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The Science of Pricing-—A System for Your Products

If purpose keeps your heart in it pricing is the rain on our parade and it really is true when you first started creative business, you have this passion in this dream and you think you could make some money at it and then we have to figure out how to price our products and that struggle and agony is really what rains down on making us wonder not wonder whether or not we can actually do this right pricing is what I think is the number one agony issue that photographers tell me they face it really is pricing is agony, but if you try to think positively about it, it's also really, really fun because there's nothing like getting into your entrepreneurial mode and challenging yourself to say, how can I strategize this to make them buy more it's like a game it's like a little puzzle that you want to solve and when you get it right and it works, you get this little giddy feeling inside because the money starts rolling in. So if you try to think of it from that strategist point of view that i...

t's a game and that all it is is a psychological thing, you're trying to influence someone to do that's what helps you get through that agony of oh my god, I can't do this now how do most people most photographers figure out their pricing yeah go for it I was going to say they look online and copy other photographers because they think they must be doing a right pretty much most of you look at your competitors right? Okay and you copy what they d'oh o tisk tisk no how do you know they're doing it right? You don't know what else? Yeah, some of you just do the blanket three to four mark up she said just make up a number it's true some of you just go I need to mark this up I'll just do it four times for every single product right thinking oh, you kind of compare yourself to the retail industry and you go okay? They paid the manufacturer makes it at cost and sells it at wholesale so I have to double that to sell it retail, right? No no no no that's just a cop out ok a few of you shoot and burn because you just don't know what else to do and you don't think you're good enough to do more it's true but I'm sorry if you want a viable business business he will not last long doing it like that but here's the problem they keep coming these hundred dollar shooting burners just keep raining down on your purpose parade they don't stop they the one one goes out of business the next one comes in to take their place right it's a never ending drama of o so and so does it for a hundred bucks can you match that? Yeah, they are never going away I have some idealistic view in my head that I can educate it out of them and it's not true it's not going to happen they will always be there. They will fail it's a fact of life they will fail. There will be a new one to replace them so you can't count on them failing you have to rise above it and protect your child your business that needs to make a certain amount of money. Okay, so we either copy what others are doing we do blanket mark up or if we don't think we're good enough, we just shoot and burn at a cheap price and say I'll raise my prices later, right? What's wrong with that what's wrong with raising your prices later, john skin okay, sorry is you're not making any profit and you're not saving any money to invest in your business long term. Yeah, what else you're starting over you are building a whole new client base when you raise your prices, your old clients don't want to pay your new prices, they don't understand it and then you go a long period of time without booking business exactly at the elite because when you were cheap cheapen you know, keeping dirty so to speak I don't mean that literally I mean figuratively but when you were cheap you had a certain number of clientele who were valuing you for your price a certain type of consumer who was only buying what you're providing because it was an expensive well now all of a sudden if you jump in raise your prices knowing you have to to survive you're basically starting at ground zero again to build up your business because you have to mark it to a whole new segment of clientele and have to market based on your brand, your customer service, your product and all that and marketing value in that rather than someone buying off price so you're it's two separate worlds and you're jumping from one world to the next so don't think that oh I can raise my prices later is the solution is a matter of fact you're shooting yourself maurin the foot by doing that then you are just by setting your pricing now and marketing to the clientele that you ideally want and I could hear it right now people are going yeah, but I'm not good enough to charge that price if you're not good enough, then don't charge build your technical skill until you are ready to charge what you're worth how do I know what I'm worth? Get mentors get people who review your work get your certification through people a get evaluation from others in the industry who can tell you yes, you are producing professional work if you're not good enough, don't charge if you're kind of right between where you're good enough to charge but you don't really know how to do it set your prices, then offer a portfolio building discount for a limited period of time so you can build that breath of work, establish your brand, build up your business and then that port phillip building discount ends on a certain date and that is it your clients know what they know it's coming they realize that you're building a high end business, some incense so many photographers try too early to make a living at this so they don't feel confident their work they look, they compare themselves to others, other people and they say I'm not that good I need to charge a lot less and they shoot themselves in the foot, so be careful of that. So last week in the six piece of sailing we talked about products we talked about having too many products that's is more or less is more right. We don't want to overwhelm our clients, we want we'll have fewer sales if we have too many things to offer our clientele more headaches, scattered systems in no direction, right? So we gotta put ten at the maximum correct give or take totally depends on your business model, but for the most part aim for ten at the most six to eight is probably a better idea, especially when you're first starting out. All right, you want to consider products that have a low cost of good with a high perceived value and this is what we're about to get into today we're going to discuss how to price your products for a retail market retail pricing ok, what? You should be charging your client, but I want to review that last week we talked about products and needing them and having a system for them in the six piece of selling so you could really get consistent averages with each sale so your products need to reflect your brand so don't try to carry everything the price of the product should should reflect about a twenty percent cost of good or lower okay and a cost of good means the product hard cost and your time to produce it as well as package it. So we went over this worksheet write we went over briefly and I'm going to go through this briefly again. Just you guys wake up, wake yourselves up and like, get you back to memory mode here, okay? And I know this stuff could be so overwhelming that sometimes you just want to now try not to tune out I know it's hard if you do an eight by ten album at one hundred fifty six dollars this is like the pro dp I album that you guys all saw last week okay I charge seven hundred seventy five dollars for it at a twenty percent cost of good the client really loves it thinks of it as having a high value so they'll pay that price for it soon to the brand it's easy to produce and it's in demand whereas in my studio a medal print is not as effective of a product to carry it costs I can get it at a twenty percent cost of good but I have to charge eight hundred twenty five dollars for that to make that work and the client kind of just doesn't really value with that much based on market research and what I've done they would not pay that for that too much money they'd rather get a canvas because it's more suited to my brand and the type of clientele I attract now that's not to say that in new york city and amazing senior photographer could probably sell metal prints all day long hip modern metallic shiny that's a senior right about to launch into the world urban environment I mean this product kind of is synonymous with that canvas for me it's a great product okay the cost of goods this is actually what I price it at the cost of goods is twenty two percent but you need to understand that I don't sell printed products without also selling the digital file on top of it, which has an enormously low cost of good. So these two products together put me in a fifteen percent or less cost on my create a collection package. We're gonna go over all of this tomorrow, so don't worry if you're a little confused right now, but I wanted you to remind you what it meant to do this product analysis work sheet that's comes in your homework assignments break this down for every single product you carry in your studio so you can really assess what you need to carry and what you should not. But once you completed, you'll have a solid plan for products that work in your market, not only with your customers, but also with your brand with when you do that, you're going to increase the chance you're going to get a good average sale with every client. So now we move on. How the heck do I charge for those products? This is the big question, right? I kind of know, but how did she come up with that number? How did you come up with seven seventy five for that eight by ten album that's what we're going to address today? So what you shouldn't do is clearly look at other doctors website because they don't know what they're doing, and chances are they have not done these worksheets don't undervalue yourself, we discussed that already. Don't compare yourself to other businesses and don't wing it you're half your pricing has to be effective according to your numbers, not anyone else's, and it has to be effective and strategic to get the client toe look at and go oh, I should probably spend a little bit more because I get more so you have to create packages that meet your happy place goals that average sale you need, I call that the happy place you've got to get there every sale, right, that's super important, otherwise you your income is going to be inconsistent and unreliable and we need system. We need that to be reliable, so we need to evaluate your pricing of your individual products according to your cost of goods, and then evaluate your pricing from your client's perspective so perceived value is huge, perceived value plays a big factor and that's where the art of pricing comes in and why photographers have so much trouble pricing their products so let's, start from that back end yesterday we broke it all even okay, we went through the break, even worksheet, and we determined that you need at eight sessions a month to make a forty thousand dollar per year income no employees and a home studio you need eleven hundred four dollars procession I think we figured out a little bit differently with a different income I think we did fifty thousand but essentially this is how it works based on that worksheet if you want to make forty grand for year take home pay at eight sessions a month which is a big number two get consistently as an average you have no employees and you have a home studio you need eleven hundred four dollars per session okay now keep in mind this does not include the cost of the sale this does not factor in the cost of good now in the work shed yesterday we did put in a gross profit margin but on this calculation that I'm showing you today this does not include that and I think you could see why based on what we talked about yesterday what is the cost of sail across it? Good that it's the cost of sale excuse me is the hard price of the product plus the packaging in time put into it the cost of good is just the hard product okay, so it cost me twenty nine ninety five or whatever at white house to do a sixteen by twenty on mounted on styrene I think that's around their thirty bucks let's round it up okay that's just the price I paid a white house that doesn't include my time to produce it. It doesn't include the materials to package it, etcetera. So since my packaging for six, my tent is pretty basic. It's about another five bucks at the most two packages, but still that adds up. So the cost of sale includes all of those things. That cost of good is just that twenty nine, ninety five. Does that make sense now? Ah, people met benchmark survey suggests that you have a twenty to thirty five percent cost of sale. I think that's too much to be profitable. Thirty five percent, especially if you're in a home studio or on location only. And you have no serious overhead or expenses are reduced then, yeah, you can get away with a higher number there. But why would you why would you? I don't want you guys competing on price. Okay, so including a twenty five percent cost of sale, which is middle of the road number you need to make fourteen, seventy two procession. You see, I just patted in the cost of all the products to the top of that. So eleven o four is what you need to take home, to pay your salary and to cover the overhead expenses of the studio. Then the additional whatever three hundred dollars it is three fifty bucks or so that covers the hard costs the products at a time the time and packaging it took to produce them makes sense so forty thousand dollars per year eight sessions a month no employees and a home studio yes eleven hundred four procession but with the costs of the actual product that you produced its fourteen, seventy two procession so the question is is how the heck did I make that at every single session it all has to do with how you price your individual products the science of it and how you package all of that stuff into a pretty little box for your clients to buy right packages or collections as they call it are the easy way to do it but your products still have to be priced right to make a profitable package correct because if you're putting a ton of stuff into a package at a certain price but your costs on that package or fifty percent you're still screwed so it's important to analysed the science of pricing your products then put those together in a package following what I'm saying so fifteen percent is my target cost of good usually ten to fifteen percent less is more means I make more money a good formula that gives you a base price this is not the actual price going toward your client okay this is the base price is the product cost so what? It costs you from the lab okay or from your vendor plus the packaging time what you need to monetize and value so packaging and time so you put in the box or you wrapped up in tissue paper and then the time to produce so certain products have uh, more time associated with him like an album so for example if you had to pay somebody to design your album what would that cost you to dio for their time to do that so you need to calculate that in your head and add the packaging onto it then you're going to divide it by the cost of good margin so for at a twenty five percent cost of good that's point two five we're gonna divided by point two five so on a sixteen by twenty for me thirty dollars cost of good about ten bucks and packaging in time so forty dollars divided by point two five gives me one hundred sixty dollars base price base price we're not done yet this is the starting cost this is where most star for stop that classic you know, mark it up a few times and see what happens kind of thing you're not taking into perceived value or lost opportunity cost when you do that this is where it gets artsy fartsy okay the base price plus whatever monetary value you can add on to it that that creates that perceived value in the client's mind or what they think it's worth plus the lost opportunity cost you have from the product equals the retail price somebody always ask me how do I calculate perceived value ok, now we get into the art of pricing this is where things get a little subjective okay you must consider what the market can bear this is where market research comes into play and we're going to go over researching your market a lot next week it depends on how photography is viewed in your market it depends on how much money your clients are making it depends on are you needed in your market are you one of the few who actually do it? How unique are you so lots of factors go into and then just social values people think campus is more expensive than metal prints because canvas has been around forever it's elegant it's timeless it's the best finish we as an industry have ingrained in our client's mind that canvas is the best finish right? What about something that looks very handmade? Last week I showed you my water color prints with the tourney edges it looks very handmade it looks very high end and elegant that has a high perceived value to it even though it's basically ripped paper that's all it is is ripped paper with a pretty edge on it that's painted and put in a frame and clients think it's super expensive so that's why on a seventy dollars product with the framing I can charge seven hundred for it. So if you figured that cost of good analysis with that with that base price seventy dollars plus time it's a time assuming things so let's add another seventy for time value okay, so one hundred forty divided by point two five what is that equal? Somebody get me a calculator and do that one forty divided by point two five yeah thank you there go for it give me a calculator five sixty that's the base price so I added and at least another hundred fifty dollars I could probably charge more for it if I wanted because it has such a high perceived value so I can't give you a formula for perceived value or lost opportunity cost ok, what is lost opportunity cost that's when you sell your digital files and you can never make any money on on them again because the client has the negatives that's a lost opportunity expense to you so you need to pad that into your product and that's why digital files are so expensive or should be the brand adds perceived value why do you think I'm such an obsessive lunatic about brands? The more you look expensive, the more you can charge if you're charging a lot and your brand doesn't look that expensive you won't sell it make sense this stuff is so intertwined it's not even funny that lost opportunity cost is what you will never make again on the product and you know, maybe you need to make sure you try to recoup that in the price of the product and of course digital files the interest is evil little evil little problem is blatant in our in our industry about what to do about this issue but again it's somewhat subjective digital file selling them combined proceed value and you have the option to get to patty and more profit digital files have a big perceived value to the client even though you may not think it they like to seo which just goes to the deuce but they know that that's the most valuable thing because it gives them unlimited rights to use what they want to it you could limit I mean obviously depends on how you limited to them. Obviously, commercial use and personal use are different kinds of things, but you basically it's it's a lot of power when you hand over the digital files to your client that's a lot of power to them to be able to do what they want personally with the images they know that has value especially if you educate them about it and you tell them that you know they have a lot of value too and really I've said this before I'll say it again whether or not to sell the files depends on your business model, your brand and your target market there are positives and negatives to doing it. They're easy to produce that can be extremely profitable if you price him right there in demand clients loved them. They have a very high proceed value. The files are not archival when you sell them you're selling a transitory product a product that's not going to last. The client may not print them. The client may print low quality they can alter them which drives me up the wall but they do it. You lose control over the image that you've created when you sell the digital files and that lost opportunity cost is high. You will never sell anything again off those files. But you know what? I don't anyway and that's one of the reasons I decided to sell digital files. How many times have you had a client come back and buy more later? It never happens. Rarely once in a blue moon do you have a lot done? Zero. Yeah. So that's kind of why? I like well, that reasons out the door but you are selling a transitory product when you tell it when you give your client's digital files it's not gonna last, but make sure and educate them on that above all, if you sell the files, you must charge for them appropriately using that formula because they cost you nothing. Right? Can you pull out your calculator again for me, sweetie? So digital files for me. Couple hours of labor, a usb packaging. Sixty bucks. Okay, cheat divide by point two five what does that give me him to forty k. My starting price for digital files is three, ninety five. So two forty is that base price, but then there's perceived value and lost opportunity costs. And let me tell you, an additional one hundred sixty bucks is nothing for that it's way too inexpensive. But I'm also creating an art to my pricing where I want to appear as if I'm affordable to my target market, which is new moms who are not at the height of their income yet, and then when they get swooped into the gotland of the studio in the business, they quickly realised that three ninety five is not what they're spending and it's going to be closer to a thousand to see how all this art of businesses like translating together my large digital files, our six, ninety five so seven hundred versus two sixty said to forty, so I've padded an additional four hundred fifty dollars onto the files, but remember, they're also buying that with the product and create a collection that makes sense so I'm hoping you're seeing that there's an art to this that there is a strategy involved too be appealing but yet convinced them to do more through the systems and the processes thereby profiting enormously off your work. Now could I raise the prices of course and make more money? Of course, but to me it's a balance of you know, people do and I know I'm a balance of raising your brand to the point where you're so exclusive in such a status symbol the market that you can charge anything you want to being approachable, reasonable but still the best out there to being a commodity and like everybody else so you gotta compete on price I'm in the middle trying to get up to here when that happens yes, I can start charging more for my my, um my products but then of course fewer people could afford me so the phone's not gonna ring us much? I like to work I like to have sessions I like to be creative, so I want to keep my session numbers at a consistent ten a month for newborns and then of course we've padded that on with baby planners and family sessions and so when you're running about fifteen to twenty sessions about that a lot of work that's plenty if I wantto work less, I can charge more drop off some clients a little bit and still be making the same amount but working less but I really enjoy working so these are all personal questions you need to ask yourself if you just look at these different tiers of recognizability in your community and ask yourself where you want to be carriage trade upper end or commodity makes sense following along so all these products that you're pricing are strategized to get you to that average sale and right now we're just talking about the prices of the individual products themselves we have even started putting them together to make a package. I'm kind of talking to you a little bit about my my how I work but ultimately we're going to do that in the next lesson okay? So I'm trying to give this to you in small chunks here not overwhelmed. Okay? The digital file right now is essentially what they buy ten used to be that's what people knew back in the one hour rite aid photo days you would take your film an hour later go pick it up and you get a bunch of four by six or five by seven proofs then you could order a bigger size if you want and nobody ever got bigger than eleven by fourteen it was like eight by ten oh let's blow it up eight by ten you know that was the mentality okay, so every time in the film days when you were a photographer, the biggest thing they would ask you is what's the cost of an eight by ten when they first called now it's the digital files right it's frustrating for someone who doesn't sell digital files because that's the first thing they ask you and you have to weasel your way around that question and try to sell them on the experience while the same time knowing you're going to deny them what they really want hoping that you could educate them enough to say though that's not really what you want what you want is well art and that discussion for me was too much I can't win that battle not often it was exhausting to try to win that battle let's put it that way and I didn't grate and I could've done it put marking materials and made it happen and that's a whole another brand in a different world and it's a different business which means it's unique what you have to ask yourself do I want to be that unique and how can I spin it to be attractive to the consumer so you have to decide if selling digital files will compromise your values as an artist it does for some and rightfully so some artists do not want to provide their negative and I get that in our fine artwork like when I do paintings or composites there is no digital file, and there is one copy of the work, and I learned that from an r who's um, that's her printed her competition name dreams actually, pam pam on ly does one painting and then destroys the digital file of the painting after she sells it to her client. I know high to something like then I thought about it like that's a bad idea. There is one printed edition, just like monet has one water lilies boyd is the value of that go up when you do that? Because not only are you a my painting my working carell, but then I'm also printing on campus and painting it with oils on top, so it's completely different didn't file any way it doesn't look like the digital file the end. So why would I keep the digital file? So I'm actually considering following pam's lee and going through I might do that on my artwork, because then all of a sudden it truly is an original work of art, and what does that do to its perceived value client like nose? And when I can educate them not to say that you know what? This will be the only copy in existence, so you better take care of it I am having my son's portrait painted by stank according right now. Stanfa is my favorite portrait artists use oil painter in the world she's so wickedly talented and she's from ohio and I commissioned her in april on the painting is still not done it will be christmas before I get it and it is an original copy there is nothing else like it if there is a fire in my house I am grabbing the darn painting off the wall okay? But I paid a lot of money for that it's my treat to myself to get my son painted at four years old by stank according okay it's the price of some very expensive jewelry okay, so I am willing to do that because I love her that much and I want an original stank according of my son in my house it's an investment so do you want to get your status and your brand of that level boy things have to work together don't they to make that happen and I'm not rich I can't afford this but I'm doing it anyway and one of the reasons I'm doing it is because of the scarcity trigger, she said she I asked her to commission I asked her if she would do a painting my son and she like two years ago and she said, oh, I don't do person I don't do private commissions anymore because I just do my own what I like like you know so I bought one of her little she still does little sketches on ebay like once a year and I managed to get one in like the last twenty seconds of the of the ebay auction and so I got this and she e mailed me like that was so exciting you came in at the last second like I didn't bid until like, five seconds before the thing closed and then bid a huge bid so I could get it and got it, like half price what I expected to get that so I totally stole it someone who has the other guy was bidding at five p od me for doing that, you know, it's strategic thinking there and so she sent me so that so excited like yeah, I know and someday I dreamed of you having to you to my son if you ever decide to do private commissions again, let me know. Six months later, she's mail major goes, you know what? I'm kind of broke I need some money, I'll do a private commission here's what it costs I want to do it because it's the only one I'm doing this is your shop? Yes, okay, I'll figure out how to pay for it and she's letting me pay for it over overtime and that's that's awesome, so it's that scarcity sugar like take this opportunity now it's going away and I was like, oh god, I got to do something I want to do this for two, three years I better do it, doesn't it doesn't matter what it costs okay, so we're going to talk about buying triggers of course at the end of next week, but I want you to think about how those things impact you're buying choices and therefore your clients buying choices sorry rabbit trail back to digital files so for us, when selling both, that was the best of both worlds I could force my client into an art piece, so I know it least they're printing something beautiful and they get the digital files they want and I'm profitable enough to make my living that's really what it comes down to. So when you can effectively price your products, just the individual products, what happens? Well, dull your profit okay, you're going to make more money, but the other effects of good price pricing along with money come meeting your average sale every time okay your income becomes predictable, it helps to find your brand right? Because if you're expensive, that means your brand is going to elevate, but if the rest of the components of your brand which we're going to discuss heavily next week, don't match up to the price it's not gonna work so this is why when I say to people when they say to me, oh, what camera should I buy? I'm trying to become a pro photographer I sit here and I go you expect to make money by switching cameras? No, you need to invest money in your brand because that brand has to match a profitable income because if you go I mean, if you go in some like thing about this, if you go in someplace cheap that looks kind of running, the carpets are all dirty and wherever and the drapes haven't been washed in six months and it's kind of like disgusting and you see the products are priced thousand two thousand dollars what are you going to think? It's not worth it and you're getting to be kind of confused like what is who is this business? What do they think they are? This is not a thousand dollar expense have you ever gone how shopping and gone into the kitchen and gone that's not a million dollar kitchen hd tv I love watching issue to be like like house hunters and some markets are really super expensive like they're looking at million dollar budget homes and they go in the kitchen it's like white tiled countertops and I'm sitting here going that is not a million dollar kitchen I can't believe they're charging a million bucks for that house it's the same concept with your work if your work is really good but the brand stinks people are going to be like I can't believe they're charging that for that and it's going to affect the way people think about your business the overall impression and your customer service okay so the brand has to match the price but of course also good pricing of your products gives you confidence and security that what you're doing is the right thing and that you're taking care of your baby your child which is your business and that you are going to be profitable there is good pricing and proper pricing is the line in the sand for your business you have to cross that line in order to be successful you have to charge or certain amount in order to make it work does that make sense the two three hundred dollars for a disc thing is not going to work you're going to pay your client to shoot them that's really what it comes down because if you're losing money that means that's money your client is keeping that your not so you're actually paying them to take their photograph okay so there is and as we saw with the break even worksheet yesterday and with pricing your products today there is a line in the sand that you must get past pricing wise how much you charge in order to even start to become profitable right so if you know that you're on that line and you've crossed it like, okay, every product I'm selling is profitable is price right? My expenses, my overhead everything's accounted for? I'm good. I know my numbers, you could be confident that all these clients who won't pay that are not your client and don't forget about it don't worry about it because these people are the ones I need and all your efforts and energy will be focused on finding these people, and you will ignore those folks in the shooting back burner down the street all become all of a sudden becomes a has been and you don't get a wrap booty about him that's where I want you to be, you'll be focused so on your brand and making everything live up and the customer experience and your product line and your projection sales appointment, keeping these systems in place and keeping that profitability in your pricing, you'll be like, yeah, you take him and that's exactly what happens, and it took me years to figure that out, and once I finally did, I started getting the wall marcus or something, I don't have time for you, you're not beyond my line forget about it go away to so and so so I refer people to shooting burners all the time. I need to go to so and so down the street they're they're advertised on craigslist they'll do it for two hundred bucks that's probably more within your budget oh yeah thank you click by great thank you more room in time for someone else who will pay okay so start thinking strategically like that but the problem is you guys were so unpopped canonized you think that disease gordon your garden means the gardens doing well get rid of the diseased gorge they're sucking the life out of your big pumpkin we talked about this like the first week we talked about the pumpkin plan it's great book by michael malaga wets and he talks about how farmers who grow large pumpkins have a serious strategy for doing so they plan a good c they water it sell, sell, sell sell and that's what happens in the beginning you guys will take anything you don't care what it costs you need that seed to sprout you've got to start the business you've got to get wrong and that's fine in the beginning but once that sprout starts coming up and the flowers start blooming in the pumpkin start growing then you get all these clients who are like oh my gosh I wanted for less I wanted for less and they're diseased where is these nice big pumpkins over here are beautiful there's a clients who are your deal client they're willing to pay for what you're doing you're building your brand ups, you've got to get rid of all those disease pumpkins and do not let the weeds distract you. Get them out of there.