remember is that there is never change without pain.  Necessarily you will be giving up something in the hopes of attaining something else.  For some people, ripping the band-aid off is the way to go.  Radical surgery that is a ninety degree turn from where you are today.  For your business, it might mean firing long-term employees, shutting down a particular area of the business that no longer serves you or your art, going all in on a particular way of doing things.

Other artists, however, cannot go all in and need incremental change to get where they are going.  They can deal with sustained pain, just not intense pain.  These creative business owners scale back a business line, limit an employee, raise their prices slightly.  The goal is to change but not risk everything in the process.

My deep preference is for radical change, where you give yourself no option but to stand in the light YOU choose and live with the consequences of others either not believing you, or worse, not caring.  You leap fully aware and conscious of the intense pain you are about to endure with the faith that the other side is available and valuable to get to where you need to be on your journey as an artist and creative business owner.

I do, however, have appreciation for those that need to move slower, to dip their toe so to speak.  Provided they have the same commitment to fundamental change as those who would leap, those who hop can get there too.  Like leaping though, if you undervalue the depth of pain you will feel or overvalue the change you are actually making, you are likely to get nowhere.  Incremental change is an oxymoron if it keeps you in the same place with new clothes.  If you want to be perceived as luxury or power luxury, and raise your prices twenty percent to get you there, you did nothing but drive the point that you are who you have always been, all the while validating those who wish to be you.

To make change, you have to be committed to the pain of change.  You have to endure what is in front of you with the understanding that many will be wishing you to be as you always were.  And yet.  If the promise of your art and your creative business is to be better tomorrow than you are today, you must embrace the work and challenges ahead to be more authentic, more focused, more willing to reject those who would see you as other.  You cannot be simultaneously the comfort of what was and relevant to today.  The comfort of what was can drive you to today, of course, but leave the same as it always was to the diners and delis of the world.

Whether radical change or more subtle shifts, awareness and intention matter.  With awareness and intention, you will close the door behind you and seal it shut.  This is the place of abject fear for us all.  True change, no matter the form, means giving up the idea that you can ever go back to what was.  It means losing all of the back doors embraced in the phrase, “we can do that too…” No, you can only do what YOU do, the too part is for some other artist as it is what THEY do.  Even if you wind up going back to the way you once did things, it will not be as you were but you are now.  The story of the Phoenixis resonant and should be a guiding light as you seek to evolve your art and your creative business.  If you have truly embraced change, the phoenix has burned and there is no longer any there there only what is here.  Change from here has vastly different implications than change from a there that no longer exists or is available to you, your art or your creative business.

Knowing what is right for you is different than having the courage to live there.  Then again, the courage should come from the idea that you really do not have a choice.  When you hide, you give others permission to take the light that is yours.  That is not sustainable. The light will be either permanently lost or you will reclaim it as yours.  Hiding serves no one, least of all, you.

Pricing In The Luxury, Power Luxury, And Ultra Luxury Market

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All luxury is not the same.  We as creative businesses need to better at saying what area of luxury we inhabit.  There are three categories that come to mind: luxury, power luxury and ultra luxury.  Each of these markets demand a different business model to reflect the needs of the clientele who inhabit each level.  As a whole, creative business has done a very poor job of defining and segmenting luxury markets to create models that serve those specific markets.  We are still a hodgepodge considering all luxury to be the same and it needs to change.

Critical to the conversation though is the fundamental idea that all creative businesses have a subjective component and an objective one. The subjective are those ephemeral items like design, concept and vision. Objective is the cost to implement the subjective in real time. Smush the two together and, I do not care who you are, subjective becomes worth zero. Today, more than ever, no one sees the value of design in its production. In fact, quite the opposite. And even more than that, if you do not charge specifically for the subjective, it is worth what you say it is – nothing. Free is free.

So if we are going to value the subjective, we have to make it plain that that is what is getting paid for. Regardless of the category of luxury, all luxury creative businesses have to get paid in some form for the subjective.  Easy enough, but not nearly good enough. On to the different categories we go.

Luxury.  We live in a fluid world and we have to recognize that variables have to be in relation to expectations and project size until they are not.   Overall cost of luxury in the wedding market should not be less than $700/pp all things being equal. Really it is closer to $1,000/pp, but I will let the floor be slightly lower. So 200 person wedding, base $140,000 cost.  For interior designers, let’s call it $75/sf on a typical 2,000 sf space (i.e., $150,000).  Less than that is not compelling as luxury – just not enough there there. What that means is that to support a creative business with projects lower than this sort would require a volume that takes away the attention that luxury clients demand.  You can do beautiful work there but the level of specialness and trust in the relationship between client and artist just cannot be there.  You have to work too much to make this promise of specific attention a reality.  All of you should work in your markets to define the floor but I am not going to be too far off.

The floor is the easy part. From the floor to a certain level where power luxury will begin, all the stars align for luxury – you get to make the money you need relative to project expense and work as much as you would like to make it. Expectation and relative cost of a project align. Let’s say your average wedding is $150,000, you make your 20% or so and you would like to work 15 times a year. $500,000 in fees with a 50-60% margin and all is good. You take home $250,000.  Interior designers make a higher percentage (closer to 30-35%) but probably cannnot support 15 projects so they do less projects but make more so they wind up at the same $250,000. 

The value for professionals in the luxury market is predicated on expected attention (i.e., how much you want to work) and relative value to the project (how much you cost relative to budget). This is the meat of the bell curve. What this looks like in each respective market should be absolutes and known. And all of you should set them.  Local markets are just permutations of national/international levels when it comes to luxury.

However, to make those standards effective in the luxury market, we have to define the next strata of luxury, power luxury, where the relationship between subjective and objective breaks, where expectations and scarcity become the primary drivers.

Power Luxury. For weddings, events from $2,500-5,000/pp I would consider power luxury. Interior designers the cost would be $140/sf – $275/sf.   Pretty outrageous but not ultra anything. Here we are starting to see the need for a new model focused on the relationship to expectation as opposed to relationship to cost. Relationship to expectation is: what should something like this cost from a creative business like yours? If the steak should be $75 in this category, pricing at $50 excludes you from the category. This has to be paired with scarcity – how much time are you willing to devote to each project so that the premium client gets the attention they deserve.

In the power luxury category, you can still bastardize the luxury model, but only to a point. 20% can become 15% (or, for interior designers, 35% can become 30%) and design fees can rise. Your fees can grow incrementally and still make some sense. Just know you are pushing it though. Power luxury looks a little like luxury and a little like ultra luxury. It is a valuable market and allows luxury players to stretch and ultra luxury players to dip down. Completely dangerous though as it is neither luxury or ultra luxury. The model has to be a specific hybrid and needs to be well defined by everyone. There has to be a design/subjective component that is far more substantial than any objective one. For instance, in the power luxury category, design itself needs to approach 10% of a budget. Think about it. Execution is relatively static in the luxury/power luxury world, it is not multiples harder to do a $1,000/pp wedding (or $100/sf design) as it is a $2,500/pp one (or $250/sf design), harder sure, but less than 2.5 times.  However, the pressure on design is enormous. These clients expect original and special and should receive it.  So you HAVE to charge a premium of design to fulfill your promise of couture.  Percentage on production just does not get that done alone.

Ultra Luxury.  My presumption is that we are at $6,000/pp and up for this category ($350/sf and up for interior design). Here it is all about expectations and scarcity. My position is that there should be absolutely no relationship to cost of production here. It just makes no sense. The conversation should be that it needs to cost $x to do this work with ALL costs of production shifted to a monthly fee. How many of these projects undertaken per year matters too. Let’s say we are talking about a $3mm wedding, I would start with the premise that there will only be 5 events like this per year and target revenue for your business for these projects is $x. For arguments sake, let’s say $x is $2.5mm. Design would be $300k per event with production running at a monthly rate necessary to produce the event and based on a 4 month production schedule. Call it $50,000 per month. Presuming this makes sense as a business and relative market expectations, there you have it. If the event takes over the ability to do 5 (say it is a $9mm event), everything adjusts accordingly. Think about it as if the $9mm client is buying 3 events: $900k design fee, with $150k/month production fee.  Interior design can look similar with a very large design fee and either a monthly fee for production or a commensurate percentage earned monthly and then extended if time extends (not a risk for events).  For the ultra luxury market, we are talking about being commissioned as a high artist and the price for that has to be almost entirely skewed to design (aka, the creative aspect of what you do).

Can you inhabit more than one level of luxury?  Sure.  I just do not think you can inhabit all three.  Way too confusing and you will just wind up cannibalizing yourself.  Better to focus on what you do and how you fit in the market(s) you wish to call your own.  Knowing whether you consider your creative business luxury, power luxury or ultra luxury gives you permission to act accordingly.  It also gives you permission to tell clients who are in the wrong market that they are comparing the wrong metrics.  Ultra luxury has no substitutes, luxury does.  If you are in the ultra luxury market and compare yourself to any other creative business, you are lost.  Likewise, in the luxury market, you are allowed to be at the top of that market but not act as ultra luxury. Lanes matter for everyone and set the stage for better art and better business.

DNA of Pricing For Creative Business

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With all of the noise out there about how to make money in creative business, charging what you are worth strategies (well, really tactics but is there really a difference ?:( ) and everyone out there with an opinion on the “right” way to do things business wise, we need to take a moment to stop and actually think.

BEFORE any conversation happens about pricing and profitability, we have to have a foundation for what the prices actually mean.  Are you pricing subjective (what is between your ears), specialized labor (i.e., a master florist or draftsperson), product, and/or non-specialized labor?  One size most certainly does not fit all and even if you quote your client a single number, YOU have to understand where the money goes to judge whether or not you are making what you should.

Think of foundation as the basis for strategy, the model tactics.  Amateurs confuse the two and play with tactics in the hopes of adopting a new strategy.  Professionals understand tactics can change at any time, strategy has to be thought through and only changed upon careful consideration for what you intend the direction of your creative business to be.  Professionals are storytellers with their creative businesses, amateurs are reactionaries.  Up to you to choose who you wish to be. Do the work of really understanding how to have your business tell a story or rely on the power of your art (and personality) alone.  Your choice.

Yes, this is cerebral stuff for you to work on but also the very DNA of what you do.  If you do not truly grasp the import of what you are charging, why should your clients?  And here is the biggest point — if clients cannot understand the value underlying your price (because you do not), they will absolutely UNDER value it and you will struggle to get what you need to do the work you do.

As it relates to a project (as opposed to the leveraging of intellectual property – licensing, endorsements, appearance fees, etc. which we can address some other time), creative businesses generate revenue in only three ways, by selling ideas, time and/or product. Some creative businesses have only one of these streams (rare), others a combination, most some component of all three (even mostly service based businesses like entertainment and photography).

Ideas – as I have already talked about many times, the value of the idea is what you say it is and is wholly irrational in the sense of calculation. The only rational part of it is its relationship to the rest of what you do. If you are all about selling product, the cost of the idea will be small relative to what your client pays for the product (i.e., clients know you make most of your money from the sale of products and/or services). The opposite if originality and the power of the idea is what matters.

Time – If you provide any kind of service, what you are really selling is time. Time in the absolute sense – how long does it take to complete the task at hand; but also time in the relative sense – how efficient you are in the use of the time. Having Jeff Leatham on site for an hour is different from having a beginning floral designer, even if Jeff had previously designed what would be produced on site. The value of the difference is captured in the relative cost of time. Maybe Jeff is $500/hr., the beginning designer $50/hr.

Product– Whether through outright sale and/or rental, product is based on an idea of margin. What does the thing cost to make and/or acquire and what do you have to sell it for to achieve a desired return for your creative business.

The single biggest mistake I see all creative businesses making when it comes to pricing analysis is commingling the streams. When you just look at the whole you cannot value each piece and see what needs to be fixed. Inevitably, most creative business owners wind up chasing revenue above all else (ahem, day of planning), while leaving pricing and cash flow errors in place. Arriving at the right pricing solution means appreciating what needs to be achieved in each area, valuing risk associated with each stream and then assessing its relative importance to your creative business. Timing of cash flow then is then included as a function of risk and necessary margin not a fait accompli. So let us tear into each separately and then I will try to work in an example or two of how to bring the three together.

Valuing Ideas– Ideas are the most profitable part of a creative business. Cost of presentation is very small relative to the potential value of an idea. My rule of thumb is that Ideas should be priced at an roughly 80% margin. Yes, you keep $0.80 of every dollar you charge for ideas. The risk associated with ideas is that you cannot get to yes with your client so that you have to either keep presenting/refining beyond your 80% budget. This, of course, has a large impact on time and product if you run into constrained deadlines or are forced to re-present after approval of design (bad client management). Even if you do not necessarily have a hard deadline like an event (say interior design), delays in presentation still cost you money – worse decisions by the client in the future, extended timelines, etc. So the balance you strike when you present an idea is to see if you can attain an 80% margin and still get to an effective yes. If not, either you have to raise your price or lower your margin or both.

Valuing Time– Most creative businesses are way off when it comes to valuing time. Typically, time is the cost of labor pre-production. On-site labor should be considered part of production. Time is the next most valuable revenue stream of any creative business and a good rule of thumb is that it should be priced at 65% margin. If you associate 250 hours of labor to a project that costs you $30/hr., you need to charge @$80/hr. For this labor analysis, creative businesses look like traditional service businesses that charge by the hour. Think of a law firm. If a junior associate is paid $100,000 and is billed out at $200/hr. with the expectation that she will bill two thousand hours per year (i.e., generate $400,000 for the firm), the margin is 75% which is about right. Most creative businesses do not charge by the hour and/or have salaried employees. If there is a flat fee for production, the risk that a project takes longer than expected costs money. You budget ten man hours and it takes twenty with the same revenue, you made half. Risk of project slippage has to be factored into your time price. If you ridiculously efficient and effective, you can stick to 65%, if not, then margins need to go up. There is where you will meet the ire of clients. If something should take 10 hours but half the time takes 20, you need to add 32% to your margins to be priced effectively. That’s right $30/hr. labor would have to be priced at over $300/hr. if you were pricing effectively. Yeah, best to rethink cheap staff.  Not to say that you do not need unskilled labor, you do.  It just has to be priced much much differently than skilled, meaning the margin has to be higher for skilled labor as much as being more expensive.

Valuing Products – This is the easiest element of a creative business to price. Margins are retail margins, so need to approach 50%. If you are renting items, you need only value the item’s acquisition cost, potential for breakage, storage cost and estimated usage and multiply by two. For items sold, every component gets multiplied by two. Even on-site labor. Of course, risk of products is when your estimated cost to manufacture and/or acquire go off. Buying that last minute vase at a loss messes everything up. Again, if your systems are great, keystone works, if not then you need to price higher. But the market will push back hardest here so if you cannot produce well you need to stop producing. Clients will pay a premium for quality, but they will not for inefficient production of the same thing. This is the reason we (ok, I) decided to outsource all of Preston’s production for international events. Apart from the nightmare of producing in a distant location, we were not very good at cost effective production. Better to supervise and let specialized producers do what they do.

Putting It All Together– Ok, now we can put it all together. Say all ideas, time and products in your creative business are equal and target margins are accurate (i.e, you are pure awesomeness so there is no factor for risk), then no matter how you got there (percentage, flat fee, hourly) here is what you should make on a $45,000 fee: 80% of idea ($12,000), 65% of time ($9,750) and 50% of product ($7,500) or $29,250 before overhead (which should be @15% — remember a lot (but not all) of employee expense is absorbed in time). And there you would have it – a $22,500 profit per project in a perfect world. If you would like to earn $450,000 you would need to do 20 projects.

Now let us say you are less than awesomeness and there is a $1,000 mistake. If you were only looking at the whole, you would see only about a 3% reduction in profitability. No biggie right? But when you assess the $1,000 to each area individually, clearly its impact is felt more the lower your margin is. This means, all things being equal, the chance of your creative business not meeting its goals grows the lower your margin is. Translation: your chance of getting it right is much worse, the lower your margin. Which is where there is some counterintuitive thinking that needs to happen. Give up when you have less chance of success, stick where you do. If you have to negotiate, reduce your price on lower margin items first. Keep the good money as long as you can.

With all of the above, you are now in a position to evaluate your creative business financially. Assign your target revenue, then assess number of projects to get ideal revenue per project. Then break the revenue into idea, time and product. Now use target margins of each to see how it should all pan out.

When you compare ideal to where you are now, what you need to fix will slap you in the kisser. What most of you will find is that time and on-site labor are massively under-priced. Risk will be overvalued on higher margin and undervalued on lower margin (meaning you will be subsidizing lower margin work – whether lower priced or just lower margin with bigger or higher margin work – 80/20 issues). Last, you will probably find that your percentage of revenue in terms of idea, time and product is off from what you would like it to be. Even if you do not change your absolute cost then, you HAVE to shift the breakdown.

A word on cash flow. Most creative businesses are seasonal. The level of seasonality varies among region and type of creative business. The more seasonal, the more of risk you have to assess to everything. The reason is simple, most of us suck at managing cash in theory. If it is in the bank, it looks real. And sh-t happens. If you generate revenue of $120,000, so much better to get $10,000 per month than $120,000 up front. Yes, if you are truly seasonal your absolute prices have to be much higher than those that are not to absorb the risk of seasonality (i.e., lumpy cash flow).

We will leave the discussion of the difference between capital asset businesses (i.e., hotels and venues) vs. intellectual property businesses (i.e., you creating art for clients) for later.  This post is all about intellectual property businesses so there is scarcity and NO ROOM for capital asset pricing.  Yes, a project in February prices the same as a project in June.

Margin analysis really matters if you want to stand on the ground you choose instead of where someone else tells you to.  I hope you choose to do the work.

 

Fear

seanlow
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The coming recession. All things Trump.  Unyielding competition. Slowing business.   Upheavals in the industry.

All of it, intentional or not, is meant to strike fear in your creative business.  Meant to cause you to act from a place of temerity and over-inclusion to avoid the perils of being left out of the bomb shelter when the world comes to an end.

Needless to say, I hate all of this energy and, worse, those who would prey on these fears in the name of good business advice.

Then I hear, “Well what about the 2008?  Don’t you remember how painful that was?” No doubt, the moment when we all faced financial collapse was devastating and people did stop investing in creative businesses.  Just not for nearly as long as many creative professionals claimed.  2008-2013 was the single biggest boon for ultra-luxury brands.  Ever.  Umm, the IPhone and all things mobile launched in 2007.  While many creative professionals were deep in their fear, others realized the world did not implode but was, in fact, changing underneath their feet.  They reaped all of the rewards when their clients wanted to invest in the transformation the creative business owner offered.

So here we are again. Fear mongers telling creative business owners that volume and revenue matters more than profit.  Better business falls away in the name of do what you can to get what you can.  Principally, there are two things wrong with this approach.

First, most creative businesses are looking for twenty or thirty clients a year.  Those that are   looking for more are working at a different scale and value proposition.  Needless to say, I do not know many creative businesses looking for more than five hundred projects per year.  If you are going to get crushed because you cannot find the twenty or so people that most want your art, blaming it on the coming recession or increased competition is a great way to not look in the mirror.  Most likely, it will mean that you, your art and your creative business are easily dismissed because you have not done the work to be truly distinctive. 

Clients will hire a cheaper version of you BECAUSE you have validated the idea that a cheaper version of you is acceptable.  You did this when you made it about price, negotiated your fees, formulated ridiculous packages so clients could “compare” — all things driven by fear.  See, fear makes you hide, it makes you derivative, it makes you marginal.  Act marginally and do not be surprised when you are eliminated — marginally.  Instead, work on why the twenty or so clients you need would be fools to choose anyone else.  Here is a safety tip — focusing on doing the thing everyone else has to do — beautiful, stress-free — will not cut it.  You have to own what makes you, your art and your creative business, well, you, without apology and without compromise.

Second, fear makes you stupid.  When you are worried that the sky is falling, you refuse to look up.  Instead of working on your core, the strongest part of your business and trying to figure out how to further leverage it, most often you try a “lite” version of what you do which, inevitably, is not based on your strength.  For Interior Designers, styling instead of color consultations.  For Event Professionals, Day-Of-Planning instead of almost any kind of consultation (venue, design, catering, entertainment, etc.).  In the name of security, you choose to run away from what defines you, your art and your creative business.  Quite literally, you open the door to those that will focus on that strength.

Do not think me Pollyanna or out of touch with the realities of the world.  The threat of recession is real and competition is fierce. Of this, I am fully aware.  It is just that my response acknowledges fear but is not ruled by it.  I act from a place of intention, acknowledging the diversity of intention.

You can go higher or lower, chase volume or not, but it has to be with intention not reaction. Purpose and conviction above emotion. When you are lost in fear, your reaction will feel like action when it is most certainly not.  Digging a big hole you can jump into might save you from the oncoming truck, but you will be left in a very big hole you might not be able to climb out of.  How about you just choose to get off the road?

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