As a person who makes, builds, and creates digital products that rely upon creativity, I am constantly thinking about how to increase the value of creativity and what the ROI of creativity actually is.
The temptation over time is to increase hourly rates so that I can get paid for my time and what I put into a project. However, if all I ever get paid for is my time, how will I ever know the value of my creativity and ultimately my work?
Time is not an accurate indicator of the value of creativity. If a creative solution appears quickly, say in 6 minutes, and I charge $100 per hour, I just made $10 on an idea. What if that $10 idea generated a cool million for the client?
How about a more accurate scenario? A development firm charged $10,000 to create an eCommerce website for a small business that in the first year resulted in an increase of $4,000 to business. What would the return on investment be for the business?
Calculating Value (The Business)
According to Investopedia, ROI measures “the efficiency of an investment” by first calculating the investment’s profitability (subtract the cost of the investment from the gain of the investment) and then dividing that result with the cost of investment.
In the eCommerce scenario above, the ROI calculates as: (4000 – 10000) / 10000 = -0.6 or -60%. Typically, a positive ROI is desirable. Most people want to get more money out of an investment. In this case, the business lost money in the first year.
From a business perspective, the money spent on creative work must be recuperated over time (the amount of time depends on each customer and prompts another question that deserves its own post: What is the lifespan of creative work?).
Ultimately, if creative work can quickly generate a profit for a customer, you as the creative person wield power over other creative companies and individuals. It becomes a tool in your sales kit to close the next big project.
Calculating Value (The Creative)
However, when it comes to the creative person calculating value for themselves, the variables are often not economical or based in time. There are intrinsic motivators that drive the work that is being done: Am I learning something new? Do I love this idea so much that I am willing to make next to nothing to see it through to completion? Could the successful execution of this project grow the relationship with the client to the point where I get more work than I thought previously possible?
The Trick is Balancing Extrinsic and Intrinsic Value Systems
Creative entrepreneurs must balance extrinsic and intrinsic value systems in order to stay in business over the long haul. They must understand both the economical decisions that result in cash flow (so devastatingly important) and the creative decisions that result in growth and new opportunities (equally important).
Without a healthy balance, you risk stripping the soul of your work bare or being so broke that you have to quit in order to find a better paying job.