How much does something like a logo cost when you look at it as time? How much does it cost when you look at it as value? And what about as a product? Do they all amount to the same end price? Do they all amount to the same end result?
Let's do this with a simple theoretical scenario that compares time to products to value to help us highlight how this can be broken down.
For this example, I'm going to base this on creating a logo. Of course, this could be used for any service, but a logo in some instances will help us here as its likely to have fewer variables that impact time spent than say, a website.
Now let’s get 2 ends of the spectrum, what is a low hourly rate? Maybe $50. And what’s a high hourly rate, let’s be generous here and say $500 (pretty good hourly rate if you ask me). Now how LONG does a logo take? Again let’s give both ends of the spectrum. Let’s say a quick logo could take someone 4 hours. Tight but it could be done. Let’s be generous with our high estimate. How’s 200 hours sound? Sounds high to me, but let’s make that our high number.
Using time and price outlined above the cost of a logo should cost between $200 and $100,000.
Wowsers. That’s a big difference.
So with value, there’s no looking at the time or energy used to create a project. There are many reasons that can impact value, but how we can determine value is by looking at how much the market has been willing to pay for logo services in the past. So at the low end, we’ll actually find that it could be as low as $5, someone downloading a premade logo or going to Fiverr. At the high end, well it’s documented that Pepsi spent $1,000,000 on its logo. It’s not the only business to spend 7 figures on a logo.
Using value we can see that a logo costs between $5 and $1,000,000.
Wowsers. That’s an even bigger difference.
Interestingly, the low end has dropped also. And that leads me to a common myth around Value Base Pricing, which is about getting MORE from a customer. It's not that simple, it's about getting what's RIGHT for the customer.
So… How can you use any time-based formula to get $1,000,000 for a logo? Do you say it takes 2000 hours or do you put your rate up to $5,000 per hour? How would you sell that?
You can guarantee that this 1 million dollar logo was sold on value with a specific focus on risk minimisation.
It’s fair to assume that in both situations the extremely high option is rare. You’re unlikely to find many logo designers charging $500 an hour and needing 200 hours. And the amount of brands willing to spend 1 million is just as rare.
The 3rd option of course and this is investing your time to create a product and reselling this. Maybe you spend 10 hours on a logo and put it on Envato and make 200 x $50 sales. That works out to $1,000 per hour, but technically this item could sit there forever and earn an infinite amount of sales with no impact on your future time.
Better yet you could put multiple products out into the world and have them all be earning passive, NO EFFORT profit.