Do you make something that you love? If so, how much is it worth to you?
Last column I introduced the concept of value when it comes to paying yourself for your time and expertise. In this installment of the Creative Money Maker we are going to continue the conversation about value as it relates to setting prices for the products that you make.
Earning income from selling a product is what we most often thing of as “making money.” Just like the rest of your budget, you want to plan carefully for earned income.
This column will help you avoid two of the biggest pitfalls creative people make when pricing their work: under pricing their work because they under value themselves and over estimating how much they will make from sales because they don’t know their market.
Antonio Ramos from Brooklyn Soda Works explained to me that, “It is difficult to change the price once you start your project. When pricing factor in the following: What does it cost to make? How long does it take to make it? What profit can you make from your product at a price people will pay without compromising the essential nature of your project?”
Similar to paying yourself for your time, there is no specific formula to determine the price for your work. When you assign a price you assign a value to your work. When you set out to do so, it is important to have a sense of how valuable you want your item to seem to your customers. Here are a few basic guidelines to help you set a price:
- Know how much the raw materials to make your item cost. You want to be sure these costs are covered
- Does your item include rare or expensive materials or a process which demands unique skills to create that would make your price higher?
- How much time does it take to make your item? You price should cover this time, including the time it took to create and refine the idea. For example, for a band this would include writing and rehearsal of a song
- Know the standard price for your object or event – how much do other items like yours sell for?
- How much are your customers willing to pay? How little would make them think it is too cheap and not worth their time?
- How valuable is your item? Pricing and money is about assigning a value, so you want to make sure you don’t under value your creation or yourself
- Refer to pricing guides for your specific disciplines, such as crafts, visual arts, graphic arts, music, and edible goods. There’s rarely a specific formula, but depending on the discipline their may be industry wide standards
For an example of adding value to the product you produce: In the early 2000s the going rate for a zine was one or two dollars, no matter how many pages it had. When I incorporated art papers, letterpress printing and hand binding into my zines I decided to break from tradition and charge five dollars for them. I was worried I would receive criticism for how “expensive” my zine had become, but the exact opposite happened! Those who picked up my zine valued the time, effort and care I had put into it and people still tell me they have kept them and cherish them as art objects.
Once you have gotten a sense how much it takes you to make your item and how much you want to charge, it’s time to get out a pencil and paper and determine your total cost to produce one item, the wholesale price and the retail price.
Total cost to produce your item: this is the basic cost of materials, labor and time it takes for you to make one item. This should not be your price, but you should know how much each item takes to produce.
Wholesale price: This is the price to which you offer your product to retailers. You will be offering your items to retailers at a “markup” price on your base cost. The markup should cover your overhead, such as your studio space and your tools. There’s no hard and fast formula for determining the wholesale price, but it can range between 100 and 300 percent of the total cost, depending on the kind of product you are offering.
Retail price: This is the price you suggest to retailers to sell your item. This can be twice or even three times the wholesale price. Remember, retailers take a percentage of the sale of your item to cover their costs. When you are selling your item yourself, such as through a website or in person, you should offer it at the resale price. You don’t want to undersell yourself or the retailers that are carrying your work!
It may surprise you to hear there are no specific formulas for assigning a value to your work, but take your time to research price strategies for your specific field. The most important aspects of pricing are that you need to feel confident in your prices and that your customers need to feel they are receiving something valuable to them at a price that feels good.
The Creative Money Maker was developed in collaboration with the DIY Business Association.