THE PRICE IS RIGHT? LOCALIZATION INDUSTRY PRICING
Background
Preliminary numbers from Nimdzi’s 2019-2020 language services pricing study are rolling in, and we are understandably eager to begin reporting on our findings. The cost of language services is naturally a hot topic in our industry, and we don’t expect this to change. That’s why we didn’t want to make you wait while we continue collecting data for our comprehensive industry analysis.
The data reported below will help you immediately benchmark how much you are paying for localization. However, it is just a beginning. If you find this to be a good start, but you are understandably impatient to dive deeper into the data – let us know. We are happy to schedule a time to talk and find answers to all your pricing-related questions.
Framing the discussion
The value chain for language services can be deep and complex. Freelancers sell to small Single Language Service Providers (SLSPs). Those SLSPs sell to larger Multiple Language Service Providers (MLSPs). MLSPs sell to end-buyers (or sometimes to third party vendors engaging closely with those end-buyers).
This model serves as a useful generalization for studying pricing and allows us to clearly define the scope of the conversation. However, this is not to say that this is a one-size-fits-all model. It is simply a tool that allows us to clearly outline the scope of the data we’re focusing on in this report, which is pricing at the top end of the value chain (ie: How much end-clients can expect to pay for translation).
Methodology and scope
For the purposes of this research project, Nimdzi has collected data on translation costs from a variety of sources, primarily focusing on buyers of language services (how much are they paying) and multiple language service providers (how much are they charging). We have reviewed rate cards from MLSPs, RFPs issued for translation and localization services (as well as responses), as well as publicly available rate information, where available. To gather context and additional insights into rates, we have conducted briefings with buyers and sellers of localization services at various levels in their organizations.
Note this research is ongoing. Though many data have already been collected and analyzed, the findings presented below should be considered only as an introduction. Future Nimdzi reporting will detail pricing trends across all levels of the Language Services Value Chain.
Translation rates
An initial review of the available data reveals that there is a very wide range of prices for similar translation services. In the below graph, we show the lowest, highest, and median rates reported for eleven languages translated from English (FIGS+CCJK+R+P). The highest rates reported were universally at least twice as high as the lowest rates reported for each language, sometimes approaching three timesas much.
This spread is not necessarily surprising, considering the fragmented nature of the language services market. Multiple Language Service Providers (MLSPs) cater to a wide variety of different clients, working in different industry verticals and specializing in different services. It is understandable, therefore, to see the degree of flexibility in price-setting from different service providers.
PER WORD RATES FOR MAJOR LANGUAGES (MLSP TO END-CLIENTS)
The median rates reported for each language are useful for both buyers and sellers of language services who may currently be trying to decide how much to spend or to charge, respectively, for translation services. However, each LSP has to decide for itself how to set pricing, which is based on a number of factors, including but not limited to:
- What additional services and overhead are included (hidden) in the per word rate? How many QA steps are included in this per-word rate? Are there other services such as file processing, project management, or desktop publishing that are included in this rate?
- What margin is expected from senior management and how (exactly) is that margin calculated?
- What economies of scale are we leveraging? This is not just a matter of volume, but also factors such as the average number of languages per project, average word count per hand-off, number of unique clients, diversity of file types handled, process standardization, and others.
Project management
Translation is only one of the services offered by LSPs. As market forces, not the least of which is machine translation and related technologies, push to commoditize more and more translation-related tasks, LSPs are looking to diversify their service offerings. Project management is one of the most common and well-established services being offered by language services.
Historically, project management for translation services has been charged as a percentage of the translation costs for a project. While it is debatable whether this pricing model is still appropriate in 2019, it is still the industry standard.
82.8 percent of LSPs report that they charge for project management as a percentage of translation costs.
PROJECT MANAGEMENT FEES
The main differentiation between project management costs between LSPs is the percentages used. Of LSPs surveyed:
- The majority (58.6 percent) charged between 5 and 10 percent.
- Roughly one in ten LSPs (13.8 percent) typically charge more than 10 percent.
- 10.3 percent of LSPs charged a PM fee under 5 percent, while 17.2 percent did not charge a percentage-based PM fee.
Not all project management is created equally
Looking at the standard project management fees and how LSPs structured them in the above graph, it is worth noting that these fees are flexible depending on the project and client.
LSPs we surveyed reported that PM fees were often treated as flexible during contract negotiations, with differentiation to the standard percentage-based model depending on the following factors:
| Factors increasing PM fees | Factors decreasing PM fees |
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The paradigm shift – changing the way services are charged
Moving beyond the hard data, Nimdzi researchers have noted some strong movements in sentiment about current pricing models. Not all buyers and sellers providing briefings for this research were eager to share their rate cards, but many were willing to share their thoughts on pricing models in general.
The most prominent conclusion is that there is a growing sentiment in the industry, particularly among buyers, that the per-word pricing model is overdue for disruption. With the increasing sophistication of language technology and the introduction of AI and NMT, buyers are beginning to question how long this model will remain relevant.
“PER WORD PRICING IS AN APPROPRIATE WAY TO CHARGE FOR TRANSLATION SERVICES”
Overall, 45 percent of industry professionals surveyed reported that they either “Strongly disagree” or “disagree” with the statement that “Per-word pricing is an appropriate way to charge for translation services.
Considering the fact that per-word pricing is the widely accepted norm for most language pairs, this reveals a large disconnect between how the industry feels about pricing and what they are actually doing.
This disconnect presents an interesting opportunity for innovation-minded companies to propose a new way of charging for language services. Per-word pricing has been the norm for decades. Research shows that the industry is ready for a change – even if it is not yet clear what that change will look like.
Have something to contribute to the discussion?
Our research is still ongoing. If you would like to contribute to this research by sharing your experience buying or selling language services, please schedule a briefing with our research team.
This post originally appeared on Nimdzi
