Which Sponsorship Pricing Style Is Best?
Have you heard of the Ship Repair Man story?
I LOVE this anecdote because it perfectly speaks to how we should determine our value as creators.
The TL;DR is there’s a huge ship with a broken engine, but none of the engineers know how to fix it.
That is, until they bring in an older, more experienced engineer, who figures out the problem immediately.
But when this more experienced engineer bills them for $10,000, the other engineers think they’re being ripped off - after all, he only tapped the engine with a hammer.
So they ask for the itemized bill, which reads:
Tapping with hammer - $2.00
Knowing where to tap - $9,998.00
The metaphor is pretty clear.
Your value is not based on your physical capabilities or work-product alone...but on the knowledge and expertise you bring with it.
So this week I wanna talk about three different pricing styles creators often use and some of the pros and cons of each.
1 - Competitive Pricing Model
Summarized: “I’m gonna figure out what other creators of a similar size/niche are charging and charge roughly the same.”
This is where most creators usually start out.
The first time a brand asks you what your rates are, you start asking around to see what your friends and niche neighbors of a similar size are charging for equivalent projects.
After all, they’re gonna know what’s reasonable, right?
Buuuut…what if your friend set their rates by copying someone else too? And what if the person they copied from just copied someone else?!
When you start to think of it in this way, you realize that mimicking someone else’s rates starts to divorce the amount you’re charging from the value you’re providing.
But then again, maybe if your rates are similar to others in your niche…brands are more likely to accept your proposal?
Hmmm.
2 - Cost-Plus Pricing Model
Summarized: “I wanna make sure I’m at least making $XYZ per hour and cover my costs”
You know that even the simplest brand partnership can always surprise you.
Maybe that YouTube video required you to go buy a bunch of supplies.
Maybe recording that podcast integration got delayed because you were waiting a week for the brand to send the talking points.
Or maybe you just underestimated how long editing & organizing the assets would take on your end.
Almost any creative project is gonna have those itty-bitty tasks pop up.
The Cost-Plus pricing model preemptively compensates you for those additional time & resource drains.
Once you’ve determined your rate based on how long the project should take, you simply add an additional (usually arbitrary) percentage on top of that.
[Approximate Hourly Rate x Estimated Project Hours] + Material Costs + % Profit
Sure, you’re probably still underselling yourself.
But at least you’re making a little more out of the deal than before…right?
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3 - Dynamic Pricing Model
Summarized: “I’m gonna 2x my rates during the holidays!”
This is where you start to pull on the “supply and demand” strings.
Say a brand wants to run a Black Friday campaign and it’s already mid-November.
The campaign is now incredibly time-sensitive.
So just like a plumber might jack up their prices on the weekends because they know you really need them ASAP…
Many creators choose to 2x their rates because they know the brand needs to run this campaign NOW.
This is great news for your short-term bank balance.
BUT not so great for building a long-term relationship with that brand.
4 - Merit-based Pricing Model
There’s one more pricing model that we didn’t discuss: Merit-Based.
This is where you set your rates based on what the brand thinks you’re worth.
It’s also where the Ship Repair Man analogy fits into place too.
You’re not simply pricing yourself based on hours worked but on the results you want to achieve for the brand. ✌️
Which pricing model do you believe is best? Let me know by tweeting me @creatorwizard.