Pricing for creatives
Pricing your work be it art, services or products can be difficult, especially at the beginning of a creative business – as it taps into self-worth, money mindsets and other emotions.
Prices are a key driver of profits and hence business sustainability. Even if profits are not your main motivation, they are needed in order to continue your creative business especially in today’s funding landscape.
Therefore it is important to research and review your market and costs in order to approach your prices with clearer numerical evidence and improve your chances of setting the right prices for your business.
The attached guide will help you think about key factors around pricing generally so you can perform the right market research. It looks at
- The importance of identifying the market value of your work/ product/ service;
- The factors which influence value including who your ideal customer is; distinctiveness, pricing strategy and likely rate of adoption.
- Exploring multiple income streams you could access and identifying the value for each
- How to cost your work and your time
- Using this information to set your prices
Overview : Achieving the Right Balance
When pricing work, you’re aiming to balance two things in order to have a sustainable business. The value – or the amount your clients or audiences are prepared to pay, and your outlay – your costs, including materials and time.
[Insert picture from original guide – it has a scale showing value and cost]
Ideally, value should be greater than costs, giving you a profit margin to invest in your business and/ or cover unexpected costs.
If your costs are higher than the value then you need to either reduce costs, work out how to increase the value or secure investment or funding (if available/ appropriate).
If you price your work too low compared to its ‘value’ then you are reducing your profits and damaging your business’ sustainability. In addition, your work may be seen as low quality due to the low price. Conversely, if you price your work too high, then the quantity of sales you make will be reduced as it will be harder to attract customers who are willing to pay your price(s).
So how do you work out what the value is? This will depend on
- What you are providing (e.g. service, product, experience);
- the creative industry you operate in and how they see value generally;
- your location(s); and
- your target audience(s) and what their motivations are and what they can afford. What problem are you solving for them/ how are you enriching their life? How will they value that?
In addition, the value of your work is influenced by:
- Distinctiveness – is it unique, or similar to what’s offered by others?
- Strategy – e.g. Are you selling a lot of work at a lower, accessible price or are you selling bespoke work at higher price but lower quantities;
- Adoption – how established is your relationship with your audience? How quickly will your work be purchased? What’s its shelf life?
These factors create the context in which you present your work. That helps your clients, customers and audience to judge its value.
For instance, in an established venue/ customer segment with a knowledgeable audience, the work may be highly valued, considered premium and sold quickly. Elsewhere, however, the same piece may be under-valued and unable to command the price you want.
Multiple Income Streams
Depending on your skills and activities, and the variety of products or services you offer, you may be able to access a number of income streams for your work.
For instance, you might earn a reliable, frequent income by producing editions, taking on a regular gig, copywriting or delivering workshops. At the same time you could be creating one-off, higher-priced works that will take time to achieve their true value, but will also raise your profile and establish your reputation.
The example below shows how to consider the range and value of different income streams by plotting them against distinctiveness and market price.
First, place the streams along the distinctiveness axis according to availability, exclusivity, competition and frequency (of production or delivery).
Then find their place on the market price axis according to your customers’ perception of their value, budget, affordability and comparison to current market rates.
[Insert picture from page 3 of original guide – Example of potential income streams for visual artists, designers and makers]
Try creating your own graph. Plot your potential income streams. Next plot the position of the various routes to market you want to distribute and sell through. Consider the prices they charge and the distinctiveness of their offer. Then ask yourself the following questions:
- Is your work in the same area as the work they usually present?
- Which matches your work’s profile best?
- Which could present your work now and in the future?
- Which work will you prioritise?
- How does your decision impact on your cash flow and the investment required in your business?
Exploring the third factor — adoption — might help you answer those questions. Consider how new or established your profile is to the clients and audiences you’re trying to attract. Try splitting clients and audiences into groups of people who seek out new work (innovators, early adopters and early majority) and those who gravitate to more established work (late majority and laggards).
[Insert picture from page 3 of original guide – Adoption curve]
Now think about where these clients and audiences are. List how you can access them and highlight those that fit with your work.
The cost of making your work will differ from the amount at which it is valued. A costing exercise will identify that difference, and establish whether you’re likely to make a profit, loss or break even.
If the cost of creating the work means you’re making a loss, you need to think about:
- Presenting it in a different context so it can increase its value. This could mean working with a different audience or market, or adding value to your presentation and reputation.
- How to make savings in the time or resources used to produce the work.
- Subsidising the work through other profitable activity and outside investment. This is likely to be a short term rather than a long term solution.
The key elements making up cost are:
- direct costs – specific to the piece (e.g. materials, hires, delivery and time)
- overheads – general to the business (e.g. rent, power, phone, insurance)
Direct costs should be easy to allocate to specific work, and are often itemised in an invoice or detailed in a project budget. Overheads are usually allocated as a proportion of your annual running costs, equivalent to the time spent on work. They are often presented within a daily rate.
Costing your time and calculating a daily rate
One of the key costs you need to consider is your time. There’s a simple formula for finding a daily rate. Add your annual salary and overheads, then divide by the days you’re available to work each year.
Our daily rate calculator will help you find the figures you need. Just fill in the boxes and add the totals.
When you’re working out days available to work, make an allowance for admin (e.g. invoicing, planning and marketing), so it becomes part of your rate.
You should aim to spend 25 – 40% of your time on administration. Any less and no-one will know about your work and you won’t be in control of your paperwork. Any more and it may not be financially viable, unless you have very low overheads.
If you don’t allocate any time to admin, you’ll be doing all the chores in your own time for no pay.
Once you’ve worked out all the costs associated with a piece of work, and its value to your clients and customers, you’ll be able to establish a price. Ideally that should equal or exceed your costs in order to have a sustainable business.
Pricing structures for each creative industry vary. You’ll need to do sector-relevant market research to find the one best suited to your work.
For further specific guidance on pricing products sold via retail or wholesale check out our How To Cost and Price Your Work guide.
The price and the number of sales or fees associated with your work will form your income.
It’s common practice to present predicted sales figures and funding along with costs your budget, so the balance of income and expenditure can be viewed easily. This is usually done over a 12 month period e.g. your financial year but you may need to forecast longer for funding or investment purposes.
These figures can also be entered into a cash flow calculation that shows the impact of outlay and income over time, and establishes a timescale for breaking even.
[Reference to cashflow forecasting and budgeting resources]
Looking for sound advice and/or a sounding board?
Contact us to organise a meeting with one of our experienced and friendly creative industry advisors.