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.

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Thing-A-Day 16: An Effing JOB February 4, 2010

Like many creative types these days, I’ve had to get a day job.  It’s not that I’m getting fewer projects, it’s just that fewer of them pay much, if anything.  When faced with the choice, I always go for the well-paying projects first, then fill my remaining time with the projects that pay in web traffic, nebulous future sales/commissions or “cred.”  Unfortunately that’s been most of them lately.  I’m pretty good about not taking on jobs that realistically won’t give me much of either.

My new job isn’t bad.  It’s mostly tech-y admin stuff and it changes on a regular basis so it’s not too boring.  I also really like everyone I work with and I can make ends meet by working only 25 hours a week.  Even though it doesn’t sound like much, 25 hours a week will basically eat up four full work days when you add in lunch and commute time, which doesn’t leave much time for creative projects.  It makes me kind of tired and stressed.  Prepare to see this blog get a little crankier.

I know what you’re thinking. You’re all: “this girl is going to completely reneg on her thing-a-day responsibility!”  I did consider it but no, I will continue to make a thing-a-day. BUT, I might not post it every day and the rules may relax closer to their original incarnation. On days like today when I don’t get home until 10:30, I will probably not make something AND photograph it AND post it AND tweet it.  Sorry, but I need to not make myself crazy.  I have enough doing that for me already.

Today I took photos of my yoka in various poses.  Then I accidentally dropped him and the very tips of two of his toenails broke off.  You can’t really tell but it’s enough to bother me so I made replacement toenails tonight.  That’s my thing.  Whatever.  I’m going to bed.

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!

Biz Miss Math: Estimated Vs. Actual Time June 24, 2009

Time it takes to complete a project = Your most generous estimate that considers every single tiny part x 2.5

Media Diet June 11, 2009

Reading my alma mater’s alumni magazine makes me feel bad about myself.  I makes it seem as though all of my fellow alums are doing brave and amazing things–some of them at extremely young ages–while I sit here spinning my wheels.  Web sites (blogs especially) also make me feel bad about myself.  They present a world that is overflowing with creative people and all of them, including the hobbyists with non-art day jobs are more creative and prolific than me.  No one will ever hire me in such a world.

It’s bad.  I’ve been spending nearly two hours every morning reading about other people’s projects, ideas and successes, bookmarking the ones I want to post on this blog or try some weekend 37 years from now.  I go back to maybe one in five hundred of these pages.  The rest just waste my time, cause feelings of inadequacy, and make me feel both overwhelmed and behind the times when I review them later.  I get so frustrated and tired with my work as a result that after dinner I just want to veg out.  Then it’s another day wasted, another reason to feel bad.

These feelings only got worse when I turned 29 last week.  Only one more year to accomplish all the things you thought you’d have in the bag by 30!  I decided enough is enough, and A. and I have been on a “media diet” as of Monday.  I’ve been wanting to try something like this for months, but what finally got me going was having a plan already laid out (in Timothy Ferris’ book, The Four-Hour Workweek), and having someone to do it with me.

Here’s how it works: for seven days, we avoid all non-fiction media and severely limit our intake of entertainment media.  In other words, no magazines, newspapers, blogs, NPR, Facebook or Twitter and only one hour per day of fiction reading, fictional TV or video games.  There is no limit on music or interpersonal correspondence.  We are allowed to post things to blogs, Facebook, Twitter, etc. and to write non-fiction, since the point of this whole exercise is to make us more productive and confident.  We are also allowed to use the web for project-specific research (like collecting the links for posts) but no idle surfing.

We’re about halfway through now and I’ll admit, it’s difficult.  We watched the premiers of Weeds and Nurse Jackie tonight so now I can’t touch the Wii game I’ve been wanting to play until tomorrow.  I can’t click any of the links to funny/interesting stories that my friends e-mail me and I had to put down the copy of Omnivore’s Dilemma I just borrowed after wanting to read it for years.

Next week when this is over, I will definitely try to schedule my media intake a little better.  I will probably allow myself two hours of “leisure media” per day and go back to setting NPR as my default station in the car.  But I will not open my Google reader every day.  I will open it only once or twice a week, to look for specific things I can use in a post that same day.  No more saving things that “just seem cool” for some nebulous future purpose like a digital pack-rat.

Have you ever tried some sort of media diet?  How did you limit your intake and what happened afterwards?  Did it work?

Maker Faire Madness June 4, 2009

It’s been a crazy week.  After getting back from New York late Monday night it was a mad dash to finish two days worth of contract work and everything I needed to do for the Bazaar Bizarre and When Creativity Knocks (both at this past weekend’s Maker Faire).  I only slept 5 hours each night, during which time I had several stress dreams, including having to perform a trapeze act in front of thousands of people with only ten minutes training by a hairy, naked French woman.  I ditched the circus as soon as I realized my face wasn’t on the poster and the audience wasn’t expecting me anyway.

There were a few snags, like having to leave Eleanor on her own to finish the last hour of mock-ups, and not being able to find the catnip, bells and beans I needed for the WCF steak cat toy demo, but everything got done in the end and the results were fair to good.  The Bazaar Bizarre raffle looked fantastic (thank you volunteers and friends/family of Jamie!), the demo went smoothly (though I had to omit the filling step), and the Sweet Meats sold really well.  In fact, all the vendors did really well.  Everyone kept remarking on how the recession didn’t seem to exist inside the Maker Faire.  Maybe the attendees save so much money by growing their own food and building their own vehicles that they have plenty left over to spend on plush meats and robot soap dispensers.

I love that the Maker Faire Bazaar Bizarre helps me pay my June rent, but I get a little sad that I can’t attend it anymore.  I got to go the first year, which was awesome, but it’s so much bigger than it used to be and all of the new stuff is so tempting.  I want so badly to ride the two-person ferris wheel, but my short lunch break doesn’t allow time to wait on the long line.  This year many of the exhibits were open on load-in day (Friday), so I got to see a few things after setting up that night, but I had to work all that day, so my participation there was limited to about half an hour.  Next year I’m going to load-in first thing on Friday so I can spend the rest of the day exploring the exhibits.  Not everything will be up, but I’m sure it will still fill the day.  One highlight of the Faire was getting an Editor’s Choice ribbon from Becky Stern at Craftzine.  I’ve been secretly coveting one of these for years (I’m a HUGE fan of Craft) and it gave me a nice “mission accomplished” feeling at the end of an insane week.

The day after the Maker Faire was my birthday, so I did a little shopping for myself on Sunday.  I got an awesome tool apron from Polly Danger (I made her assistant take off the one he was wearing and hand it over), a sweet little wrist wallet from eleen, and the most awesome snail mail stationery set from Jill K. in L.A.  My friend Lydia moved across the country to Pittsburgh so I am currently writing her real letters on ugly stationery I bought in high school with lots of cross outs.  She types on lovely onion skin paper using an antique typewriter.  I think the snails will help bring me a step up.  When I first saw the stationery in L.A. I was determined to buy a set even though it seemed expensive to spend $5 for one letter’s worth of paper and envelopes.  Then I heard a man at another booth explain to his wife that of course he was going to buy this $6 card, because he couldn’t think of anything better to spend his money on than a way to meaningfully communicate with his friends.  I couldn’t agree more.