Dan Mall worked at Big Spaceship and other agencies as an art director, in design and also strategy. He started his presentation talking about the rainbow fish, his daughter’s favourite book. The rainbow fish had pretty scales that it gave away to make friends but it was no longer as pretty, well Mall says that you’re the rainbow fish and don’t need to give your shiny scales away.
When his wife was pregnant they made the decision for him to work full-time and freelance on the side. This gave him the flexibility to experiment in his business, testing how to bill, what to charge, contracts and it goes on and on. He tests his hypothesis to see how it worked and felt before he’d commit to it. Mall believes in prototyping your business as much you would any piece of software and this is what he’s learned since starting Superfriendly.
Hourly Rates SUCK!
Getting paid by the hour sucks because they incentivize you to be slower.” Hourly rates don’t factor a person’s experience and agencies know it. They’ve built these considerations into their pricing. It’s why in 2008 Ad Age had a Director of Client Services hourly rate at $533, a Chief Creative Director at $964 and it goes on and on.
Mall says “clients shouldn’t pay for time, they should pay for our expertise.” Mall says there’s a disconnect between selling his experience and getting paid by the hour. At Superfriendly he’s transparent, he tracks everything and creates an annual report that tracks how many hours he works and the number of projects.
The good and bad of Fixed Pricing
Another way to get paid is using fixed pricing which puts a set monetary value on the project but not a set number of hours. It incentives you to work faster but the down side is it will penalize your hourly wage it takes longer to finish a project. It’s still flawed because you are getting paid for your time.
And the value is…
Then there’s value pricing where you are paid based on performance. One example used in advertising is if your ad leads to a certain outcome like a rise in sales you get paid based on that performance.
Mall finds value based pricing has “little to do with the project and more has to do with the service provider or the client” and incentives performance. Mall says “it’s really about the value of you at the time and what this means to the client. Here are two types of value pricing.
Is it worth an iPad or BMW
One form of value is object value pricing which works for students and smaller projects. Mall explains it like this “if your client offered you an object instead of money, take money out of the equation because it’s really hard to quantify a project what object would be worth it for the job.”
It tells you what the project is worth to you, if it is worth a used BMW that could be worth 20k. It gets harder to do as projects scale but for students it helps give them a sense of what a project is worth. It gets you to have that gut feeling about the project, Mall says to “touch your gut.”
Empowered through Cash Flow
What Mall did was figure out what he needs to earn a month which was $6900 per month so if he made $10k in one month that meant he was ahead in cash flow. So if he took a 2 week project he would need to make $5000 and by using round numbers he kept the math real simple.
In the first 2 months he made 10k each but in month 3 he was took a project that paid 30k. This would provide Mall with ultimate flexibility which means he’s not worried about getting paid because that 30K could cover him for 3 months.
This means that he has no fear, he can prototype and experiment because he’s covered, when you’re ahead in cash flow you are empowered because you know you’re covered for a specific time frame and can find or work on projects that you choose not just based on what they pay but what you want, hopefully it’s both.
When they Pay
You can do 50:50 which means that you will be working harder because you still have a lot of money on the line and the client knows it. The same thing applies if you do it in thirds. There was only one time where a client paid him in full for a 3 per cent discount. This allows you to hire contractors without fear of impacting your cash flow because managing your cash flow is about mitigating risk.
Dan’s Magic Questions
Here are some of the questions that Mall asks clients to get more insight into the projects that he’s been pitched.
1. Is your budget closer to 3,000, 50k or 300k? This question helps you to understand what the project worth to the client is because there are big differences in these ranges.
2. What kind of timeframe are we looking at? Mall found that this “question lights a fire under them.” (When you want large numbers to look small use K and when you want small numbers to look large use the full number.)
3. Is there any work already started I should know about? What this tells Mall is if they’ve had someone else on board that has done work on the project, and that he’ll have to trash or get past. It gives you an understanding of where the project’s been before they’ve offered it to you.
4. Who else are talking to about the business? Mall asks this because if he knows one of the others and they are someone he wants to work with it may be valuable to try pitching the business together instead of separately.
5. What team or people do you have working on the project on your end? This lets you know how important it is, if their entire marketing team is working on it, you know it’s important.
Mall’s contracts with clients avoid legalize like the plague, he used the Contract Killer as a basis and just adapted it, brought it to a lawyer and to make sure it was as simple to understand as possible.
Save the Date
Mall had to manage his time well and added a save the date clause to his contacts that stipulate a client that if they booked him to start in 6 months a retainer to ensure his availability. This was all about covering his ass because if the client reneged on the deal, it would be at the expense of work he could have taken.
A client more than anything wants to buy trust, they want your expertise to help them reach their goals. He’s learned these lessons by prototyping the most fundamental elements of his business to see what works and what doesn’t for Superfriendly.