pricing
MyCake Inpires – Commissions
In this MyCake Inspires video, Sarah talks about the commissioning vs selling both from the commissioner and the designer’s perspective.
So a good one to watch if you are asked to do private commissions – and want to look at a beautiful concrete kitchen!
Take a look at David Bucknall’s work.
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Cockpit Arts: Pricing, Value and goals, an interview with Jacob van der Beugel
Following The Pricing Decision Series by Ellen O’Hara, Head of Business Development at Cockpit Arts, here is the interview with Jacob van de Beugel on his approach to pricing, values and goals.
Earlier this year, at Collect 2010, I took part in a panel discussion organised by Crafts Magazine. The theme was ‘Crafting a Career’. Also on the panel was ceramist Jacob van der Beugel, who touched on a theme close to my heart – the important relationship between pricing, value and goals. I caught up with Jacob recently and posed a few more questions on the topic…
Ellen: At the Crafting a Career event, you talked about the importance of understanding the relationship between price and how people perceive your work. Why is this so important?
Jacob: I think what I was trying to convey was more the general perception of a maker’s work. A positive perception can be generated through consistent appearances at respected galleries, events and talks, and to avoid, even if financially beneficial for the short term, lesser quality opportunities. This way a consistent picture of quality and ambition can be generated for the long term. An essential part of this perception is generated through price. I have always felt that to command a strong position in the Arts one must set one’s stall out right from the start. Putting a confident and strong price on one’s work is a statement of intent. It goes without saying that this price shouldn’t seem arrogant or enormously inflated. This way the public are immediately aware of your ambitions and a positive perception is created from the start.
This systematic building-up of one’s perception, has the unfortunate consequence of possible short-term financial problems. If one can withstand this, then one is the better for it in the long run. It is my opinion that the only makers who make a living solely from their discipline are the makers at the top. To achieve this, a long term strategy is key.
Ellen: Has your approach to pricing evolved as your career has evolved? If so how?
Jacob: When I first started I increased my prices every year. I did this because I wanted to show that the work collectors had bought was increasing in value, also simply because I needed more return from each piece. This increase in price was in conjunction with more ambitious work and higher quality pieces. Eventually increasing the price in this way has to curve out, but it was important to do it methodically but never too aggressively.
Now my work is comprised of large scale architectural commissions and smaller one-off pieces. I feel that my pricing strategy, along with my long-term view has paid off. People feel confident to commission these large projects because of a general perception.
A very important factor has been to never remain static creatively. I have always had the need to refine, develop and explore. I have always embraced new projects, for my own personal satisfaction and possible further commissions, as long as these opportunities didn’t compromise my previous work. For people who have collected my work, it means they feel excited about what comes next and there is never an element of predictability. I suppose the increased price reflects this.
Now pricing is much more intuitive though. I worry less whether it is correct or what other people are doing, because I have got it right for how I work and live.
Ellen: You have served apprenticeships / assistantships in the studios of both Rupert Spira and Edmund de Waal. What did you learn from them about pricing work?
Jacob: Simply, that there needs to be an extraordinary amount of intellectual rigour and dedication to discipline and skill to attain prices that can sustain your practice and lifestyle. Without these assets one cannot command any respect or justification for high prices.
I learnt never to let anything out of the studio that wasn’t first rate. I also learnt to destroy anything that wasn’t up to scratch and avoided selling seconds. This way everything that is in the public domain is reflective of my high standards. In this way there is never the suspicion that someone else has a better example of one’s work.
Ellen: Increasingly your work is tackling more conceptual issues. How do you think this affects the perceived value of your work and the price it can command?
Jacob: Now that my work is more conceptual it has certainly helped bring an extra dimension. This addition means that perception is brought into a different domain. This has definitely meant I can command more for my work. It also helps being able to back up my work with a degree in Art History. It just creates the impression that there is more substance. Whether there is, of course, is a subjective decision.
Expanding on this, I would say that bringing additional skills and knowledge to your work helps to distinguish you from other makers. It is vitally important to be a distinct and unique force within your field. This can all be beneficial for pricing.
Ellen: What would be your top tip for pricing as a contemporary maker?
Jacob: Back up high prices for work with a unique, well-considered and skilful approach, for a successful long-term future. Be justified in your boldness.
You can see more of Jacob’s work at his website.
Let us know you responses to Jacob’s approach.
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Cockpit Arts: The Pricing Decision 4: Price and Goals
We have the final part of The Pricing Decision Series by Ellen O’Hara, Head of Business Development at Cockpit Arts.
There’s no doubt that getting your pricing right is a crucial part of your marketing and business strategy as a designer-maker.
As part of the Pricing Decision series I am looking at three key areas: Cost, Market and Value, as well as how different pricing strategies fit with the overall goals, for your practice and business.
Part 3 looked at price and value. This time I will explain how you can use different pricing strategies to help meet your overall business goals.
Price should be considered as one of your key sales and marketing tools, along with the products you offer, the places you show and sell and the way you promote yourself and your work.
So as well as having a pricing policy, or overall approach, you can use different pricing strategies to help meet your overall business goals.
These goals might include:
- Improving cash flow
- Breaking even or making a certain amount of profit
- Increasing the volume of sales you make
- Getting you foot in the door of a particular retailer or gallery
- Encouraging repeat business
See some of our earlier posts to get you started with goal setting.
As a designer-maker, you can use some of these strategies to help achieve your goals:
Premium Pricing – this involves setting a relatively high price to reflect the fact that work is of premium quality. Consider this approach if you want to position yourself at the higher end of your market and to communicate the added value of one offs, commissions and bespoke services .
Loss Leader – pricing some products in your range at cost (or at a loss) can be used to attract customers and raise awarenes of your brand. Apply this strategy to limited products, or for limited periods of time only. It should lead to the sale of more profitable items in the longer term and and can help even out cash flow in the short term.
Product Line Pricing – different prices can help communicate the different benefits of products in your range, and helps the customer differientiate between what you have to offer. So you can use pricing to drive the sales of particular items by making them appear better value for money in comparison to the other items in your range.
Discounts – sales promotions and discounts are used in retail to boost sales and generate cash out of season. Offering discounts to repeat customers is a great way to reward loyalty. But be wary of devaluing your work by always offering price promotions, sales or offering ‘bargains’.
Finally, try and increase your overall price levels each year as your business grows. You should inform your stockists if you intend to significantly increase your prices. Another way of achiving this is by introducing a new line of work that can be clearly differentiated from your exisitng ranges. Give the new work a higher price tag and gradually phase your old work out.
Let us know how you get on by leaving a comment on your experiences in making your own pricing decisions.
See more top-tips on finance from Ellen and other industry experts.
Or check our resources section for a worksheet on Calculating Your Costs and Budgeting.
Next time we’ll be posting an interview with Jacob van de Beugel on his approach to pricing, values and goals.
Work pictured above by Jen Rowland.
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Cockpit Arts: The Pricing Decision part 3: Price and Percieved Value
We have some more Top Tips by Ellen O’Hara, Head of Business Development at Cockpit Arts.
There’s no doubt that getting your pricing right is a crucial part of your marketing and business strategy as a designer-maker.
As part of the Pricing Decision series I am looking at three key areas: Cost, Market and Value, as well as how different pricing strategies fit with the overall goals, for your practice and business.
My last post looked at price and the market. This time I will explain how percieved value affects price.
As a designer-maker creating unique work for a niche market, pricing should be most influenced by the value received by your customer.
Your customers will tend to buy from you because your work is different from the other options available. That difference is your value and it can be worth a premium price. So when it comes to price setting, it’s the customer’s perception of value that counts.
Taking a value based approach to your pricing means:
- identifying what your customers value and
- determining what they are willing to pay
The value of your work is derived from the many features and benefits that buying a piece of your work can offer.
So think about what benefits a customer receives by engaging with you and purchasing your work. For instance, some customers may value the prestige that owning a piece of work provides. For others it may be high the quality finish or the technical skill that your work displays.
For other customers, the experience of commissioning work from a maker, being able to meet with them in their studio and co-create a piece of work that is highly personal to them might be what they prize. And they might be willing to pay more than you think!
Large companies use survey methods to help them evaluate customer values. As a maker, you can get to know your customers by engaging with them at shows, exhibitions and other events. Ask questions and solicit feedback. Ask existing customers why they buy from you, what they value and in what order of priority.
If you sell through galleries or other retailers, find out who is buying your work. What kind of customer are they and why does the gallery or shop owner think they like your work? You may have to experiment a little with price levels to begin with, but be bold and don’t undervalue yourself.
Remember that how you price your work sends out messages to your audience about its value. Similarly, knowing what your customers value the most helps to inform how you market and sell yourself. Value is, of course, subjective and not every customer will need your work and its unique benefits. A relatively high price may well deter some potential consumers. However, it will also attract others who truly value what you have to offer. And in the long term, it is these customers that you want to be cultivating.
In the next post we’ll be looking at how price relates to your goals in the final of the pricing decision series.
Let us know how you get on by leaving a comment on your experiences in making your own pricing decisions.
See more top-tips on finance from Ellen and other industry experts.
Or check our resources section for a worksheet on Calculating Your Costs and Budgeting.
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Cockpit Arts: The Pricing Decision 2: Price and the Market
Ahead of this week’s Cockpit Arts Finance workshop with MyCake on Wedensday, 11th August 2010: Financial Planning for Growth we have some more Top Tips by Ellen O’Hara, Head of Business Development at Cockpit Arts.
There’s no doubt that getting your pricing right is a crucial part of your marketing and business strategy as a designer-maker.
As part of the Pricing Decision series I am looking at three key areas: Cost, Market and Value, as well as how different pricing strategies fit with the overall goals, for your practice and business.
My last post looked at the relationship between price and cost with cost-plus pricing. This week I will explain how the market affects the pricing decision.
Price and The Market
Market based pricing methods depend on having an accurate picture of what’s going on in your marketplace. For example: Are you selling to craft collectors? The mainstream gift market? Or high end fashion? And what are the current trends in these market sub-sections?
In the larger, mainstream markets, prices will tend to be dervied from two key factors:
- What competitors are charging
- What customers are willing to pay
Who are your compeitiors and what are they charging?
If you don’t feel there are any direct competitors out there, try and pick out a few other makers or brands that:
- Are making similar work
- Are aiming at a similar customer base
- Who are at a similar stage in their career and have a similar profile
How do your prices compare? Are you competitive, or potentially over or under pricing yourself?
What are customers willing to pay?
- Research other companies’ prices online, in stores and in galleries. Pick a broad range of products so that you can compare the going rate for different types of products in your field. For instance as a designer-maker jeweller, you could look at a combination of mass produced high-street designer jewellery and high end fashion jewellery, as well as other makers.
- Look at the overall price range that other companies offer (minimum and maximum), how different work is priced differently, whether discounts are offered etc.
Use all of this information together to inform your own pricing decisions.
The Advantages
The advantages of following a market-based approach are that it tends to keep you price competitive in the eyes of your customers, so it’s important to consider who you’d like to be compared with and sit alongside in terms of price.
The Disadvantages
The disadvantages of this method are that the market price may not provide you with the profit margin that you want (and need!). You may actually have a very different business model to the people you are comparing yourself with, who may be able to produce and sell work at very different costs.
New and Unique Work
Your work may be so new and unique that there is no solid market-based price to compare with. So you have be the price setter yourself. If this is the case, it’s likely that your operating at the niche end of your market, where the percieved value of your work bears more influence on price than what others might be producing and charging. We’ll explore this in more detail next week with The Pricing Decision # 3: Price and Perceived value.
Let us know how you get on by leaving a comment on your experiences in making your own pricing decisions.
See more top-tips on finance from Ellen and other industry experts.
Or check our resources section for a worksheet on Calculating Your Costs and Budgeting.
And if your doing some financial planning this summer, come along to our workshop: Financial Planning for Growth on 11 August.
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Cockpit Arts Top Tips: The Pricing Decision Series
Ahead of Cockpit Arts Finance workshop with MyCake on 11th August 2010: Financial Planning for Growth we’re featuring Top Tips by Ellen O’Hara, Head of Business Development at Cockpit Arts.
The question that I’m asked more than any other in my role at Cockpit is ‘how should I price my work?!’
There’s no doubt that getting your pricing right is a crucial part of your marketing and business strategy. So what is there to consider when making the pricing decision?
In the workshop The Price is Right, which is part of our rolling programme of Making It Workshops, we look at three key areas: Cost, Market and Value, as well as how different pricing strategies fit with the overall goals for your practice and business.
Over the next few weeks, I’ll be posting a series of top tips, looking at pricing from these four different perspectives:
The Pricing Decision # 1: Price and Cost
Your first consideration when setting prices will usually involve looking at what costs are involved when producing your work. The ‘Cost-plus’ approach to pricing involves setting price by starting with the cost of creating a product, and then adding a mark-up. The mark-up provides you with your profit margin and so the cost-plus approach almost guarantees that you will not sell at a loss.
Mark-ups can be based on industry standards, individual expert opinions, or widely accepted rules of thumb. I usually advise makers to try and double their cost price to arrive at their wholesale price. In other words, add a mark up of 100% or x 2. And then add a mark up of around 2.5 on the wholesale price to arrive at the retail price. This is equal to multiplying your cost price by 5 to arrive at your retail price, or adding a mark up of 400%. This should ensure that there’s enough profit to cover some of the other costs associated with running your business.
The disadvantage of this approach is that if costs increase, the price of the product must also increase. The price of each product is therefore dependent on how many costs it creates.
The key to using this approach effectively is to be as accurate as possible about actual costs. So what should you include?
- Firstly there are the costs that directly relate to the production of the work such as materials, the cost of outworkers and packaging. These costs will tend to vary as the volume of work you produce and sell changes and can be refered to as variable direct costs.
- Then there is the cost of your time (if you produce the work yourself) which will be based on your hourly rate.
- Finally you also need to think about making a contribution to the day to day running costs of your business, or overheads (also refered to as fixed costs). This will include things like studio rent, day to day administration costs, PAYE staff costs and marketing. Some makers build this into their hourly rate.
A cost-plus figure generally provides a basis for the lowest price acceptable, but should not be the only consideration. It takes into account the cost and profit side of buying and selling, but it neglects demand for your work and what is going on in your market.
Another way of using costs to determined price is ‘target pricing’ where are a target price is made, and then costs are adjusted so that that price can be achieved. However, this is often very difficult to achieve for designer-makers who produce in small batches because costs are less flexible.
Next we’ll be looking at Price and Market in The Pricing Decision # 2.
For guidance on calculating your costs, try our Calculaing Your Costs and Budgeting worksheet which can be found in the Resources section of the blog. Or see the other posts on the blog that advise on finance from me and other industry experts. Let us know how you get on!
And if you’d like to attend our next Finance workshop: Financial Planning for Growth see details and book here.
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Turnover & Production Costs
This post is a complement to the analysis undertaken for Artquest in the March – May 2010 newsletters. For more details on our partnership with Artquest click here.
One of the things we’ve noticed as we analyse the 2008-9 data is that there is a dramatic difference between the profitability of the product based creative businesses that use MyCake vs. the service based ones. Whilst the average profitability across the whole user group is about 28% of income this disguises the real picture
- product based businesses who spend more than 35% of their turnover on materials end up with about 2.5% profit
- service based businesses who spend under 10% of their turnover on production costs end up with closer to 40% profit
The graph below shows that the businesses with the lowest turnover (the brown columns) are the main culprits when it comes to spending too high a percentage on production materials. That is to say that those who can least afford it are tying up resources they can’t spare!
Remember – in this graph a low figure (ie short column) is good!
If you’re a MyCake user you can benchmark your own data (rather than just look at these general results) from in the results section of the benchmark. See this post for a how to guide to reading your results.
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Financial support for your business
Naturally, most people are interested in any financial support for their business.
As a creative business adviser, I have helped hundreds of creative entrepreneurs over the years. Often, their enterprises are receiving financial support – from themselves !
This is because they are not taking into account the cost of things like use of a family computer, personal mobile phone, a back-bedroom office, or car. By ignoring the cost of these essential resources, they become ‘hidden subsidies’ to the business.
Ironically, as a result, these businesses lose money.
One effect is that they pay more tax because they seem to be making more money than they really are as a consequence of not including all their business costs.
More seriously, they often lose money because they charge customers too little. By ignoring these hidden costs, they kid themselves that the price they charge customers creates a profit. But when I help them to calculate and understand the full costs of their business, we often find that the price charged is too low to cover all the true costs of the enterprise.
This problem comes to a head when they need to buy new equipment and there isn’t enough money in the bank account – because they haven’t put money aside to acknowledge the depreciation of computers, cameras or other equipment.
As the business grows, its unprofitability becomes clearer. The true costs come out of the woodwork as the creative entrepreneur has to write cheques for office space, software, transport etc – things that were previously provided free by family, friends or themselves.
So the main reason I urge people to calculate all these hidden costs is so that they fully understand the economics of their business.
I find that those creative entrepreneurs who do this are the ones that charge their customers the right prices/fees – and consequently generate enough income to make their creative enterprise profitable and sustainable.
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There’s more about making your creative enterprise even more successful in my book ‘T-Shirts and Suits: A Guide to the Business of Creativity’ (also available as a free eBook) and further ideas and information on the T-Shirts and Suits blog.
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Copyright © David Parrish 2010.
www.davidparrish.com
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Unravelling the mystery of profit margins
BBC’s Evan Davis discusses profit margins and the skill in pricing products and services with Robert Polet of Gucci Group, Paula Bell of engineering group Ricardo and Gary Watts of SSL International (Durex, Scholl).
It is interesting to hear how little difference there is between the three business models ~ selling the dream in luxury consumer goods; selling as a consultancy; selling FMG products.
Listen to The Bottom Line (the discussion starts around 20:46 minutes into the programme)
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Correlating hourly rates and turnover
This post is a complement to the analysis undertaken for Artquest in the March – May 2010 newsletters. For more details on our partnership with Artquest click here.
The graph below shows the 2007-8 MyCake benchmark data. That large blue & yellow columns shows that the folks with the best income are also the ones who charge the highest hourly rates.
In the blue columns we have the overall benchmark across all MyCake users.
In the brown columns we see the average, max & min hourly rates for businesses with a turnover of less than £10,000.
In the yellow columns we see the average, max & min hourly rates for businesses with a turnover of over £50,000.
If you’re a MyCake user you can benchmark your own data (rather than just look at these general results) from in the results section of the benchmark. See this post for a how to guide to reading your results.
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