Tuesday, July 16, 2013

Pricing 101 (AKA Kadie's Pricing Exposé)

When I first started my photography company back in the day I just pulled some random numbers out of the air to charge people because they sounded  reasonable.  The problem was that there was nothing behind those numbers except hot air.

Years went by and I kept making up numbers, some of which were even based off of peer pricing rates I saw in my local area.  The problem with just basing my pricing solely off of what other people around me were charging was that I still didn't know what was behind those numbers or if my peers had even put any thought into what was behind THEIR numbers to begin with.

It's like going along with some craze diet plan because a bunch of other people you know are doing it so it must be ok.  You have to check into the facts, the nutrition and the science behind what you are doing for yourself because you can't take it for granted that your friends already have.

After years of just going with the flow I decided one day to really dig down deep and examine my pricing.  It wasn't fun, I'm an art student not a math genius so spending that much time with my calculator wasn't exactly my idea of the ideal day.  However, at the end of my examination I found out that after everything was said and done I was making a little under minimum wage for all my hard work!  I was shocked.  I mean I wasn't charging peanuts by any means, how could I be making minimum wage!?  The reason was simple, those numbers had never been based off of me, they were made for someone else with different work hours and product expenses and overhead.  Pricing isn't one size fits all, it has to be tailored to the individual.

Yesterday Kate gave you guys some great ideas to help you reexamine your price sheets through a fresh pair of eyes, today I'm going to give you a few more things you might want to think about while refining your pricing that I learned over the 7 years I ran my photography studio.

Start by being honest about your skill level

We all want to make the big bucks, but we have to be honest about how our skill level compares with the market average.   Things like a college degree in our area of expertise typically give an individual the right to charge a bit more for their services.  While yes we are in the arts and there are people just born with innate skills and a college degree is by no means required to work in many of the arts, it does still add value to your services as do attending workshops and seminars.

Experience really does count for a lot

Again, I know we think we are amazing sometimes and that our work is kick butt and that everyone should want to hire us and pay us gobs of money, but we need to remember that even if we've got the skills, we may not have the experience we need to charge the big bucks yet.  While yes two artists may be at the same level skill wise, the artist with the greater amount of experience is entitled to charge a bit more.

Just how much are you working anyway?

Most people have no clue just how many hours they end up putting into a project.  However, this is vital information for figuring out our pricing.  Next time you start a project keep a written time log of ALL your working hours, client meetings, emails, phone calls, running to the store to pick up materials, all that time counts on top of your official "I'm making art now" time.   You will probably be surprised just how many hours you log.

Don't forget about expenses and overhead

When we take on a project we need to make sure that we are charging our client enough to not only cover the hours we are working but also the costs we are going to incur along the way.  We need to cover the cost of gas we spend to drive to meetings, for materials, for software, for products, for licensing, for office rent, business insurance payments, for the lunch we buy our clients at our meetings… etc.  If we have to spend money out of our pocket in anyway toward a project, the project should be making enough money to pay us back for it.  The easiest way to figure this out is to simply keep all your receipts.

Don't forget Uncle Sam

One other factor we need to keep in mind while we are examining our pricing is taxes.  Yes a lot of us pretend this doesn't exist but that is a very dangerous game and sooner or later you are hopefully going to be making enough money that Unlce Sam is going to take notice and not be so happy about what he sees.  Sooooo…. better to start good habits as early as possible.  Every state is different so I highly recommend going to talk to your local business bureau and a reputable accountant on the subject to see what you need to be doing.  Once you figure that out make sure you are including those costs into your pricing structure.  For me the best thing to do once I got paid from a gig was to take out the money I knew needed to go toward taxes and put that into a separate account I set up specifically for that purpose.  That way I never had to worry that the money wasn't going to be there when I needed to pay big brother.

Try working backwards*

We have all these numbers, now what the hell do we do with them?  I know it can feel totally overwhelming to break all this stuff down, but trust me now that we have collected all the data the rest is super easy, all we have to do is work backwards.

To start off we need to decide how much we want to be making per hour. This rate should reflect our skill level and our experience. For this example we'll use a recent college grad so good skill level but still low on experience about $15 per hour.
Next we take that number and multiply it by the number of hours we put into our project, for example this project takes us roughly 40 hours of total work time. 
(40 hours x $15 per hour = $600 total) 
After we figure that out we need to add on the overhead we are going to incur over the course of our work on this project, let's say that number is roughly $300. 
($600 hourly + $300 overhead = $900 total) 
Lastly we add on however much taxes are going to cost us for this sale. Let's say $50. 
($600 hourly + $300 overheard + $50 taxes = $950 total)
So for this pretend project I would be charging my client $950, simple right?

*I just want to note that this is just one way of pricing yourself. When you are just starting out I find it to be the simplest and easiest way to get your pricing in the ballpark of what you should be charging and ensure that you're not undercutting yourself.  There are many other ways of pricing yourself, and sometimes hourly rates don't properly reflect what you need to be charging for some services but in any case it's a good place to start at least.  :)

After I examined my pricing and saw I was making minimum wage I knew I had to raise my prices but I was scared to.  I was already uncomfortable talking money with my clients, feeling like the amounts were so high already that raising them even more seemed ludicrous.

However, the first meeting I had after raising my prices was the very first time I was able to talk confidently and easily about numbers.  I wasn't worried they would see through me, to think I wasn't worth it because I knew those numbers inside and out.  I knew where every penny was going and could account for the reason it needed to go there.  I KNEW I was worth what I was asking and I wasn't afraid of them asking me to tell them about why I charged what I did.

Now go and attack those price sheets because you're worth it, aren't you?

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