The Economies of Design
The economic principles taught in business school are based upon the role of price in the world of supply and demand. As it pertains to the creative industry, supply is the total time available to the creative firm and demand is the pull of that time by paying clients. As someone who has the job of setting prices in a design firm I personally experience the difficulty of this every day.
A False Truth
My original understanding was that the price that a creative firm charged was based upon an objective value placed upon the firm. This value was believed to be computed from the firm’s quality, reputation, availability, and timeliness, and other factors. I find that this is a common belief, as I hear it from both my partners and current and potential clients. It is believed that the higher quality of work will allow the firm to charge higher prices, as the demand will go up. The general thinking is that the best firms in the industry charge more because they are the best, and therefore demand a higher price.
The assumed link between quality of product and price is not as clear as you may think. One understanding is that price is the main way in which design firms control the supply and demand of the goods and services offered. A higher price would reduce demand, and a lower price would raise demand. It would then be the role of the firm to set a price that most accurately conveyed the quality of the service in question, as well as attract the type of clients that would pay this price.
While this may seem logical, it’s not entirely correct. In the design industry, as any industry, the role of price is to affect behavior, not to, as previously stated, control demand. This may seem like a crazy game of who’s on first, but in reality, it’s a different way of thinking.
A Slight Variation
Prices not only affect the behavior of consumers, but also of the firm itself. As a creative firm can’t possibly know what every client (both current and potential) want, prices helps us to gauge the demand for our services. It provides us with a road map in which to choose the details in the services that we offer. Price helps us to tailor our services more closely to the market demand.
As a point of discussion below is a list of some of the things that happen when building a website.
- Brainstorming Ideas
- Planning
- Competitive Analysis
- Content Strategy
- Content Creation
- Information Architecture
- Design (both user interface design and site design)
- HTML Coding
- Scripting (PHP, ColdFusion, Ruby)
- Database Work
- Content Input
- Testing
Now the above list is by no means comprehensive, but it’s a pretty good list. Early on, FORGE had difficulty breaking even on web projects, let alone making a profit. Typically, the reason has been our refusal to eliminate anything from the above list on a project that was priced way too low. In this case, price should have served as an indicator of what the market was looking for.
The small-to-medium business website market is typically only willing to pay for the following:
- Design
- HTML Coding
- Scripting & Database (if needed)
As web professionals, we recognize that this lack of proper planning will result in an inferior website. However, the truth is that there is a market for building websites at this price. Our job as a business is to choose if we are going to offer something for this segment.
In Conclusion
We are working hard to try and fully understand the demand for our services. Our main goal is to put together a world-class group of creative professionals. This journey (and the economic climate) has led us to spend a large amount of time working through the business realities of the creative industry.
Simply stated, price always perfectly brings balance to supply and demand. It is impossible for somebody to “pay too much for something”, as if something is paid for then it must have been priced correctly for that transaction. As we try to find the proper price for our services, we hope to gain a greater understanding in the creative services industry.
How has price affected your business? Comments below!
