Some Thoughts About Pricing

3 12 2010

I wrote this and posted it elsewhere a few years ago, and although even my numbers are a little more “soft” or negotiable right now with the current economic situation, I think the information is generally still pretty valid, and worth a read.  I’ve had some people ask my advice lately about pricing (which is strange… I don’t really consider myself a “go to” person regarding business…) but, since my glass is my full time gig pricing is a little less subjective for me than for somebody who dabbles in an art for a hobby.

PRICING IS TOUGH: Every artist I’ve talked to (and there have been a lot) says that pricing their own work is one of the most difficult things to decide. Artists are not typically known for their amazing feats of logic and are not typically gifted with advanced spreadsheet capabilities… Those things have to be learned. And pricing is one area where I would argue that you need to let your left brain – the analytical, mathematics oriented side – lead, and make your emotions take the back seat. Easier said than done, right? Hopefully some or all of the items below will help you.

BOOK REFERENCES: Someone mentioned to me once that they had read about what to charge in a book. That’s fine – if you have no other current sources to reference. But let’s keep it real: Here’s an example – a book, published in 1995, tells you that you should charge $10 per hour for your handcrafted goods. According to the Federal Government (USA) a 2.5% annual Cost of Living Adjustment (or COLA) is on the low side of average. Most employers in the US consider 3% COLA to be the norm. Sources: http://www.opm.gov/retire/annuity/cola/colalist.asp and  http://www.opm.gov/retire/annuity/cola/colalist.asp

My point about outdated sources (or updating outdated sources) is this. If you take $10, multiply it by 102.5% (for the COLA), your new hourly rate for 1996 should be $10.25. Now take $10.25, multiply it by 102.5% which equals $10.51, the hourly wage for 1997. If you take it through every year to 2008, the ACTUAL hourly wage for 2010 (assuming in the first place that your book is correct) should be $14.49.

A REALLY EASY SPREADSHEET: (Before anybody starts yelling, “ACK! Spreadsheets!” it really is VERY easy to use and should help you figure out your costs, etc.) Just pretend the Pound Sterling symbol is a dollar sign. Plug in your own numbers and see what it tells you:
http://chris-parry.blogspot.com/2007/12/free-spreadsheet-for-pricing-your-work.html

PRICING FORMULAS:
Formula 1:
2 x (supplies + labor + overhead) = total cost to you
Source: http://jewelrymaking.about.com/od/basicbizinfo/a/120505_3.htm

Formula 2:
Base price = (cost of materials + packaging) x 4 + your pro-rated hourly labor rate then + 10% of that total for overhead costs. Source: http://www.home-jewelry-business-success-tips.com/jewelry-pricing-formula.html

Formula 3: Look at what you’re selling and compare your prices to other items on sites like http://www.etsy.com and http://www.ebay.com and at shows, etc. See where you fall. I wouldn’t recommend using this as your sole basis for comparison – I’m a firm believer in numbers and number crunching and spreadsheets, and all other left brained business-y activities. BUT – It’s a good benchmark. If your prices are lower than others selling similar things, you may want to reconsider and raise your prices. People subconsciously wonder what’s wrong with an item that’s priced below what the average market price is. Especially with handmade items. If your prices are higher than everyone else’s, that may work too, as long as there is something that sets you apart from the competition. My suncatchers cost a lot more than the shamrocks and hummingbirds that a lot of stained glass people make. But boy, you can pick one of mine out of a standard line-up of suncatchers because they look SO different.

PERCEIVED VALUE: Every customer that comes through your door, whether virtual or brick and mortar, has a price in their head that something is worth. How do you charge more, for what is in essence, the same product? Make it special. If online herb seller A has terrible photos, a sparse and unhelpful description, and she ships her stuff in ziploc baggies with no thank you note, she’s likely to be able to charge less than online herb seller B who has lovely photos, sizes, amounts, origin of herb, etc. all listed in her descriptions, and then packages her herbs in small tins with whimsical labels and a lovely thank you note. It’s the same herb. Same amount. But who’s likely to get more business? And who’s likely to be able to charge more? Seller B, because the perceived value of her product is much higher than Seller A’s.

In today’s world of automated phone calls, and everyone tuning into their own music – commercial free – on their IPods, I would say that you will see perceived value and “special-ness” begin to rate very highly on customer’s lists. Look at the Wal-Mart backlash that’s starting to happen in the US. Look at the lead/China/toy scare a few holiday seasons ago. People want to know about what they are buying, and they want to know why they should buy it from you. Give them lots of good reasons. In doing so, the perceived value of your items will go up too, because they’re buying not just your product but an experience.

MATERIAL vs. EXPERIENTIAL PURCHASES: I believe it was Roy Williams, aka the Wizard of Ads http://wizardofads.com who said that people are willing to pay much more for an experiential purchase than a material one. He’s right, in my opinion. If somebody said they’d pay for a concert of your choice or a CD of your choice, which would you pick? Concert, right? And how many of you have paid nearly twice as much to see a movie on the big screen vs. renting it at home? Or gone out to dinner at a nice restaurant vs. putting the extra money towards groceries? All of the first items – concert, movie in a theater, dinner out – those are all experiential purchases – where we don’t get anything out of it but a happy time and a good memory.

Where am I going with this? Buying online is a material experience with the possibility of it being experiential. You, the seller, need to figure out ways to make it as experiential as possible for the buyer. What can’t they do that you can provide them with? My hunch – and at this point it’s just a hunch – is that products online with all the information – size, measurements, photos of the back of a piece, ingredient list, etc. – sell much faster than their counterparts that lack that information. The bells and whistles – nice packaging, a thank you note, etc. are all ways to not only improve your product’s perceived value, but to make buying your product an experience. My case in point: aren’t you much more likely to tell people to shop at your neighborhood grocery store if the bagger is Johnny? http://www.stservicemovie.com/

RETAIL vs. WHOLESALE: The wholesale/retail question is a personal decision that each and every person must make for themselves. The market may bear retail pricing in your field, and then again, it may not. Just know that if you’re approached by a store or boutique, they typically either pay you half of your retail price (retail price meaning the amount at which you sell your item to Joe Public) or they do a commission split (if they sell your piece, they retain between 25 and 50% as a commission for selling your goodies.)

This is just my opinion, but wholesale pricing seems to work out better for people who can either make big batches of things all at one time – like poured candles – or for people whose items lend themselves to a production line system – like printmaking.

If you use Chris Parry’s spreadsheet to figure out your price, not only does it figure out your wholesale price (which is the minimum you can sell your suncatcher/scarf/jewelry/whatever for and pay for your time and supplies), it also helps you to calculate what your retail price should be, if the retail/wholesale road interests you.

LAST BUT NOT LEAST: There are several people in the world who walk around saying, “I just paid for my supplies. I’m happy.” What they don’t realize (or don’t care about) is that they are actually paying people to take their work. And this is big!! If all you pay for when you sell an item is your supplies: If you sell it online, you’re paying out of pocket your online listing fees, paypal fees, and time and energy to make the dang thing. If you sell at a show, and you say, “I just made enough to pay for your booth…” then guess what?? You just paid people to take your stuff, because if you only paid for your booth, you ‘re paying out of pocket for the gasoline to get to the show, the materials involved with making whatever it is you sell in the booth, etc.

ANOTHER POINT TO CONSIDER: I took a blacksmithing class from a gentlemen who had been the head blacksmith at a very famous tourist attraction, and he asked of us one thing: If we left the class and continued to “do blacksmithing” in any form, he requested that we keep in mind what the pros charged and to not severely undercut them when charging for our own work. His reasoning was that the people who do blacksmithing (or whatever) for a full time job are the people likely to be perpetuating that craft by teaching it, or by having paid apprentices, etc.

If all the hobby people in the field charge a lot less, that lowers the perception of what blacksmithing (or whatever field you call home) is worth. When it becomes de-valued enough, all the pro blacksmiths leave the field because they can no longer support themselves doing it. Yes, it’s a “free market” and some people believe you should be able to charge whatever you want to, but, honestly, if you’re getting a paycheck from somewhere else, and pricing your handmade items below cost because of it, then it’s not really a free market. It’s a market that you’re inadvertently funding using your paycheck from IBM or Kodak or wherever.

I hope that any or all of this helps somebody today. Pricing is tough.

On a side note:  All of the items featured in this post (or items like them) can be found for sale at


Actions

Information

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




%d bloggers like this: