Knowing the right price
Published on 07/05/1999 under Budgeting
Even though I've used the analogy many times, I'm painfully aware of its shortcomings. I'm referring to the "How much does a house cost?" analogy. You use it when someone asks you how much it costs to produce a capabilities brochure. Or build a large tradeshow display. Or even design a website.
And in some ways, the analogy is helpful. People understand a 4-bedroom house costs more than a 3-bedroom house. They know a brick or stone faÁade costs more than wood. If you want gold-plated bathroom fixtures, you'll have to increase the budget to cover that sort of extravagance.
It also works well in establishing an affordable budget for a project. People who are looking for a $100,000 house shouldn't be shown $250,000 houses. It just leads to frustration, because they probably don't have the ability to finance the more expensive structure.
Likewise, if you know a company's total annual marcom budget is $150,000, you probably wouldn't recommend they spend half of that on one project, unless there were extenuating circumstances -- like establishing credibility against a much larger, entrenched competitor, for example.
The house-cost analogy starts to break down, however, when you consider one important difference: we simply don't have any good yardsticks for comparing marcom project costs.
We all have a general feel for what various houses ought to cost. When you drive by a particular neighborhood, you can probably imagine a price range for the houses in that neighborhood and not be too far off. (The price range might even be posted prominently on a sign near the entrance.)
On the other hand, if I spread a variety of brochures on the table and ask you to estimate the price tag for each, I doubt whether many of us could even come close. And that's a huge problem for marcom practitioner and marcom budget-approver alike.
For too many years, we've treated this information as if it were some kind of national security matter, and the result is widespread ignorance on both sides of the budget recommending/approving fence.
Even experienced marcom practitioners like me are reluctant to give out this information. It's hard enough to demonstrate "value" to a single budget approver. When the number of persons exposed to these numbers starts to grow, the potential for disaster is always there. At least you can see how advertising people become paranoid on these things.
But even though there is definitely a downside to sharing pricing information, I think the real problem is we don't share enough. If marketing and sales managers had the same familiar feel for appropriate budgets for marcom projects as they do for housing costs, we'd all be a lot better off.
In my last column, I encouraged marcom managers to call other marcom managers and ask what they spend on certain projects. I think this is the only way to bridge the ignorance gap. You'll run across some anomalies, of course, but eventually the numberswill start falling in predictable ranges.
I'm confident the predictability of marcom project costs can be demonstrated because I understand the variables. Printing costs are not highly variable. You can ask five printers to bid a particular job and the estimates will be remarkably similar (assuming the equipment they use is similar).
Photography costs do not exhibit much variance. Day rates of established photographers are easily obtained, and they will estimate their costs based on the number of days you specify. If the project requires more, their cost goes up.
Illustration costs are more of a black box, but I've discovered that if you have a photography budget and decide to use illustrations instead, it's remarkable how many illustrators can be happy with that. (For a full "buyout," too.)
The main cost variables involving creative services are copywriting and layout/design. Inexperienced copywriters may ask only $50-75 per hour while experienced copywriters can command hourly rates of $100 or more. You assume the more experienced copywriters are going to be a little faster, but the main thing you're looking for is copy that quickly gets to the critical issues and explains them in easy-to-understand terms. And of course you're looking for copy that produces the desired results.
Even if an inexperienced copywriter wants less to write an ad, you're probably going to get better value by selecting a more experienced person.
The same holds true for art directors. Their hourly rates start at $50 and go to $100 and more. But the difference in creative skills often makes the higher hourly rate people the better value.
But let's assume you've picked an agency or creative firm with experienced people and a good track record. How do you know when you're paying a fair price or being taken advantage of?
You'd like to be sure the budgets you allocate are reasonable for the tasks at hand. And the best way to do this is to develop some yardsticks. Share information with your marcom peers. Ask them what they'd expect to pay for a 12-page brochure. A full page, color ad. A 10-minute video.
When I surveyed Certified Business Communicators almost 7 years ago for the Business Marketing Association, I found that many of the yardsticks I had been using were wrong. For example, the old rule-thumb for video production of $1000 per finished minute was too low. Respondents said they'd expect to spend more on the order of $1500 per minute. My guess is they'd say $2000/minute today.
For brochure production, we always used $2000 per page as a yardstick. CBCers in that survey said $3000 per page was more like it. The median cost for a full page, color ad was $15,000.
I'm sure you get the idea. The only way we can know with any certainty that the amounts we're spending on various projects is reasonable is to pool our knowledge of what it takes to get actual jobs done.
I'd like to see advertising trade publications include cost information with their articles on campaigns and collateral projects. You see lots of gorgeous work; wouldn't it be nice to know what people paid for it?
Not only will you gain the confidence to set reasonable budgets for quality work that's more likely to have an impact on your company's business, but also you'll be able to fend off the "bean counters" when they come looking for cuttable budgets.
It's time we told 'em to go cut somewhere else.