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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.

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Overexposure January 24, 2009

Filed under: Marketing and Promotion — bizmiss @ 1:02 pm
Tags: , , , , ,

When I was first starting out, I gave away a lot of stuff to people in the name of “exposure”, because I kept hearing from other business owners how important it is to “get your stuff out there.” What they really meant, though, was “get your stuff out to your target market.”

Two days ago a random Etsy member asked me to donate 100 items to supply her wedding guests’ gift bags. In return, she promised to “get your product out there to a large group of people of varying ages, most of which have never even HEARD of Etsy.” (**For those who don’t know, Etsy.com is an online marketplace for handmade goods.)

This may sound appealing (poor grammar notwithstanding), but when you think about it, it’s as effective a marketing strategy as standing on a random street corner and giving away 100 of your products for free. “People of varying ages, most of which have never even HEARD of Etsy” are NOT my target market. They’re no one’s target market.  Even if they think your product is cool, Great Uncle Fred and 12-year-old Simon are not going to shop your online store. Why waste your time and budget on them?

My advice is to only give away freebies at events where at least 80% of the participants would be likely to shop from you. If you’re a crafter, gift bags at well-attended craft fairs are generally fine, especially if it gets you a spot in promotional materials or the fair is so big customers don’t make it to every booth.

Product-specific events are also good. Do you sell mainly to affluent pet owners? Then donating stuff to an animal rescue benefit is appropriate. Giving away freebies at the launch of a new fashion magazine is not. Yes, some of those fashionistas will also be affluent pet owners, but is it worth 100 wasted products to get just one new sale?

I’m not saying that those who ask for free stuff are bad people, but they are ultimately looking out for their own event/organization, and not for your business. It’s up to you to do that and to separate targeted, effective promotion from untargeted ineffective promotion.

 

Float, Sink or Swim December 3, 2008

A couple of weeks ago I attended a small cocktail party for my local merchants’ association.  People invariably asked one another how they were doing in the deflating economy, and everyone there responded in one of three ways.  Some, like the owner of a hair salon, said, “I’m doing fine. My business is recession-proof.  People still need to get their hair cut and dyed so I’m not worried.”  Others, like the owner of a high-end clothing boutique said, “I don’t know what we’re going to do.  People just aren’t buying like they used to.”  Still others, like owner of a new gallery said, “I’m doing great. I was trying out new promotion ideas, and one of them worked out so well I’m doing better than before the recession hit!”

These three business owners are examples of what my dad would call “floaters,” “sinkers” and “swimmers.”*  When a bad economy hits (and it always does, sooner or later), some businesses are largely unaffected.  People in the medical industry, for example, will still see about the same number of sick and injured people no matter what.  They don’t have to make any changes to their business model to stay above water.  They are natural floaters.

Every other business has a tendency to sink during a recession.  If they do nothing, eventually they will hit bottom.  With a little effort and direction, however, you can stay above the surface.  And if you manage to keep yourself above water long enough to ride out the wave, you’ll find that your trip back in is even easier than when you started, because some of your competitors will have been “wiped out.”

I haven’t heard any predictions that the recession will last beyond 2009, so if you can make it another year, you should be good to go.  But how to get there?  That’s up to you.  Many businesses seem to be relying on the promotional discount this season.  I say, get creative!  Look around you for things you can use to your advantage. That gallery owner I mentioned above is taking advantage of the private school down the street. She’s offering free weekly classes to parents during the hour before school gets out.  It’s a brilliant idea.  She gets wealthy people in her gallery on a regular basis, where she teaches them how to appreciate what she sells–art. She’s literally taking people off the street and turning them into customers.  She’s never sold so much art in her life!

My approach recently has just been to put myself out there–everywhere.  I’m contributing to things right and left.  I’ve got pieces in art shows and silent auctions.  I’m selling at loads of holiday events–even ones that didn’t ask for vendors.  I contributed a recipe to an event program, a tutorial for a craft book, 500 buttons for a magazine party, and 350 items for goodie bags.  I’m doing an in-store in Brooklyn when I’m home for the holidays and a workshop at a local art college in the spring. I’m even collecting donations on behalf of the San Francisco Food Bank.  In return they add my events to their calendar.

All of my contributions have been narrowly targeted, but they’re low-cost and have often lead to bigger and better things.  For example, the buttons I donated to the magazine party say “I love you more than bacon” on them, and it’s a magazine all about meat.  But those buttons were ultimately responsible for my appearance in the Weekly Yelp.  They even got a mention on KQED radioSweet Meats are even supposed to be in the New York Times later this week.  I’m not sure what was ultimately responsible for that piece of PR, but the point is, you have to get your name out there so that people can find you.

So ladies, put on your brainstorming caps and start saying yes to everything that doesn’t cost you money.  The water level is rising and it’s time to start kicking!

*I don’t think my dad made up the whole “sinkers, floaters, swimmers” thing, but I can’t find the original source.  If you know it, please post it in the comments.  Thanks!

 

Biz Mister: Seth Godin April 26, 2008

I just found Seth Godin’s blog today, though he’s been writing it for years (2,500+ posts!) and he’s a best-selling author. He’s most often billed as a marketing expert, but this guy is really freakin’ smart about business matters in general. He covers lots of marketing topics, sure, but he also talks a good deal about things like innovation and customer service. I’ve already subscribed to the RSS feed and am considering buying one of his books so clearly, this guy knows his stuff when it comes to self-promotion.

 

Finding Stores to Sell Your Stuff February 24, 2008

Okay, so you’ve got a brilliant, well-designed product. You’ve gotten the ball rolling on getting it made, and you’ve done all of your promotional work. After all this, you have a dozen orders to show for it. So what do you do now?

All of the press you get and marketing you do will only cover half of your sales–the half in which stores come to you. Despite all work that goes into creating marketing materials, sending press kits and exhibiting at trade shows, this is the easy half of selling, because any buyer who approaches you is 10 times more likely (in my personal experience) to place an order than a buyer you approach yourself. On the other hand, there are at least 10 times more buyers out there who don’t know you exist than those who do.

So how do you find good sales leads? You don’t just want to look names up in the phone book. Casting that wide a net will surely not be worth the time. Here are a few tips for finding stores that really fit your style:

  1. Go door to door. If you haven’t visited all the shopping districts in your area yet, this is a good place to start. You can take a good look around prospective stores and ask up front who does the buying. Usually it will be the store owner, who may be amenable to arranging an appointment to see your products. Store owners are also more likely to take a chance on a new product if it’s designed by someone local. One note, however: many stores will not want you to sell to more than one other store in the same neighborhood, so go for the big fish first (e.g. stores with additional locations in other towns).
  2. Shop online. Using links from a favorite blog or just searching for products similar to your overall aesthetic, you can find a ton of stores around the world that might be a good fit.
  3. Travel online. Starting with the cities closest to you, visit chamber of commerce or tourism web sites for links to stores in that area. AAA also has a huge online archive of articles from Via, their travel magazine, like this round-up of bookstores in the Western U.S.
  4. christopher jagminTrade! This is by far my favorite way to get info about stores. Contact an artist or designer you know in another city, or find a sympatico design buddy through a favorite web site or message board, such as Etsy or Craftster. Give them the names of stores in your area that might carry their products and receive some names in exchange. Last month in L.A., for example, I met a really nice designer named Christopher Jagmin who’s also releasing his first line. I sent him some stores to contact here in San Francisco, and he sent me some in Boston and Phoenix. Luckily, we’ve both seen each other’s products in person, so it’s easier to tell where we can really “see” those products being sold. If you and your design buddy don’t have this advantage, send each other a sample.

No matter what happens, be patient and keep at it. Many store owners are extremely busy, so it might take weeks or even months for them to place orders (or respond to your e-mail at all). That said, you should always follow up after giving them some time to look things over. It takes me an average of four to five conversations with any buyer before actually making a sale.

 

Trade Show Report: Portland Gift and Accessories Show January 7, 2008

This weekend I flew up to Portland, OR to check out the Portland Gift and Accessories Show, run by Western Exhibitors. I’m exhibiting at GLM‘s California Gift Show in Los Angeles next week, so I thought it would be prudent to check out another gift show ahead of time. I wanted to see which other companies participate in these things, how their booths look, what their sales pitches are like, and so on.

I gave myself a full day and a half to go through the show. I don’t think I was even there an hour. All in all, the show was not at all what I expected and I left feeling very worried.

To begin with, the entire gift show fit into a single L-shaped exhibition hall. I knew from the outset that the Portland show is one of the smallest, so I wasn’t expecting MacWorld, but there weren’t many more booths than at a really large craft fair. Somehow it just looked bigger on the Oregon Convention Center map. I also expected there to be more visitors. Granted, I visited on the the first day of the show, and the Portland Gift and Accessories Show is the first show of the year. Also, there was an insane series of storms that hit the west coast this weekend, so that may have seriously affected people’s travel plans. Nevertheless, the number of buyers sporting blue id badges was seriously disheartening.

As surprised as I was by the buyers, I was even more surprised by the sellers. Most sections of the show were a pretty motley mix of decorative items, clothing and souvenirs. It looked like a cross between Chinatown, U.S.A. and a gift shop run by a retired couple in an old seaside town during the height of tourist season. There were evergreen wreaths and garlands, batik shawls, tiny bags of candy with punny labels, plastic wind-up toys, soaps made out of things like bamboo, goat’s milk and charcoal, salt lamps and geode coasters. There were also keychains with your name on them, strands of mineral beads, seat-belt purses and those wooden 3-D puzzles you build into models of dinosaur skeletons and famous buildings. The only new and moderately hip products were located in “Artisan’s Alley,” a single aisle all the way in the back of the hall, where the little old gift ladies had forcibly sequestered all the exhibitors under 40.

So now I’m worried. I’m not worried that my butcher-shop booth will go unnoticed; I’m worried it will stand out too much–that the precious few attendees will bypass it completely as just too weird. Souvenir shops are not my market. Will my “L.A. Contemporary” division just end up being a tiny, marginalized “Artisan’s Alley?”

I’m trying to remain optimistic, however. I can’t prepare properly for the CGS if I already believe it will be a failure. Here’s what I’m telling myself to get psyched up:

  • The California Gift Show is run by GLM, which also runs the holy grail of gift shows, the New York International Gift Fair. The product divisions are mostly the same between the two shows.
  • L.A. is a bigger, trendier city than Portland (though Portland is pretty hip) so there will be more buyers looking for weird stuff. It’s also got pretty big art and designer toy scenes.
  • Many more of the exhibitors will be from California, rather than Oregon and Washington, which should mean more booths similar in spirit to mine.
  • The CGS is a bigger show, and is easier and cheaper to get to than the PGAS for most people.
  • More people want to take a business trip to L.A. than to Portland, because it’s warmer and there’s more sightseeing to do in your off-hours.
  • L.A. has way more stores and businesses in it than Portland. Heck it’s the biggest city in America!

I set a goal to place one minimum order every hour to pay for my inventory and the cost of the show. I’ve heard that’s ambitious but I believe enough in my products, my booth and my salesmanship that I think I can do it. Only time will tell.

 

Inexpensive Marketing and Promotion (Part 4) December 12, 2007

And finally….

Swag bags: (Cost: ~25 cents per bag) Swag (a.k.a. schwag, freebies, giveaways, promos) are small promotional items you donate to attendees of an event. They range from the cheesy pens given away at auto sales to the luxury swag bags containing diamond watches and designer perfume given to presenters at the Oscars. Most trade or craft shows will solicit swag from their exhibitors to give to the earliest or biggest buyers, but there are other places to give away swag, too. Some businesses include a piece of swag with every order. Some set up giveaway or raffle tables at block parties or other neighborhood events, and some others just pass them out on well-trafficked street corners. There are even swag subscription companies like The Sampler, who will send your stuff out to folks who love free stuff so much, they’ll pay for it!

I’m personally a fan of swag that is cheap and does double-duty as advertisements, like stickers and buttons. You can produce a gagillion of either for relatively little money, and if your sticker or button has an awesome image on it (in addition to your company’s name or web site), you can get lots of people to do your marketing for you, giving you real bang for your buck. You can certainly go with less conventional media, like barrettes or zipper pulls, but the key is to get the most number of people to notice your brand for the least money possible.

When it comes to freebies, I like to stick to giving them away to friends and paying customers. These are the people who are the most likely to put your swag to good use, because they either already love you, or love your stuff. Also, in my experience, I have found that the best way to get people to not buy any of your merchandise is to put free stuff out on the table.

Coupons and Discounts: (Cost: possible printing costs, discounts people actually use) Coupons and discounts are tricky things. On the one hand, they can often be that extra little push between considering an item and actually buying it. On the other hand, you don’t want to overuse them or people will think you are having a hard time getting people to buy your stuff.

I sell very specific and unusual gift items, so the rules that apply to my business may not apply to yours, but here’s what works for me: I find that coupons work best for limited times, such as a semi-annual sale when you are discontinuing old merchandise and releasing new designs, or to get people from your mailing list to come to a show or event. Other good coupons are the ones you give to customers with their completed order, which encourages them to become repeat buyers.

As far as discounts go, I find that quantity discounts are the best kind there are. I used to sell (and will probably sell again soon) a “meat medley,” which was a collection of my three most popular plush designs, discounted to $80 from $84. It was a savings of less than 5% but I sold more of those collections than of any individual toy.

And that’s all she wrote.  Of course, there are other inexpensive ways to promote yourself, like having a web site, leaving postcards in neighborhood haunts, and going to networking events but this list is already four posts long, so perhaps I’ll save those for another time. If you have any other ideas that you’d like me to add or expand upon, please let me know in an e-mail or comment.  Happy hawking!