Creating more value (so you can earn more money).
Most of us agree that the value you can charge is directly related to the value you create. So to make more money, you must create more value.
But how do you measure how much value you are creating?
On a recent episode of Michael Neill’s excellent podcast, “Caffeine for the Soul” he talked about what he calls the value formula.
He says that the value you create is proportional to the scale of your work times the scope of your work divided by how replaceable you are.
Value = (Scale X Scope)/Replaceability
So if you want to increase the value you create so that you can make more money, you can either serve more clients (increase scale), make a bigger difference for the same number of clients (broader scope), or make what you do so unique that they can’t find that solution anywhere else (become irreplaceable).
Let’s look at these one at a time.
One way to make money is to do lots of work. Design Pickle turned the agency model into a volume game by offering all-you-can-eat design services. In 2020 they achieved an $18.4M revenue run rate by completing 12,000 design requests daily. The following year they raised $25M in PE funding.
But that’s the thing about scale – you need a lot of it and you need to build systems that can accommodate volume.
If your designs make a big difference for your clients, they are willing to pay more. If you designed the new Pepsi logo you might get paid $1M for that work because it drives $32B in global sales and creates billions of impressions annually.
When the stakes are higher, you can get paid more.
Why can Michael Bierut charge $100,000 – $1,000,000 for a logo design? Well, Beirut has permanent collections at the Museum of Modern Art (MOMA), the Museum of Design Zurich, and the San Francisco Museum of Modern Art. His most noteworthy designs include Hillary Clinton’s Presidential Campaign Logo, Mastercard, and the New York Jets.
If you want a Micheal Bierut logo, you pay what Michael Bierut charges. He’s one of a kind.
What doesn’t work
Each of these value drivers involves a different strategy. You can’t be the high-volume, big-impact, high-profile designer. You have to pick. Are you pursuing scale, scope, or uniqueness? Each creates different challenges for your organization and requires different strategies.
Which path to more money is most attractive to you? Which is most accessible? Take the time to think it through.
Choose a path, then look for small moves in the direction you want to go. (We’ll talk more about that on Thursday.)