Running a Business: Cost, Price and Value

So it’s been a while since I’ve posted a blog but I think it’s time once again to discuss what is it that pushes us to create businesses, and why we chase the dreams of running our own businesses. This will (hopefully) become a series of posts about what is important in running a business, particularly for creatives. One of the problems that I’ve found over the last few years is that customers will often talk about your price being “too much”. Now, many of these clients aren’t necessarily being cheap; but in a lot of cases they are thinking about the bottom line more than the effects of what our services can do for their business.

The first thing a client will ask me when I discuss a project with them is, “How much will it cost?” but in reality this isn’t the right question to be asking. Business owners care about their business. They want to do well, so that they can improve the value that they bring to their customers, whilst chasing the lifestyle they want to live. Before we dig in, I want to take a look at what the difference is between Cost, Price and Value.

Cost

So in a lot of scenarios, customers will ask me how much something will cost. But cost does not describe how much I will be charging a customer, this is actually the number we talk about when we are working out what it will cost us to make something. This includes everything from buying equipment or software, to the time I spend (because as the famous quote says; time is money) and even down to the bills I need to pay to be able to work on the project; Internet, rent, power, hiring other people. My typical customers are small stores and restaurants, so their costs will likely be around rental or ownership of the space they operate and the associated bills, purchase of materials (raw foods) and products they sell. These costs are directly related to the operating of a business, and have to be factored into the next important thing: Price.

Price

Price can be described as the cost plus profit. Now, for a business to work, there needs to be an element of profit. Without making more money than you spend, you will stagnate or even lose money and fail. In some cases, clients can often pressure new designers to lower their prices through guilt or negging. Whether this is a good or bad thing is not really what is important, but as a designer I know what I can do for the client, and the value that I bring to them (we’ll get to that later). In my case, for my business to be lucrative and survive, i’d need to make a 50% profit margin. This isn’t just a random number, but a genuine one based on the needs of myself (as a person), my business goals (expansion, hiring new people, improving my services) and the interests of my clients. If my business isn’t profitable, then there’s a chance that I’d have to close down, or the quality of my work will suffer because I’m spending more time thinking about the money I’m not making, which at the end of the day is bad for my clients.

So, in the case of building a website, I may need to help the client choose some hosting or even sell them some myself, that hosting costs money, alongside some plugins which are essential to building the solution they want or the time needed to develop their solution (if it doesn’t exist). Many of my customers want solutions that are at the same level as multi-national brands but are not on those budgets. In many cases, this means that their idea of where to spend the money is not in the right place. This brings us into a discussion on Value.

Value

Value is the what can I do for you part of a business. In a lot of cases this is actually the most important aspect. It’s about how I solve the problems you face in your business using the solutions I provide. But that’s not everything. Value is about what is it that you can achieve with a new solution. A fancy new website on it’s own that looks really cool is not necessarily going to attract more customers. But a good user experience will help to keep your current customers happy, who may then recommend you to others. In a way, value is about asking the right questions to figure out what it is that you want for your business. Of course, every venture is to eventually make profit, or change the way things are done; but that isn’t quite the full story.

Value is how you generate a profit, how do you meet your customers needs in order to provide something they need, which will in turn generate profit for you?

So, a very common scenario that web designers face is, “I can get this made cheaper if I hire someone on freelancer or UpWork! Why are you so expensive?”

There are a few ways to approach this. I could become defensive and tell the potential client some very rude things, but really I want to make sure that my recommendation, whether they decide to go ahead with me or not, is of use to them, providing them valueFor a typical restaurant website, some of the most common features are a menu / price list (which should be updateable), a contact form for inquiries and a booking form. Now, much of this can be achieved through email, but having a way to do this online is much more appealing to end users, who want to read a little about your business before making a booking or ordering food.

Booking systems could range from a simple form, to a Ticketmaster-esque, choose your seat style form; and the value to your business that each one brings can be very different. A simple form could be all that your business needs, because unless you have a skyline view of London out of your window, it’s unlikely most customers will care where they sit as long as they are close to they are able to sit together, this is part of working out the value that you offer your customers. Do you have a landmark that is going to make customers want to come and eat at your restaurant, a special dish available on certain days?

This takes us back to the beginning of this section; asking questions to figure out how we make sure that our services meet the standards that you expect, after all, you know what your business means to you, and your customers – and in turn what you want to achieve with it.

Next time, we’re going to take a look into some design tools, which as a non-designer, can be very useful for getting you up and running.

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