There is a well documented story of the development of one of the worlds most iconic logo’s. Over 40 years ago Nike originally paid Carolyn Davidson $35 for the swoosh! At the time that may have felt like just rewards for the time she spent working on the project at $2 per hour for 17.5 hours. However, the value of her creativity is clearly worth far more than this. Fortunately for her (and Nike IMO) the company gave her 500 shares which are now worth somewhere in the region of $650,000 which feels like a much more reasonable reward for her genius.
This is a case in point when we come onto the subject of valuing creativity – it’s very difficult and certainly an imperfect science.
When you plug ‘The Economics of Creativity’ into Google you’ll get a myriad of takes on the subject. However, I come at it from the point of view of a Creative Agency that specialises in Social Media Marketing where creativity is what we sell to our clients. The power of a big idea distributed through multiple social, digital and traditional channels.
Therefore, I’m going to touch on agency pricing models and the culture and practices you need to foster in order to better gain value from the creativity within the agency. This is and has always been a crucial topic for agencies and clients alike as it impacts the heart of the business relationship in terms of the culture and commercial stability.
The problem with ‘Creativity’ is that the very nature of what we do is subjective – there are no absolutes. Marry that with ‘Economics’ a subject that works almost entirely in absolutes and you’ve got a tough job bringing the two together. In my experience, there is no perfect solution however there certainly is the opportunity to get close.
Creativity is not just a big idea.
Great ideas do not see the light of day without all the stars in alignment – execution, production, distribution, client approval… So, my definition of creativity is the end to end process of making the idea a reality and the impact that idea has for the client’s business.
This makes life a little easier as the whole end to end process provide some tangible variables to work from and we have the ability to start to set parameters for and control what constitutes a great and valuable creativity.
It all starts with consensus on the brief.
The brief must be clear to everyone. It must be signed off by everyone. It must contain clear parameters including the objective, key performance indicators and requirements. Once you have a clear brief you then have a point of reference and some certainty in judging the value and impact of the creativity.
Creativity has no value unless it adds value.
To be clear creativity is not great and of value unless it creates a positive impact. In our business that’s a tangible difference to our client’s business performance be it awareness, familiarity, conversion or loyalty.
The client agency value exchange is crucial.
One of the most important aspects of valuing creativity is the ‘Creative Value Exchange’ between the agency and the client. If this does not exist or is not aligned then you have a false start. When working with a client you need to carefully consider: Do they value creativity? Do they value you? Do they connect creativity to the broader results within the business?
If the answer is no then consider how you are going to add value to their business creatively and in a way that they respect and appreciate.
There is no perfect way to price creativity
Many models have been developed however most are flawed or difficult to execute. Here’s my take of a few of them.
Hourly pricing, time and materials: The most traditional and still most widely used is. Rate Card + Hours = Price. The fundamental issue is that it focuses on the cost of creativity to the agency rather than the value of that creativity to the client. I also believe that not all creative is created equally and time spent is not generally reflective of the quality of the thinking and idea.
Fixed fee / project based: Less widely used in our business however still fundamentally based on the above. In this instance, the client and agency are betting on whether the project can run efficiently and to plan. The client is betting that it will probably go over and the agency are betting that it will be more efficient and effective. Either way the principle of working in partnership is flawed.
Value based pricing (VBP): Value based pricing (VBP) or Profit By Results (PBR) as it is often referred to is a strong approach IMO as it aligns the commercial objectives of both the client and the agency. The client wants to maximise the impact of the work on the business and the agency wants to get value back consummate to the value that their creativity gives the client.
However, it is dependent on agreeing parameters and being able to measure those effectively ensuring that the value is accurate and derived from the creativity. For some projects, this is easy enough however in most instances it’s quite difficult.
From an agency perspective, you need full control as many a great idea can be killed off in execution and distribution.
Licensing for usage: Not always feasible however creativity that can be licensed is an interesting take. The value comes back to the agency based on how widely the idea is used by the client. This is more commonly based on media selection and rationality however can also be based on the scale of distribution within a region.
Performance Related Incentive Programme (PRIP): In my experience, this approach is the best as it balances a number of creative performance indicators. In essence, the agency estimates the work at cost based on the hourly model with a modest margin of about 10% added. A value based model is then added to the mix with a further margin of up to 20% extra being earned. This is based on results achieved and other softer more subjective performance indicators such as the perceived quality of thinking, communications, creativity, execution and delivery.
The hours model provides the agency with a level of security and the bonus aspect rewards the agency for getting results and doing so in an efficient and effective way – the best of both worlds. My only caveat here is that you need a really strong client who is able to navigate and negotiate the softer measures fairly as perceptions between the client and the agency can sometimes differ somewhat.
Be Flexible, use them all
At Gravity Thinking we take a flexible approach and use our own version of the most appropriate model (or combination of models) in different circumstances. We’ve not got it perfect however that agility enables us to maximise the value of our creativity for our clients and ensure that they also value our creativity.
Most of our client relationships are based on a foundation of an ‘Hours, Time and Materials Model’. However, we also use a ‘Licensing Model’ for work that extends regionally and through different media (this is covered in our contracts to avoid any doubt). We have also used the ‘Value Model’ with one of our clients linking our work to bottom line revenue. In this instance is was easy to measure and track the impact.
That said I believe that you should be having these conversations with your clients. Not only will it become more viable as data and technology enable better tracking and attribution but it also helps create a valued creative culture between you. Simply stating that you’re willing to back your creativity commercially to a client gives them confidence that you believe that the work will add value to their business.