The Language Services Pricing Conundrum Revisited

I recently led a conversation about pricing in the language services industry in a recent edition of GALA ’s webinar series. The audience participation was so extensive that we never arrived at a conclusion about whether prices should go up, down or remain the same.  I think the answer is “it all depends”.  It depends on the type of work, the various pricing models we use and the “why” with regard to word rates not keeping up with inflation.

Before we arrive at a (or several) conclusions, I think it’s important that we examine the pricing models we use and how we apply these, rightly or wrongly, to the various content we translate and additional services we offer.  So, in this first of several posts, I want to summarize the pricing models commonly used in our industry and a few of the pros and cons of each.

To set the stage, most per word rates have not kept up with inflation.  My business partner, Thomas Edwards and I started our careers in the language industry in the 1990’s. We both charged roughly $.21 per (new) English word into Parisian French.  What are we charging now?  Roughly $.19 or $.21 per word for a standard project in that target language.  In today’s dollars, we should be charging around $.43 per word for the same content.

Many additional services we used to charge then, in addition to the word rate, are disappearing from sales quotes in many sectors of the industry: project prep, project management and glossary creation are rolled up into word rates.  Margin erosion!  No price.  Zero.

After thinking about this some more and discussing with many folks in the language industry, I have arrived at a few conclusions.  I have concluded that there are, more or less, four common pricing models in use in the translation and language industry.

Four Pricing Models, Pros and Cons

1. The industry is dominated by cost-plus (buying at a fixed cost and marking this up to achieve a certain margin).  Per word rates are the most common example of this model.   The main pro to the cost-plus model is it’s easy to understand and fit the market.  I think this why the industry (who exactly) decided on word rates.  Does this really reflect effort and value provided?  Read on for the cons.

• Unfortunately, the cost-plus method can lead to another method, which is competitive pricing where a lower rate is offered in response to competitors.  The primary pro to this model is winning the business, especially from naïve customers or eager translation vendors.  The cons are pretty obvious:  losing margin and having to win additional business to make up for this loss.  Additionally, we tend to get locked into competitive prices, repeating the lost margin and the need to make up for it again and again.   That or we push the pain down to the freelancers? Too many companies do and that is a huge problem, as it makes the profession of linguist too challenging.

• Two other pricing models are often used for services other than translation such as engineering, project management (when charged), SEO, transcreation:  value-based pricing and variant pricing. 

Value-based pricing would likely be hourly rate and/or based on the value the translation has to the customer.  Transcreation and engineering serve as good examples.  Transcreation communicates a (valuable) brand and generates revenue with the resultant messaging.  Engineering enables post-translation software to function…important when you install it with a customer!

Variant pricing is common with large, enterprise buyers with a multitude of different translation requirements that require varying levels of complexity, required quality, etc.

Value-based pricing can lead to variant pricing as a Language Service Provider (LSP) expands its reach across different departments and business groups in an enterprise.  This model generally requires an exceptionally thorough understanding of the customer to enable them to effectively explain these variances to procurement and others in the organization.

LSPs are using all these pricing strategies, especially cost-plus and competitive.  LSPs with specializations and other services lean, but not always completely, toward value- and variant pricing. 

Stay tuned for a subsequent post for more detail on the inflation issues mentioned above, as well as how LSPs are using these various pricing strategies, more on their relative pros and cons and thoughts on improving our pricing with the right customers, why we often get it wrong and then offer some ideas on how to improve.