Faktor Glossary
We use factors to build a price that reflects the full economic context of a creative project. Each factor is a multiplier that increases or decreases the base price. Things like experience, size of team, client company size contribute to the real value of your work.
Base prices
For all services we work with a base price that uses an hourly rate and an estimated level of effort measured in time, however the actual price doesn’t come from time spent. The hourly rate is location dependent which allows us to adjust prices relative to location rather than arbitrary values. The final amount is then adjusted through client and project factors that reflect context, impact, and risk, resulting in a value-based price. That’s why the base rate may appear lower than expected: it’s not the value of your work yet, it’s only the starting measurement before the real pricing logic is applied.
- Location based hourly rate×Hours=Base Price
- Base Price+Faktors= Value-based Price
Creator factors
If you are a creative offering services these are factors related to your business. For solopreneurs we use years of experience to adjust the price, and for studios we use team size.
Client size factors
The client factors are dependent on the type of client. We use different metrics for traditional companies, start-ups and influencers/artists. The differentiation is important to determine the economic reality and therefore the value.
Fees & discounts
The calculator provides the option to apply a fee or a discount. These are applied with a very simple addition (for fee) or subtraction (for discount) formula.
- Value-based Price +/-Fees/Discounts= Final Total
Industry factors
These factors reflect how much value an industry can realistically extract from creative work. We use the UN's International Standard Industrial Classification (ISIC), and each category is assigned a factor based on profit margin data from Aswath Damodaran's research at NYU Stern. These margins are translated into the factors below. The result is that clients in a high-margin industry e.g. software or finance will pay more than one in a low-margin sector like non-profits or agriculture. This data has the following limitations: it is US-centric, only uses data from publicly traded companies and is updated once a year in January.
Testin this field!!
Location factor
The location factor compares Cost of Living + Rent (CLR) and Local Purchasing Power (LPP) for your and your client's location, using data from Numbeo. If your client is based in a wealthier city or country than you, the factor increases your rate. In the case that you live in a wealthier city than your client the factor is capped at a minimum of 0.9 to protect your cost of living. It will never reduce your rate by more than 10% regardless of the economic gap.
These are examples of location Faktors, this list is not exhaustive.
Value-based pricing
Our definition of value-based pricing is a pricing model that takes economic reality into account. This means that two clients with different economic situations won't pay the same amount for the same service. Similarly, two creatives with different economic situations won't charge the same for the same output. Our calculator takes the ambiguity out of value-based pricing by using factors to contextualize the value of your work.