Charging for creative ideas is not just a struggle for designers. Other sectors, such as advertising, are also facing the dilemma of how to price something which, by its very nature, is intangible. Faced with a set of accounts or a legal contract, clients know what they are paying for. With design, the picture is not as clear. And the touchy issue of fees is not helped by the lack of guidance within the design industry as to what constitutes a reasonable rate for a specific type of project.
For consultancies moving into new areas of design it is an even bigger problem, and one where fees based purely on time costs no longer make sense when designers are up against other consultancy services which may be charging far more. With new opportunities opening up within design, the time is long overdue for consultancies to start charging what they think they are worth rather than tallying up a time sheet and adding a bit extra.
Richard Watson, director at Global Design Register, admits the issue of fees is “a complete nightmare and no one really knows what to charge”. But he welcomes the move towards purchasing managers within client groups negotiating with consultancies over fee-levels. “Good clients want their designers to make money,” he adds.
But with these new areas and ways of working, what seems to be crucial is the client’s perception of what it is paying for. As Charles Wright, managing director at Wolff Olins, emphasises, “clients’ fee expectations are not to do with the work, but who they ask to do it”.
It is not uncommon for brand design groups to get involved in print advertising for certain projects. But these consultancies are faced with the problem of what they should be charging.
Part of the problem lies with client companies, which are used to paying their agencies in a very different way to design-led groups. Traditionally, ad agencies were paid up to 15 per cent commission of a client’s media spend. Although their creative input may not have varied greatly for a 100 000 campaign or a 2m campaign, their fees were purely commission-based, and consequently clients are used to agencies taking substantial “fees”.
Design groups do not have the option of charging on a commission basis, and nor would it make sense unless they were media buyers too. But, many might argue, fees for an ad campaign should reflect market rates whoever has created it.
According to Wright, in reality it is down to negotiation. “With these newer areas of work there is quite a lot of arm-wrestling that goes on,” he says. “Any time you move into a new area you don’t have quite the same track record, which gives clients some negotiating power. There are a number of factors at play, not least of which is how keen each side is on the other which determines how quickly they capitulate.” He stresses it’s vital to have “a sense of value of the work. It’s quite hard to gauge the impact it will have on your client. More and more we’re trying to start from what the effect is going to be on its business – not so much to set the price, but to get the discussions going.”
While London design groups might charge out their creative directors at around 80 to 150 per hour, or up to 1200 per day, ad agencies’ rates are usually higher. Although there are exceptions within design – indeed, Watson claims he knows of one “very good” creative director within a “very big” design group who costs 2500 per day – as a rule designers’ fees tend to lag behind agency fees.
Interestingly, the ad industry itself is going through a transition in the way fees are charged. Most agencies no longer charge on commission, and many are looking at more effective ways of being paid for their creative input. According to Charles Kirchner, a senior consultant at Agency Assessments which “headhunts” agencies across the marketing services sector for clients, the key issue is “how to charge for creativity”.
“There are various ways of charging out and there are also some emerging trends,” Kirchner says. Ad agencies working purely on a commission basis are an “endangered minority species”, says Kirchner, which he believes is good news as it doesn’t reflect creative input. But, he adds, working out fees on a time basis “isn’t a terribly satisfactory solution to creativity through whatever medium”.
Instead, Kirchner is impressed by agencies which split creativity from “factory hours”, such as Rainey Kelly Campbell Roalfe which has introduced a kind of royalty charge for big ideas. Once a client has accepted an idea, it pays an annual charge for using it. “That is very leading edge. It’s not common, but you can see the sense of it,” states Kirchner.
Circus, a brand communications consultancy set up earlier this year, is also interested in a royalty style of payment. “Performance-related pay has been around for a long time, but there’s the royalty aspect. If you’re going to make a huge difference to a client then how are you going to be remunerated for that?” says partner Dilys Maltby.
“We looked all over for charging models, but trying to find the most successful model is very difficult,” comments Mark Wickens, chairman of Wickens Tutt Southgate, who is also impressed by RKCR’s approach. “We’ve changed the way we charge out. Traditionally, we based fees on hourly rates. Now we tend to package fees into products we deliver. The biggest single problem design groups wrestle with is how to make the intangible tangible. We package it up and say we have a different set of deliverables and that’s why it’s a different price,” says Wickens.
Perhaps the fact that design groups are starting to hire freelance ad staff for campaigns which are part of larger projects may edge up fee-levels.
White Door, which specialises in placing freelance ad staff, is increasingly contacted by design consultancies and other marketing services agencies, says managing partner Martin Handysides. He points out rates for freelance staff are far higher in the US than the UK. “Rates in New York, for example, can be nearly double that in the UK,” he says.
When negotiating a fee for advertising work, find out what an ad agency would be paid for the same work
Make sure fees at least cover staff costs and overheads and aim for profit margins of between 15 and 25 per cent
Base charges on whether it’s a premium project and whether or not you can name money on mark-ups
Find out what the client’s budget is and be prepared to negotiate
Consider other methods of charging for creative work such as royalty payments or ideas fees separated from ‘factory hours’ or overheads
Ask clients for feedback – are they happy with fee levels and how do your charges compare?
If you are a member of the Design Business Association you can check its survey carried out with accountants Willott Kingston Smith for charge-out rates (only available to DBA members).