Putting a price on innovation

When you're providing brand new products and services, how do you figure out what to charge?

Recently, I've been doing a lot of my client work with the help of AI.

I'm honest about this with clients - I figure, it's only a matter of time before everyone is doing this, and I want to be seen as a) an early adopter and b) an honest person.

But it does mean I have no frame of reference now with what to charge!

For example, a web application build might have taken 6 months previously, and my agency might have quoted £50k.

It's now conceivable to finish it in 3-4 weeks, so what should I charge for it now?

No frame of reference

It's easy when you're doing what everyone else is doing - you can research what they charge, and use that as a starting point.

But when you're finding new ways to add value for your clients, it can be difficult to know how to price that value. Will you actually make enough money from it to make it worthwhile?

First thing to say from the jump is that I've never been a fan of hourly or daily rates, and haven't charged in this way for 10+ years.

It's not good for you or the client. As you get more experienced and faster at doing things, you get punished by earning less. And the client is unknowingly incentivising you to take longer.

If they're getting a high quality outcome quickly, they should be paying more for that, not less! Provided they can't do it themselves in the same amount of time (e.g. with AI).

Framing with possibility

So we swiftly move onto value pricing, the method of pricing things based on their value to the client.

I know - this sounds immediately difficult. Even if it's a false comfort, at least with hourly pricing we have some comfort of comparing rates and knowing where we sit among the competition.

Value pricing can feel like plucking a number out of thin air.

But there are a few ways of going about conversations with clients to help you figure out the value of what you provide. We're talking about commercials when we're talking about pricing, so try to have that bigger picture conversation.

What will this outcome mean for them?

• Will it mean people save an hour a week? How many people? How much time is that per year? How much is that work (according to their salaries)?
• Will it mean not paying a £5k per software license they're begrudging?
• Will it mean generating just 1 new lead? What is that worth?
• What are their strategic goals right now? Does this directly further progress with one or more of them?

Having these conversations early can seem very forward, but in my experience, it frames you as a big picture thinker who is keen to create tangible outcomes.

Once you have an idea of this, you might ask, "Since you'd save around £5,000 per year in time and materials, do you think around half of that would be a fair price for this work?" It's difficult to answer "no" to that question.

Framing with constraints

Another way to think about pricing is not about possibility, but constraints.

Most of the time, prospects have a number in their head when they start a conversation with you. That might be a vague number ("low four figures") or it might be a range ("between £5-15k") or maybe a ceiling ("we definitely can't go over £500").

If you can create enough trust for the client to share this number with you, that's a brilliant starting point. I've found the following questions helpful to ask:

• What is the budgeting process like for this kind of work?
• How does procurement work?
• Is there a budget set aside for this?
• What's the budget for this project?
• How much would you pay for something like this? (and assume they've reduced it by 20% before telling you)
• Do you have a range you're hoping I fall into?

Although sometimes I still get clients deny they have any number in mind, and then the number I say is somehow "more than they were hoping for" so, your mileage may vary with these!

Framing with benchmarks

I saw a talk recently by muralist Oskar with a K. In the talk, he explained that early in his career, he has no idea how much to charge for a full-wall mural artwork. To help him figure it out, he looked at other people charging for things in a similar "class" of things".

In his case: painter decorators. He found that painter decorators were charging £100-300 to paint a wall. And that's a solid block colour - no creative process, no collaboration, no detail. That gave him a definitely floor to work up from.

What is the equivalent for your new service?

And in terms of a ceiling, there is definitely such a thing as reassuringly expensive. Imagine boarding a 12 hour flight and you have the option between a £3 pair of headphones or a £6 pair. Which are you going to trust not to fail on you mid-flight?

Leading with honesty

With my web platform build clients, I'm starting the price conversation by saying "Look, I have no frame of reference for how to price this!" and going from there.

Seriously! I'm also explaining that I'm fascinated by how the industry is changing, and I really value their perception on what a project like this is worth to them - given that my new competitor is ChatGPT.

This has created a few really insightful conversations where clients have been willing to give me a number, and we've essentially gone with that number for their project. I'm treating it as market research, if nothing else.

Ultimately, pricing something brand new is challenging and can be a bit trial and error. It depends so much on the target audience, what they're willing to pay, and how educated a buyer they are.

As with any innovation work, the approach is to start small, be honest with yourself, and gather as much data as you can!