Do you find pricing difficult?
You are not the only one!
Costing is the first part of getting to your price, which is based on your financial facts, and more of a mathematical exercise.
Pricing is the second part whereby you decide your much to charge. This is more art than science!
In fact there are loads of different ways or strategies to price your products or services!
And … often creative businesses use different price strategies at the same time.
Here are the most common ones that we have found so far:
1. The cost price
Do you know how much it actually cost you to produce your work, with all material costs and hourly cost included?
You really need to know this to identify your ‘break even point’ where your expenditure will equal your income.
Your cost price is the foundation of your business.
Knowing it will help you to avoid making a loss, to manage yourself better and become more effective and efficient with making more products or finishing projects in a shorter period of time.
If you know your cost price you can then add a mark up or profit margin to calculate your wholesale or recommended retail price. A good starting point to calculate your cost price is to keep records of all your expenditure and also of all time spent per project.
2. The going rate
Do you know what your competitors are asking or getting for similar work?
This is especially a common price strategy if there are a lot of similar products or services on offer in a competitive market e.g. freelance graphic or web designers. If you are too expensive or too cheap you will loose out.
If you don’t know the market rate, you will need to do some practical market research i.e. check out prices on their website or with retailers, check with ‘people in the know’ or middlemen such as recruitment agencies or freelancers websites such as Elance or PeoplePerHour. You might even want to go as far as doing some ‘ghost shopping’ and contact them pretending to be a potential client.
3. Value-based pricing
Do you realise how much value your work adds to your client’s business?
Most designers and makers hugely underestimate what they create for their clients. Value-based pricing is based on what your value creation actually could be.
For example a freelance web designer can accept a job from a small business to create a brand and website, and base their fees on that. As a value-based designer you would first have a meeting with your client to find out what they are really looking for, what the challenges are for their business, how a better and user-friendly website could contribute to a (massive) increase in their sales in the future.
Instead of ‘just quoting for the requested job’ you go a step deeper, and really provide your client with a potential solution that will create huge financial value to them. You as a designer can quote more as you provide them with that (financially very interesting) solution.
If you are interested in this I suggest you read this free ebook by Mike McDerment called Breaking The Time Barrier. You will read this book in about one hour, but you will really start to understand how you can add value (especially if you provide solutions and services, like many designers do). Enjoy!
4. Bundle price
It is very common to offer a discount if buyers want more of your products or services at the same time, or if they book at the same time, to encourage them to buy more. This really is helpful for your planning and cash flow.
For example: your daily rate decreases if your clients book 10 days or more in advance, or you offer a special deal if clients buy earrings, necklace and a ring.
5. Credibility-building price
Sometimes there are clients who you really want to work with, who are high-profile but have limited budgets e.g. in the cultural non-profit sector.
You can decide to work for them for a lower or no fee, but I would strongly suggest that you get something else in return than money!
Be careful to work for free, and negotiate with the client for something that can increase the promotion and visibility around the work you do, and ensure that it builds on your credibility. Discuss and negotiate in advance how these more interesting clients will help you to promote you or give you introductions to other (fee-paying) clients or have good testimonials on your website.
You can learn more about how to improve your credibility in this blog post.
6. Premium or prestige price
Your price tells a story.
About where you want to position yourself, who your dream clients are, what your profile is, what the value is of your work.
Are you able to charge more because you are more exclusive, your brand, your position in the market and your target audience?
To be able to charge these high prices, you will need to provide excellent customer service throughout the entire selling process, work with the finest materials, and need to be able to show your creativity and expertise to achieve these higher prices.
If you find that others in your market (who do similar work for similar clients as you) that are charging a lot more, then start to work out why it is possible for them to charge more. If you have worked that out in detail then you will have a great action plan for your own business to work on too!
7. Extra features price
Have you got similar products or services at different price points within your range with extra features?
For example a ring in gold or a ring in silver have different prices, a ring with diamonds in the same collection has a different price again. All three rings might be very similar, but due to added features they get a different price.
If you are providing services you can think about different ‘packages’ that you offer at different price levels.
This can really help if you want to decrease or increase your prices: change the material or size!
8. Psychological price
It is better to price your product to a ‘regular’ number i.e. £95 instead of £102,15.
But psychological pricing also refers to – particularly in the gift market – the amounts that customers are on average prepared to pay for wedding or gifts. Especially department stores are very aware of this, e.g. the average price for a wedding gift to an acquaintance is £25, so if your product would retail just a little bit above this than that it will not be stocked by retailers.
If you sell to retailers then take into account their markups too. So if your cost price is £20, then you will sell it to retailers for around £40, and they will sell it to consumers for between £80 – £120. That is psychologically a very good price.
If your cost price however would be £22, then you would probably sell it for around £45, then making the retail price between £90 – £135.
If you want to learn more about price terminology used by retailers click here.
9. Discounted price
Giving a discount doesn’t work for all creative businesses as it can make you look cheap, and creative products and services are rarely bought purely on their price.
But doing a sale at your studio if stock isn’t shifting, or offering cheaper rates in periods when you are quieter (for example Monday morning or in January) can be very useful to improve your cash flow and make space for a new collection.
10. Loss leader price
This is selling your service or product below your cost price (so you are making a loss!) to attract clients in the hope that they will actually spend more money once they are with you. Supermarkets do this with baked beans, bread and banana’s.
This might not make a lot of sense to you (selling at a loss if your income isn’t that high in the first place!), but you might want to think about offering a free or highly discounted initial design consultation or something similar to attract clients, and to start having a meeting with a potential client where you can show your expertise.
This can be extremely effective in marketing terms ‘to get a foot in the door’.
11. Emergency price
Is your client in a pickle and do you know that you will have to work many many hours deep into the night to get the work delivered in time?
You might decide to do the client a favour, or consider to increase your hourly rate to compensate for the added stress.
Also if you know that a client is going to be ‘difficult’, then ensure that you communicate very clearly about what they can expect and by when. If you have created with your client a clear design brief and quote then you will have less issues about prices and expectations later on.
12. International price
It is not just the conversion rate that you need to check regularly (e.g. the British Pound has been fairly volatile over the last couple of months against the dollar and the Euro).
If you work internationally I would strongly suggest that you check out the local market, local prices and what your competitors charge locally, as different markets can differ hugely.
For example when I worked at the Crafts Council’s Chelsea Crafts Fair in the 1990s I often suggested to the milliners in particular that they should increase their prices for the UK market, often suggesting that they would double their price! The hat market in London (especially) is very different from the Dutch hat market, and if they would charge the low prices they wouldn’t actually sell more, but their potential clients in London would think ‘What’s wrong with these hats?’.
13. Fixed project budget
Often a project has a total given price, which is often divided in different stages with according fees i.e. 30% deposit upfront, 50% creative stage, 20% delivery stage.
A fixed price works well if you are efficient and experienced (you know how much time things really take by keeping clear time sheets over the years), you work with a more experienced client (so you won’t be wasting too much time hopefully in meetings, discussions and revisions) and you work closely together at the beginning to scope the project into a clear design brief, and both adhere very strictly to deadlines.
If the above doesn’t apply then be careful, and include at least 10% contingency in your budget.
This is a recurring (monthly or quarterly) fee for a certain amount of often standardised work e.g. a graphic designer books a photographer for 2 days per month, every month of the year, to ensure a lower but reliable rate.
A retainer can be really useful if you work with larger clients who give you regular work, so that you don’t have to get confirmation of each small new project. It can also be really useful for the reliability of work and income.
Be aware: Retainers can be withdrawn at any time, unless a clear contract is in place.
15. It is a given
Sometimes it is not up to you to decide the price, but the client or market decides!
There is a given price for a certain type of work e.g. the hourly rate of a freelancer with certain skills, a daylong training workshop, or when there is a tender for a public commission.
If the budget is too low, then go back to the client with some counter offers, and suggest what you can do for that given budget. Very often clients have a very big list of what they want, with a fairly small budget. It’s good to have a conversation with them what they ‘must have’ or what they would ‘like to have’, and then propose what you can do for them at what price level. You will be surprised how negotiable many of these ‘given’ price levels can be!