Thom Bennett - Website and graphic design

Thom
Bennett

Website & graphic design

info@tbgd.co.uk
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Fees vs Mark-ups

Wednesday, November 2nd, 2011

“If you cannot get to what you need to create your art, it is, by definition, unsustainable as a business.”

With apologies to Olivia Newton John, let’s get technical. Should you charge fees and not mark up any of goods or services your creative business provides (save to cover your costs) or lose the fees and just mark things up? It depends.

For some creative businesses (although way fewer than are out there), charging fees is really hard. Florists, rental companies (linen, party and furniture), craftsmen selling products spring to mind. They are bounded by the marketplace and I am not sure moving to any kind of fee is possible. For the rest though, if you can charge a fee, you should. Why? Fees are what you need, markups are what you want. Where possible, get what you need. (Close enough, thank you Rolling Stones.)

A moment of definition. A fee is a random number you assign. It just is because you say it is. A fee is NOT based on anything—cost of goods, hours spent, overhead, etc –it is just what you need to create the art your client is asking you to create. A fee is wholly subjective and irrational. This makes it incomparable to anything or anyone else. The moment you introduce anything objective or rational into a fee, it is no longer a fee, it is a markup, even if you call it a fee.

For instance, if you charge a production fee to produce an event and that fee is based on man hours necessary (on-site and off) to which you assign a number—say 10 people, at US$25/hour. For 100 hours total = US$25,000 production fee, this fee is a mark-up based on your cost of these 10 people.

Mark-ups are bounded by the marketplace simply because they are definable and thus comparable to someone or something else. You want to get as much as you can but the market will limit how far you can go. If you mark-up your labor and materials ten times, but your most expensive competitor only marks it up five times, good luck with that. And if you try to put a fee into a mark-up (ie, the subjective into the objective), you are creating distrust which will cost you money.

Meaning: if you tell your client your price includes what it takes for you to create the art in the first place, you will get less than the five times mark-up your competitor gets since you have introduced a variable that is confusing and distracting to what you are talking about. You will wind up competing on price and you will have to go lower to get the job. By putting your fee into your mark-up, you will have done a very good job of telling your client that the profit on your goods AND the cost of your artistry are the same thing. They are so not—and by putting them together you have just valued the cost of your artistry at zero.

Fees on the other hand are what you need. You can only figure out what you need from the top down. Everyone has a number that they want to make—the amount that will afford you the lifestyle you desire. And everyone’s number is different, but it is a number. To throw one out there, say it is US$10,000 per month. If you want to do ten projects per year and it costs you twenty percent to create (sketches, presentation materials, staff time, etc), then you need to charge a design fee of roughly US$12,000 per project.

It is what you need to create the art that you do. The price of your artistry. Nothing rational about it. You do not need a US$7 cup of coffee, but if being able to give it to yourself each day makes you happy, then it is part of your number. Who cares if it is not part of someone else’s? And I hear all the time, well I couldn’t possible charge that much for a project. Then you have to ask yourself the tough question, why not? Because if you cannot get to what you need to create your art, it is, by definition, unsustainable as a business.

Since mark-ups are bounded by the marketplace, they are subject to market forces. Translation: the more competition you have the poorer you are going to get. Yes, fees do have competition, but only at the edges and mostly only when need becomes greed. So long as you live in yourself as an artist, your clients will understand that you deserve to get what you need.

The exercise is this: look at your creative business to see where there is something subjective lumped into the objective, where art is mixed with artistry. Pull them apart, mark-up the art and charge a fee for the artistry.

Cover and top image (CC) by o5com via Flickr

This is a cross-post from The Business of Being Creative.

Sean Low is the Founder and President of The Business of Being Creative, a consulting firm focused on providing practical advice to those in the business of being creative. Prior to founding The Business of Being Creative, Sean spent six years as the President of Preston Bailey Design, Inc. representing Preston in his business endeavors around the world. Sean has a law degree from the University of Pennsylvania and his twenty years of business experience ranges from law, investment banking, financial executive to small business owner.

View more at:
http://www.designtaxi.com/article/101736/Fees-vs-Mark-ups/

“If you cannot get to what you need to create your art, it is, by definition, unsustainable as a business.”

With apologies to Olivia Newton John, let’s get technical. Should you charge fees and not mark up any of goods or services your creativ…