All luxury is not the same. We as creative businesses need to better at saying what area of luxury we inhabit. There are three categories that come to mind: luxury, power luxury and ultra luxury. Each of these markets demand a different business model to reflect the needs of the clientele who inhabit each level.
This post will be a lot of what I covered in my very first post for The BBC Collective last June but has become ever more important today. We have yet to define markets to create models that serve those markets. We are still a hodgepodge and it needs to change.
Critical to the conversation though is the fundamental idea that all creative businesses have a subjective component and an objective one. The subjective are those ephemeral items like design, concept and vision. Objective is the cost to implement the subjective in real time. Smush the two together and, I do not care who you are, subjective becomes worth zero. Today, more than ever, no one sees the value of design in its production. In fact, quite the opposite. And even more than that, if you do not charge specifically for the subjective, it is worth what you say it is – nothing. Free is free.
So if we are going to value the subjective, we have to make it plain that that is what is getting paid for. Regardless of the category of luxury, all luxury creative businesses have to get paid in some form for the subjective. Easy enough, but not nearly good enough. On to the different categories we go.
Luxury. We live in a fluid world and we have to recognize that variables have to be in relation to expectations and project size until they are not. Overall cost of luxury in the wedding market should not be less than $700/pp all things being equal. Really it is closer to $1,000/pp, but I will let the floor be slightly lower. So 200 person wedding, base $140,000 cost. Less than that is not compelling as luxury – just not enough there there. What that means is that to support a creative business with projects lower than this sort would require a volume that takes away the attention that luxury clients demand. You can do beautiful work there but the level of specialness and trust in the relationship between client and artist just cannot be there. You have to work too much to make this promise of specific attention a reality. All of you should work in your markets to define the floor but I am not going to be too far off.
The floor is the easy part. From the floor to a certain level where power luxury will begin, all the stars align for luxury – you get to make the money you need relative to project expense and work as much as you would like to make it. Expectation and relative cost of a project align. Let’s say your average wedding is $150,000, you make your 20% or so and you would like to work 15 times a year. $500,000 in fees with a 50-60% margin and all is good. You take home $250,000. For those businesses with no or little cost of production, fees for these events also make sense. $15,000 for a photographer, $7,500 for a DJ where margins are much higher (say 80%) and it works.
The value for professionals in the luxury market is predicated on expected attention (i.e., how much you want to work) and relative value to the project (how much you cost relative to budget). This is the meat of the bell curve. What this looks like in each respective market should be absolutes and known. And all of you should set them. For instance, a luxury DJ in Toronto spins 35 times per year and on a $200,000 wedding deserves 2.5% of the budget or $5,000. Those are the easy standards to set.
However, to make those standards effective in the luxury market, we have to define the next strata of luxury, power luxury, where the relationship between subjective and objective breaks, where expectations and scarcity become the primary drivers.
Power Luxury. For weddings, events from $2,500-5,000/pp I would consider power luxury. Pretty outrageous but not ultra anything. Here we are starting to see the need for a new model focused on the relationship to expectation as opposed to relationship to cost. Relationship to expectation is: what should something like this cost from a creative business like yours? If the steak should be $75 in this category, pricing at $50 excludes you from the category. This has to be paired with scarcity – how much time are you willing to devote to each project so that the premium client gets the attention they deserve.
In the power luxury category, you can still bastardize the luxury model, but only to a point. 20% can become 15% and design fees can rise. Your fees can grow incrementally and still make some sense. Just know you are pushing it though. Power luxury looks a little like luxury and a little like ultra luxury. It is a valuable market and allows luxury players to stretch and ultra luxury players to dip down. Completely dangerous though as it is neither luxury or ultra luxury. The model has to be a specific hybrid and needs to be well defined by everyone. There has to be a design/subjective component that is far more substantial than any objective one. For instance, in the power luxury category, design itself needs to approach 10% of a budget. Think about it. Execution is relatively static in the luxury/power luxury world, it is not multiples harder to do a $1,000/pp wedding as it is a $2,500/pp one, harder sure, but less than 2.5 times. However, the pressure on design is enormous. These clients expect original and special and should receive it. So you HAVE to charge a premium of design to fulfill your promise of couture. Percentage on production just does not get that done.
Ultra Luxury. My presumption is that we are at $6,000/pp and up for this category. Here it is all about expectations and scarcity. My position is that there should be absolutely no relationship to cost of production here. It just makes no sense. The conversation should be that it needs to cost $x to do this work with ALL costs of production shifted to a monthly fee. How many of these projects undertaken per year matters too. Let’s say we are talking about a $3mm wedding, I would start with the premise that there will only be 5 events like this per year and target revenue for your business for these projects is $x. For arguments sake, let’s say $x is $2.5mm. Design would be $300k per event with production running at a monthly rate necessary to produce the event and based on a 4 month production schedule. Call it $50,000 per month. Presuming this makes sense as a business and relative market expectations, there you have it. If the event takes over the ability to do 5 (say it is a $9mm event), everything adjusts accordingly. Think about it as if the $9mm client is buying 3 events: $900k design fee, with $150k/month production fee. For the ultra luxury market, we are talking about being commissioned as a high artist and the price for that has to be almost entirely skewed to design (aka, the creative aspect of what you do).
Can you inhabit more than one level of luxury? Sure. I just do not think you can inhabit all three. Way too confusing and you will just wind up cannibalizing yourself. Better to focus on what you do and how you fit in the market(s) you wish to call your own. Knowing whether you consider your creative business luxury, power luxury or ultra luxury gives you permission to act accordingly. It also gives you permission to tell clients who are in the wrong market that they are comparing the wrong metrics. Ultra luxury has no substitutes, luxury does. If you are in the ultra luxury market and compare yourself to any other creative business, you are lost. Likewise, in the luxury market, you are allowed to be at the top of that market but not act as ultra luxury. Lanes matter for everyone and set the stage for better art and better business.