There are different ways or strategies to price your products or services, and often businesses use different price strategies at the same time. Here are the most common ones:
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. 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 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. If you want more info about how to cost and price your projects you might want to look at this blog post.
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 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. 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. For example your daily rate can go down if clients book 10 days or more in advance, or you offer a special deal if clients buy earrings, necklace and a ring.
4. 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 ensure that you work with the client to 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 interesting clients will help you to promote you or give you introductions to other (fee-paying) clients. You can learn more about how to improve your credibility in this blog post.
5. Premium or prestige price:
Are you charging more to make your work look more exclusive, based on your brand, positioning in the market and your target audience? You will need to provide excellent service throughout, work with the finest materials, and need to be able to show your expertise to achieve these higher prices.
6. Extra features price:
Have you got similar products or services at different price points within your range depending on 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.
Tip: this can really help if you want to decrease or increase your prices: change the material or size!
7. 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.
8. Discounted price:
Do a sale at your studio if stock isn’t shifting, or offer cheaper rates in periods when you are quieter for example Monday morning or in January.
9. Loss leader price:
This is selling one 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. However you might offer a free or highly discounted initial design consultation or something similar to attract clients. Ideally turn it into a ‘credibility building price’!
10. 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.
11. International prices:
If you work internationally I would strongly suggest that you check out the local market. 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). Also check local prices and what your competitors charge locally, as different markets can differ hugely. When I work with Dutch designers I often suggest that they increase their prices for the UK market (especially if they want to sell in London), as their prices are too low, and they migth be deemed not to be good enough.
12. Project budget or fixed price for results:
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. This works well if you are efficient and experienced (you know how much time things really take), you work with a more experienced client and you work closely together at the beginning to scope the project and both adhere very strictly to deadlines.
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. Retainers can be withdrawn at any time, unless a clear contract is in place.
14. 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. Then you need to look the other way and see what you can offer for that given budget.
These are just some of the different price strategies that you can use. Have you got any questions about pricing, don’t agree with these, or use additional pricing strategies, then please comment below.