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Ask Biz Miss: Pricing Your Work February 23, 2010

Do you have any advice for how to calculate prices for creative products or services?

There are two main approaches to pricing your work: a bottom-up approach and a top-down approach.

The Bottom-Up Approach

The bottom up approach creates a pricing formula based on the time, skill, and materials you put into a piece.  It is usually the best approach for freelancers or other creative service providers.  It looks like this:

Price  = Freelance rate x Hours + Materials

Step 1: Calculate your freelance rate

Visit Freelance Switch to calculate what you need to charge in order to live comfortably based on your business and living expenses.  This is your break-even rate.  Use this rate to charge for the hours you spend on non-skilled work like hole-punching or putting prints into plastic sleeves.

Next, add some profit to that rate to cover your “intangible assets”—that is, your creative ideas and skilled artisanship.  One good estimate is to add $3,000 of annual profit for each year of experience or education you have in your field.  This new rate is your ideal rate.  Use this to charge for the hours you spend on skilled work like sketching designs, brainstorming with clients or intricate beadwork.

Step 2: Calculate your materials cost

Add up the cost of all the materials you need for your project.  This includes transportation/shipping or the time it took you to get those materials (at your break-even hourly rate).  Many Biz Ladies find it easier just to add a mark-up of around 10% to cover these costs.  If a material is particularly difficult or expensive to obtain, you may want to mark it up higher.

You don’t need to include the cost of overhead (i.e. utilities, rent, office supplies) since this has already been figured in to your hourly rate.

The Top-Down Approach

The top-down approach creates a pricing formula based on the current market value of products or services similar to the ones you offer.  You start with a competitive retail price and then work backwards to try to bring your material and labor costs in line.  The bottom-up approach is usually the best approach for people selling products.  It looks like this:

(Price – Expenses) / Hours = Hourly Wage

Step 1: Do some market research

In order to figure out a competitive retail price, you need to know what other people are charging for their goods.  Do your research by visiting stores, fairs and web sites that sell products similar to yours. Make sure you extend your search beyond huge online marketplaces like Etsy and eBay, where items are often bargain-priced.

Pay special attention to products that share materials, style, process, or target customers with yours.  For example, earrings made from a single plastic bead will not cost the same as earrings made from 24K gold cast in the shape of a spiderweb.

If you’re having trouble finding pricing information on your own, do a bit of crowdsourcing.  You can ask participants in certain forums on Etsy or Craftster what they would pay for your products.   Limit your crowdsourcing to forums that specifically encourage this type of feedback.  Good etiquette recommends that you avoid asking for advice from competing sellers or from posting links to your products in blog comments.  Don’t forget to continue the karma cycle by offering your feedback to others in turn.

Step 2: Do the math

Now that you have a good idea of what your retail price should be you need to decide whether or not you can afford to wholesale.  Usually, a product’s wholesale price is about half of its retail price, so if intricately cast gold earrings are selling for $300 these days, their wholesale price would be $150.

Now, let’s say it costs $25 in gold (including shipping) to make your spiderweb earrings, and each pair takes you three hours to make.  Using the formula above, you can make $41.67 an hour for each pair of earrings you sell wholesale.

($150 – $25) /3 = $41.67

Pretty good, right?  But wait a minute, earrings don’t just sell themselves (no matter how talented you are).  You spend your time on all kinds of things in order to run your business, so let’s take a monthly view instead.

For simplicity’s sake, let’s say you only make 24K gold spiderweb earrings.  You work full-time on your business (about 180 hours a month) and you are able to spend half of that time actually making your products.  The rest of the time you are doing things like bookkeeping, shipping orders, and answering correspondence.  Let’s also say that the overhead for your business costs around $1,000 a month.

In 90 hours, you can make 30 pairs of earrings.  Assuming you sell all of them wholesale, you make $4,500 a month.  Let’s take that number and figure out your actual pay:

($4,500 – $25 x 30 – $1,000) / 180 = $15.28/hour

If you can live comfortably on that wage, you’re all set.  Otherwise, you’ll need to make some adjustments.  For example, you can buy larger quantities of materials to get better deals, or you can try to make your jewelry-making process more efficient.

If none of these adjustments gets you to a comfortable hourly wage, you might want to sell that particular product only at retail.  Many designers who make high-priced items but still want to reach a wider audience will create a second product line that is specifically designed for wholesaling–for example, a line of less expensive earrings where the spiderweb design is stamped into a square of gold-plated metal.

Pricing is part of the marketing plan in my business plan template.  This doesn’t make any sense to me.  Why is it in this section?

Marketing encompasses more than just advertising.  It’s comprised of everything that influences the way people see your business, and that includes your prices.  For example, while it may seem counter-intuitive, raising your prices can sometimes boost sales by making your work seem more desirable.

At a Biz Lady meet-up in San Francisco years ago, I participated in a group session led by Meg Mateo Ilasco, author of the excellent business book for crafters, Craft, Inc. She described how she had decided to ramp down her wedding invitation business by doubling her prices. Instead of causing fewer people to hire her, however, it more than doubled her number of clients.  The higher prices made her look like a more sought-after designer, which became a self-fulfilling prophecy.

Of course, raising your prices doesn’t always cause a stampede.  The trick to maximizing your sales is to bring your prices in line with the rest of your marketing, including the taste and craftsmanship of the work itself.  Whether you make stylish home furnishings or adorable character art, your prices should not surprise your target audience, and should look right at home on your packaging, on your web site, and in the stores and galleries that sell your work.

I cut my prices pretty drastically for a craft fair this past weekend to try to get rid of some inventory.  I have a day job, so I just need to cover my costs.   Another vendor selling similar stuff got angry at me and accused me of “threatening her livelihood.”  I think she was totally out of line, but my friend disagreed.  I don’t get it.  Every business is free to set their own prices, right?

True, there’s no minimum wage law when you work for yourself, but there is a polite way to price.  Here are a couple of common pricing faux pas to avoid:

  1. Changing your prices too often: yes, you should absolutely market-test your prices, but don’t just throw numbers out randomly to see what sticks.  Focus on testing one or two products at a time, and try to do it at a live event like a craft show, where you can gauge customers’ reactions directly.  Changing your published prices too often (like the ones on your web site) will make repeat retail customers think they are overpaying, and will make your wholesale customers struggle to keep their prices current.
  2. Pricing just to maintain your hobby: I think it’s lovely that you make so many beautiful things that you’ve run out of people to give them to.  I also think it’s great that you sell your extras in order to support your hobby.  It’s selfish, however, to sell a fair-isle sweater you knitted for just the price of the yarn.  Your customers might be thrilled, but underpricing devalues creative work and makes it harder for creative professionals to make a living.

Sadly, there is no magic formula for pricing, but with some research, careful thought, and a little finesse, you can find the sweet spot that makes your business the most successful it can be.  If you have any other pricing tips or questions, please feel free to share them in the comments below.

 

Thing-A-Day #12: Show Some Gratitude January 29, 2010

Finally managed to print those tanks cards today.  The print areas were so large that they turned out with a little bit of distress but I really like what it adds to the image.  It makes it look more military-industrial complex with a hint of hand-printed propaganda.  Sweet.  (**Update: They’re up in the shop now.)

Today’s instruction: make something that shows gratitude.

Your inspiration for today comes from Jeff Rudell’s ingenious client-getting nutshell book.  Enjoy and be thankful.

 

Shop Local, Bay Area November 23, 2009

Whenever money is tight, the same dilemma comes up: shop at a discounted big box to save money, or shop from small businesses to stimulate the local economy?  Most people would rather do the latter, but we simply don’t have the cash this year.  Luckily, there is a solution.  Ever the creative problem-solvers, many Bay Area businesses are participating in programs that give serious discounts (usually 15% and up) to local shoppers.

If you live in San Francisco, you can take advantage of Only In San Francisco’s ShopSF program.  Just show your driver’s license or other ZIP code-bearing ID and you’ll get great deals at their participating merchants.  Some of my favorite stores are on that list, like Urban Fauna Studio and Candystore Collective. Want to add your business?  Sign up here.

If you live in the East Bay, wear plaid this Friday to show your support for local businesses on Plaid Friday.  Their participating businesses include a lot of artists, including Ezme Designs, which makes beautiful ceramics, and TWO art subscription services–The Present Group and Art in a Box.  If you are an East Bay business, there is still time to participate.  Visit this page for details.

 

Art Critic Gig October 21, 2009

Anyone looking to make a little money or exchange critical writing for art?  The Present Group is looking for a critic.

 

Ponoko Meets Spoonflower September 30, 2009

over at Envelop.  The Belgian-based company digitally prints your designs onto fabric.  They make aprons and pillows (and other things) out of it.  They set up the eCommerce web site and do all the selling.  You upload your designs and reap the profits.  Becoming a member is free, but not all designs make the cut.  For tips, see their submission guidelines.

via SwissMiss

 

Happy New Year September 20, 2009

Fall is the beginning of my year.  It always has been.  In the first place, I’m Jewish, so I celebrate the new year in the fall rather than in January.  I take stock and make my resolutions in the fall.  Fall is also when school starts, and when people come back after having a long break.  Fall is when I naturally feel compelled to start in new directions and when the economy begins to ramp up again.

This year my main goal is to take those new directions and make them more, um…directed.  I’m trying to set clear, achievable goals for each of my current projects, which I am trying to cull and focus in service of a greater professional goal: an independent and sustainable career as a creative professional.

I’ve decided I need help with this, so I’ve been in contact with Lisa at the Renaissance Business Center here in San Francisco.  Renaissance is a non-profit dedicated to helping people start and/or grow small businesses.  What makes them different from SCORE, SBA and the SBDC is that they are much more focused on providing intensive, long-term assistance.  Two programs I’m currently looking at are their 14-week business planning course (which has been described as a mini-MBA program), and their 1-3 year business incubation program (probably the virtual incarnation).  I’ve got a tour and orientation on Wednesday.  Hopefully they can help me focus and kick my ass a little.

In the meantime, I’ve been applying for some holiday shows, and trying to create new wares for them.  The one I’m currently most excited about is DesignerCon in L.A. (formerly Vinyl Toy Network).  It’s sort of a combo trade fair/cash-and-carry for folks who make the kinds of things you see in designer toy and comic shops–plush and vinyl collectibles, limited-edition prints, and character-driven art of all kinds.  At $125 for a one-day booth, the cost is comparable to your standard craft fair.  I’m planning on showcasing/selling Sweet Meats on one side of the booth, and presenting samples of my plush design work on the other.  DesignerCon is on November 21st, which gives me a concrete deadline by which to have my new web site and business cards done, as well samples of next year’s toy line.

A little bit further down the list is a book proposal.  I’ve heard from fellow crafters that writing an instructional book is extremely difficult and takes about a year of full-time work to complete.  According to Crafty Chica Kathy Cano-Murillo, just writing the proposal takes a week.  Things being what they are in publishing, writing a book is often not very lucrative, assuming that your proposal even gets picked up a by a publisher in the first place, which is unlikely.  On the other hand, authoring a successful book significantly increases your profile as an expert in your field, leading (hopefully) to press, more clients and higher rates.  What doesn’t get picked up you can always publish on your own, so I’m keeping it as an option for now.

As for making a Thing-A-Day, I’m still doing it, though I’ve fallen back on the “work on an existing project for 30 minutes” net a couple of times this week.  Yesterday I made and decorated a cake for my friends’ 26th/30th birthdays, but I didn’t like it enough to photograph it.  Otherwise I’ve mostly been working on re-making my pieces for the Plush You show next month.

It’s going to be a busy fall.  I’ll keep you posted about what I learn along the way.  Happy New Year, everyone!

 

Sketchbook: Bacon Newsletter July 20, 2009

Filed under: Marketing and Promotion,sketchbook — bizmiss @ 10:02 pm
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Spent my day hand-sewing dog squeakers into 48 plush toys then dealing with UPS (see prevous post).  Not ideal.  But I also managed to finish this image for my newsletter announcing the Shapin’ Bacon to the world.

sweet meats shapin' bacon plush newsletter

sweet meats shapin' bacon plush newsletter

Using a very limited font collection and breaking TONS of typography rules, I tried my best to imitate this California Gold Rush pamphlet I found with Google images:

As soon as I finish entering the hundreds of new subscribers I picked up during fair season, this baby will be good to go.