A question frequently asked and one of the most difficult to answer to the satisfaction of the asker. But is it actually the right question? In reality, most folks want to know how much they should be spending on their digital service so framing the question in such a way to isolate just the web-site, frames the questions incorrectly. Once anchored in website and cost then the only fair answer should be “how much return do you want to achieve and what’s a good RoI”. So, pricing a website isn’t as easy as you may think.
Service, not commodity
Digital services are just that, services and not commodity items. It requires the input of many people across a broad spectrum of skills and experience so viewing it as a service will help you better understand why a single-price isn’t simple to provide. If you ask 10 different companies for a quote you will get 10 different prices and, most likely, 10 different solutions. Why? There are many elements of building digital services and here’s why the answer you get is never black and white:
- Digital solutions are not commoditised. There are many solutions to the digital challenges organisations have, and each solution will have pros and cons and different costs.
- There is a wide range of standards used within the digital industry, each of them attract different pricing models, skill sets and approach. With no one-size-fits-all methodology each provider will plough their own delivery methodology and not every methodology will suit an organisation’s needs.
- When delivering digital services, the devil is all in the detail and, depending on your purchase model, this level of planning needs to be completed before you get quotes. If you have good in-house digital skills and the resource available to carry out this level of scope then you might consider building the user stories, scopes and even an outline proposal for service providers to insert the costs. If not, you’ll need to rely on good project management, communication and collaboration from the supplier; all of which will take time and therefore cost money.
Additionally, service suppliers will each have their own cost and resource model;
- Work on an hourly charge (typically from £50 to £200) but may charge every time they talk to you, lift a crayon or shuffle a mouse across the desk. Favoured by the freelance community and, typically, the lowest cost and highest risk for an organisation – you’re renting a body by the hour with no real shared goal.
- Charge per day (typically £300 to £1500) – it’s interesting to note that even the most productive teams only produce around 4 or 5 useful hours of output per person day. An extension of the hourly model and often very difficult to police; you’ll struggle to recall, I imagine, any two working days delivering a similar level of value.
- Fixed-price project model; usually a risk-managed version of cost vs return whereby the supplier estimates the short-term cost (person costs) and balances that against the longer term financial return. The commonest model for most digital suppliers and the simplest form for most organisations to cope with; they pay X and receive Y – nice and simple but leaves limited space for creativity as value-adding usually falls outside of the fixed price.
- Contract basis; providing a fixed number of services across a period of time to deliver an agreed service. The contract is usually tightly written to exclude items that are open ended or unknown. A safer model for both parties, mostly, and is more likely to generate a better outcome as both the supplier and organisation plan at quite a detailed level what is required; this greater understanding usually delivers more.
- A license model; typically aimed at lower budgets and is really a form of renting whereby the service is provided for a period of time for a standard cost but rarely becomes the actual property of the organisation. One of the odd ones out, the supplier has to have built a financial model that reduces the upfront cost and drives the ongoing cost to it’s lowest level. If you’re buying a commodity this might be a good thing, if you’re buying a service then you should realise that this is a low-cost model so corners will be cut.
- Consulting hybrid; an emerging approach where the service supplier acts as both the consultant and the supplier; guiding the organisation down a strategic path and supplying the operational skills to deliver the strategy. It requires a level of trust that is unusual in many supplier-organisation frameworks and needs careful handling to ensure both parties win from the deal.
- Freemium. Hardly worth covering, but the model works on the basis that once you’re bought-in, the inertia required to change is not worth the hassle and consequently the organisation will put up with a lower level of service availability, maybe some advertising and probably quite a few feature/benefit restrictions.
So, how much do you pay for digital services? Whatever you wish, then. Maybe as little as £1k for a freelancer to spend a couple of days putting something together. Perhaps you spend £500k for a iron-clad project with defined deliverables over a 3-6 month window? Most likely, it will be somewhere in between. But keep Return on Investment at the back of your mind; surely you’re not going to expect to generate £250k of incremental revenue if you only spend £5k.
What if we thought about it differently?
If we can make some assumptions to get us started:
- The organisation’s current digital offering is not as good as we think it might be – we might be able to be more successful
- You don’t have a brilliant relationship with your current provider, maybe they’ve got lazy, maybe you’ve left them behind (or vice versa)
At the strategic level, you need to find a digital supplier who you can get on with, is a quantum leap better than your existing supplier and offers no discernible risks of change. Sounds simple enough but those three items can be tricky to quantify.
Birds of a feather
You’re more likely to get on with folks that share a common vision or set of values. As an organisation, we learned some years ago that when it comes to recruitment it always worked-out better when we hired people that matched out culture and values. Get to know the digital suppliers you are considering at a personal level, remembering that culture comes from the top-down. If you think it’s likely that the CEO of the digital supplier will get on with your CEO then you’re probably half way there.
Try to establish if there are are any areas where the cultures’ may clash. Be honest when looking for commonality and try not to rose tint it. This applies to the operational level, too. Try to understand how the two organisations would work together and where the areas of potential friction are.
Finding a supplier that is “just a little bit better” will not generate huge gains, and could easily make things a lot worse. Taking care not to risk too much loss, you should be looking for a huge change in the profile of supplier to have any chance of making the big gains you are searching for. Measuring this is a skill from your point of view and illustrating the difference is the skill you’ll see from the suppliers’ sales teams.
All (good) digital suppliers are transparent, they all have blogs, published articles and twitter/share endlessly. From these you can learn about them, understand their approach and see their uniques. The sheer volume of content will give you a strong idea of where and how they are different, the 3 or 4 hrs you spend researching is invaluable time spent as you’ll get a depth of understanding unparalleled in most other industries.
Zero risk = zero return
We all want zero risk, and at the same time, we all understand that with no risk comes no return. However, there is no reason to take foolish risks with your current digital strategy so you need to ask potential digital suppliers to point out the risks and what they plan to do to reduce and manage them. Digital suppliers need to be well versed in migrating digital services from A to B – and not so many are; a large number simply “take over” the existing digital services with little in the way of a plan to move to game on.
Your organisation might only be considering a small move, initially, but the field moves so fast you’ll be wanting your new agency to be one or two steps ahead of your organisation and, maybe, a couple of a steps ahead of the market as well.
We’ve been in the digital space for nearly 17 years; we’ve built web-sites that cost £2k capital and also delivered digital strategies costing £250k per annum. Pricing, for us, is a piece of string with it’s length defined by the needs of the organisations we serve. We believe we are a rare beast in this space, focusing on long-term partnerships, collaboration and shared vision. Spend some time getting to know us better, speak to us and discover if we have any common ground.
By Martin Dower, CEO