ASLU 014 & 015: How To Price Your Work In Your Creative Business
In Episode 14 and 15 of the And She Looked Up Creative Hour, we’re talking about one of the most challenging questions small business owners deal with: how to price your work.
Before we start, we just want to warn you - there is no magic pricing formula. We wish there was! We’d package it up with a bow and add a reasonable profit to it and sell it to you!
Because pricing your work sounds like it should be simple: the cost of creating your product or providing your service plus a little extra on top for profit.
But the reality is, it’s one of the most complex and constantly evolving pieces of your business. Nothing will make you doubt yourself or second guess yourself more than pricing - especially when you’ve never done it before!
But even veteran creatives still struggle with pricing on a regular basis as our product offerings and markets evolve. Everything from your expertise level, the industry you’re in, who your target clients and customers are, what kind of products and services you offer and even your location can impact your pricing.
And we haven’t even talked about the mental issues around pricing: mental blocks surrounding money or asking for money for your work , imposter syndrome, discounting, working for free… there’s a lot!
So while we may not be able to offer you a magic formula, we really hope that today we’re going to give you a place to start and a list of things to consider as you work towards pricing your work. In fact, this topic was so big that we had to split this episode into two parts. But we’ve put the show notes for both episodes in one place. If you have questions about pricing your work, drop us a note in the comments or on Instagram (@andshelookedup) and we’ll do our best to answer them or consider them for a follow up podcast episode.
Listen To the Episode
Here’s a direct link to Episode 14 and a direct link to Episode 15 - or you can listen via the players below:
There are two types of pricing we’re going to be discussing: services and products.
Pricing doesn’t get any easier as your grow your business. It’s something you’ll revisit every year as markets change and your product offerings evolve. And whenever you price something new you’ll face a learning curve all over again!
With all pricing, you’re walking a fine line between what you need to earn to make a living - and a little extra - and what people are willing to pay you. So let’s get down to it.
Understanding Revenue, Costs and Profits
There are a lot of businesses out there that sound really impressive. They have 6, 7 or 8 figure sales numbers. But newsflash - having a business with high sales figures doesn’t mean you’re actually make any money!
In other words, these businesses many generate revenue but do they generate a profit?
Here’s a crash course in some basic terms you need to understand before you price your work.
Gross Revenue: This is the amount of revenue your business generates before expenses have been paid. At the end of the day, this number can sound impressive but it doesn’t really mean much.
Profit: This is the amount of money that’s left over from your gross revenue after all your expenses and costs have been covered. This is the number that matters. You want to run a profitable business.
Costs and Expenses: these are all the things that your business has to pay for in order to function. Knowing and managing your expenses is absolutely critical to running and healthy and profitable business.
Costs & expenses you can expect to encounter
Most of us know the basic expenses we’ll have to deal with: paying for the tools and materials we need to do our jobs. But, unfortunately, there are so many more expenses that just those. Here’s a list of a few that you’ll need to know in order to calculate your pricing.
The physical costs of materials for any products you make: fabrics, paints, canvases, wood, paper, etc.
The tools you need to make your products or provide your services: software, machinery, computer equipment, camera gear. Some of these may be considered capital costs which can impact your taxes. Your accountant will help you identify those.
Fixed costs like your rent, utilities, electricity etc – you have to pay those costs every month regardless of how many widgets you sell or workshops you teach.
Intangible costs like your time – what are all the steps involved in providing your product or service? How long does it take you? Covering your time is not profit – it has a cost associated with it. If you had to hire somebody to do your job, how much would that cost you? That’s the cost of your time.
Holiday pay, sick pay, vacation pay, extended benefits, insurance – when you’re an employee those items are part of your compensation package. When you work for yourself, you have to pay for them
Professional fees like accountants, bookkeepers or lawyers
Taxes – don’t forget these! They aren’t being automatically deducted from your paycheque when you’re self-employed but you still have to pay them!
Marketing expenses – your website, blog, advertising, business cards etc are all marketing expenses
Loss leaders and lead magnets – these are items you create and produce and sell at a loss or give away for free in order to help you acquire customers
Financial fees: banks fees, fees you pay to sell on various platforms like Etsy, or to accept money via PayPal or credit cards
A portion of some expenses can be “written off’ at tax time but it’s important to remember they’re still an expense you have to pay and you won’t get all of that money back. In some cases it may only be a very small portion of the original expense that you get to deduct from your taxes owing.
Factoring in Working From Home
When you work from home you don’t have to pay for rent or utilities or electricity which is great. That’s a big savings! But what happens if something happens to your home? Or suddenly you need more space? You’re going to have to pay for those new costs. Can your revenue accommodate that an allow you to remain profitable? That’s something to consider when you set your pricing.
Paying Taxes
Don’t forget your taxes! Now you’re the employer so it’s on you to make sure you set aside money to pay your taxes with every invoice that gets paid. Usually you’ll want to set aside around 30% of your income. An accountant will be able to give you a clearer idea of how much you need to save based on your personal situation.
But, that means if you invoice somebody $100, you’re immediately going to put $30 of that into a savings account to send to the government. Suddenly that $100 invoice is $70 and you haven’t paid for any other expenses!
Understanding your industry and Dealing With Peer Pressure
You need to understand the rules for your industry when it comes to pricing and when you’re new, that can be hard. Asking for help can be scary. You may not know the right questions to ask and you may find asking your peers intimidating.
It’s great to get input but, you need to take that for what it is: Information. You take that info and apply it to your individual situation.
You may also face situations in your industry where people might get angry with you for how you’re pricing. But it’s important to know that everyone’s business is different and pricing is dependent on what works for you.
Some of your peers may be angry you’re charging to much or, more than likely, too little. They might get angry if you do something for free that’s traditionally charged for.
Don’t allow others to bully or shame you into pricing your work in a way that doesn’t work for you. You are not going to destroy an entire industry if you take a gig for $200 that somebody else charges $500 for. If you need to pay your rent, that $200 might be critical for you. If somebody else feels their livelihood is threatened by you because you’re new or charging less or being more aggressive in your pricing, that’s their own issues around pricing and money and their confidence in their abilities coming to the forefront.
All of us have been in situations where we just needed the revenue. And that’s ok. You can always raise your pricing – there are proven strategies that you can follow to do that. And if you realize you are inadvertently charging too little and you can easily charge more, then do it! Don’t leave money on the table!
The Car Analogy
We like to use the car analogy when we talk about pricing because it works in so many ways.
When we buy a car our basic need is for it to get us from A to B safely, efficiently and without breaking down. But if that was the only thing we wanted out of our vehicle then there would only be one car company selling one car.
The reality is there are so many things we look for in a car based on our needs. Some people need extra space for a large family, some need to carry sports equipment. Some want a truck to help carry equipment. Some want something cheap and cheerful for local errands. Others want a status symbol or something sporty with some zip.
And that’s why there are multiple cars and multiple car companies. There are cars that cost $20K and cars that cost $100K. And there are customers for all of them. It’s the same in your industry. There is room for different price points and different types of offerings.
Even within a particular type of car there are multiple models all built from a base model that has the bare bones. The next model up will have a few extra features, the model above that will have even more features and so on. This is a great example of tiered or package pricing!
Tracking Your Time
Tracking your time gives you a sense of how long it takes you to make an item or provide a service. You may offer your clients one hour coaching calls or teach one hour art workshops but both of those services will require additional work prior to and after the job is completed.
You need to track that time and ensure you factor that into how you price your time. If your pre and post job work equals an hour of your time, you will want to price that workshop or coaching call to reflect two hours of your time.
As you get better at what you do and gain experience you might notice that it takes you less time to do things. We’ll get to that in a moment!
Having an Hourly Rate
While you may not charge by the hour, you should have an hourly rate in your head that takes into account your time and the expenses you need to cover to run your business.. This is like your base rate. Your client may never know what your hourly rate is but it can help you set your public prices when you know what that minimum number is that you need to hit.
Project or Service Based Pricing or Hourly Pricing
Should you price by hour or by the project? It depends!
Hourly pricing can work well in certain situations. You might offer hourly rates in industries where hourly rates are standard or when you’re doing support work for a client.
But it’s important to note that when you charge by the hour the client will always want something executed as quickly as possible. And you are going to want to bill as many hours as possible. That leads to passive aggressive negotiation which isn’t productive for anyone!
When you’re brand new at your craft, you are probably going to take longer to get something done that somebody more experienced. Should your client have to pay you more because you’re new and slow?
Conversely if you’re experienced, efficient and can work quickly while producing high quality work, should your client pay you less because you’re fast and good?
A key component of pricing is value. If you can provide your client with value, that’s worth something.
This is where project based pricing or service based pricing comes into play.
Project based pricing is where you package up everything you are going to do for the client and assign it a price based on what you are being asked to do. This is especially useful in situations where you are being asked to do something very custom – like a website design, a branding project or a commissioned piece of art
Service based pricing is where you charge a flat rate for a specific service, usually with caveats of what’s included. You might also bundle services and create packages that are sold by the package rate. You’ve likely experienced this kind of pricing when you’ve bought a wedding photography package or a spa package.
There are a lot of benefits to this kind of pricing:
You don’t need to reveal your hourly rate but you can use it to make your base rate calculations
You can focus more on the value of what you are providing to the client by adding in extras that don’t cost you much to give or execute but that are valuable to them.
You can create a more experiential relationship with your clients and customers which can also allow you to charge more
Experiential or Premium Pricing
Think about the car analogy again. When you go to buy a nice, sturdy little compact car that will get you from A-B without any fuss or fanfare, you have a certain expectation of how you will be treated at the dealership that’s going to be very different from somebody who is about to spend 100,000 on a luxury car from a luxury brand.
At the luxury dealership you might be offered a latte served in a glass mug while discussing your needs. At the budget dealership you might get regular coffee in a paper cup. The person paying for the luxury car expects a certain experience during the purchasing process. That can apply to your clients as well.
Think of ways you can package up your services into tiers and include what are known as “value add” items for the higher priced tiers. Your base tier will include just that: the basics. But your additions tiers will include extra bells and whistles.
Your value add items might include things like more personalized service, some level of customization or flexibility or extra support. If you’re targeting a luxury customer you will want to plan your packages or services in a way that makes your clients feel extremely valued and important.
You may also want to consider a premium tier offering that you don’t think anyone will pay for because it’s priced so high. This might be a one of a kind offer – like booking your time for a full day or multiple days for an intensive one on one learning experience or flying you to a location to shoot a location wedding - or do hair or makeup for a location wedding. You might never expect to book one of these packages but, it does happen!
Premium Pricing in a Product Based Business
Handmade makers often excel at providing a really lovely experience for their clients. If you’re entering this world it’s important that you know this going in because there is a certain expectation your potential customers will have.
Somebody purchasing from your gallery or your etsy shop knows they can get something similar from a mass market store for a lot less. But they’re coming to you for the experience as much as the product. They value hand made and artisanal workmanship. They value a relationship with the person who makes the things they’re buying. They like the feeling they get when they buy something handmade or made just for them. There is a lot of value in that.
In a product based business you might focus on some additional packaging touches. Depending on your market you might want to put a big emphasis on using eco-friendly packaging. You might add in a few extras with their purchase like a handmade sticker or free postcard sized print. You’ll probably add in a hand written thank you note. All of these items help to create an experience when somebody buys from you and they don’t have to cost you much – but they allow you to charge more because of the perceived value.
A la Carte Pricing
A la carte pricing is where you may have a base, no frills package that covers off the basics but you also have a menu of additional services priced individually that a client can pick and choose from based on their needs. This gives clients some flexibility in how they work with you but ensures you are getting paid appropriately.
Combining package or project based pricing with a la care pricing is also a good way to discreetly increase your pricing as you become more established. It allows you to present your offerings in a clearer concise way while assigning prices to them.
Value Pricing
You also want to price all your products and services based on the value they add to a customer, not what they cost you to produce. For instance, if you create sponsored content on your website for a client you might offer additional social media mentions as an a la carte menu item. These only take you a few minutes to execute but, if you have a big audience, this can be extremely valuable to your client.
You want to charge based on the value – not how long it takes you to execute. It may only take you seconds to give that extra Instagram mention but it took you years to build up a sizable audience to make that mention valuable to a client. Your pricing should reflect that value.
Something that comes easily to you, doesn’t necessarily come easily to others. Just because you wouldn’t pay $500 for a custom cheese board because it’s easy for you to do doesn’t mean nobody else will. If a busy executive is entertaining important people in their home one evening they may happily pay for a beautiful grazing board to be a centrepiece for the evening.
Remember, you are not your avatar or client. You are the person serving your avatar. You don’t need graphic design services when you’re a graphic designer. But your clients aren’t graphic designers!
Take Your Time When Quoting And Create an Onboarding Process.
Don’t rush to price something. If a client approaches you with a project, you do want to be quick to respond so that they feel seen and acknowledged. But you don’t have to be quick to answer pricing questions. Let them know you’re excited about potentially working with them but that you’d like to understand more about what their needs are before you can quote a price. Then make sure you understand the full scope of the project.
This takes some practice. It will take you a few tries to know what questions to ask or how to identify the hidden time sucks in the project that you might not have priced for in the past. But it will also teach you how to tighten up your offerings and how to speak to potential clients. You might want to implement an on boarding questionnaire or interview to really understand the scope of the work before you quote.
Pricing too Low
This is a real thing. Pricing too low can lose you as many jobs as pricing too high. If you’re too far below the market you may not even be considered because people might wonder what’s wrong with your product or that you don’t know what you’re doing with your services.
Know who Your client is.
Are they a bargain client? Are you aiming for the high volume, low margin, budget market that doesn’t want any frills? Or are you aiming for the luxury market who expect to pay a lot but also expect premium materials or exceptional concierge like service. Do they have money but no time? Or do they have time but no money?
Create avatars for your clients and use that to help you build your services, products, pricing, branding and execute your marketing. It will create a lot of clarity in your business. Do this for every new service or product you create.
Price Transparency
Should your prices be on your website when you have a service based business or should you keep them hidden?
If people are actually booking services via your website you need to include your pricing. But if people need to reach out to you in order to work to you then you might wonder if putting your pricing on your website is a good idea or not. Does it open you up to your competitors if they can see what you charge? If you don’t put your pricing on your site will people just move on to the next website? Or will you get lots of people inquiring who aren’t serious about working with you?
One way you can manage this is by listing a minimum investment to work with you on your website or in your media kit or rate card. In other words you might say “packages starting at $1000”. This doesn’t box you in in terms of how much you can charge but, it also weeds out anyone who is not your target client.
You’ll also want to take a look at your industry. In some industries, listing prices online is common practice and in others it’s not. Photography is one industry where it’s quite standard to list your pricing on your website so if you’re a new wedding photographer, you may want to list your prices
Should you discount your pricing or not?
There’s different schools of thought on this. Discounting is fine – if it’s strategic. But first, ask yourself why you need to discount. If your products or services aren’t selling maybe you need to do a little more market research and consider tweaking your offerings. But there are instance where discounting can be useful – clearing out old stock, creating some excitement or to build customer acquisition (ie 10% off your first purchase).
You have to be careful not to train your customer to expect a discount. If your products are on-sale or offered at a discount all the time, nobody is going to pay full price.
Different rates for different groups?
There are often questions around whether or not you should charge different rates for individuals, non-profits, small businesses, educational groups or large national or multi-national companies. This is a personal choice based on your values. But keep in mind that each of those groups will have very different budgets for what they can spend on a service. You might be better off to niche down and target a specific type of customer in order to avoid pricing differently.
It should also be noted that charities and non-profits do have budgets. They’re usually very small budgets but they do have budgets. Don’t feel you need to work for free because an organization is a non-profit. If you want to work for free because it’s a cause near and dear to your heart, then by all means, do so.
Do not be afraid to say no if you don’t have the bandwidth to work for free or for less money. You’re a business and you need to earn a decent living – there is no shame in that. If it’s important to you to give back, have a charity of choice that you work with for free on an ongoing basis. There are other ways to help out worthy organizations without working for free.
Family and Friends
Be very careful about working for free for friends and family. Charge them and make them sign a contract. It can be a nominal or heavily discounted fee but the idea is you want them to take the process seriously. Paying something, even a small amount, and signing a contract with due dates for deliverables on both sides ensures you both treat the situation and each other with the respect you both deserve.
Working for Free
Should you work for free? Yes, there are occasions where it’s perfectly acceptable to work for free or have an “in kind” relationship. In kind is where both parties exchange goods or services rather than money. (these are still taxable based on the value of the goods and services exchanged!).
An example of an in kind relationship is when a brands offer you free product in exchange for social media mentions or blog posts. Many bloggers really dislike this kind of transaction but, if you’re a new blogger or you’re hoping to build a relationship with a client you’ve always wanted to work with this might be a first step. Building trust and good will has to happen to land a client and this is one way to do that (but not the only way). It’s important that if you do embark on this kind of relationship that clear boundaries have to be in place and you have to be strategic. Know what kind of relationship you want with this client in the future. Will you always work for product? Can you make it clear that in future projects you expect to be paid?
There is also what’s known as “spec” work. This is very common in the visual arts where a potential client may put out a brief and invite three different companies to submit designs. The company that creates the chosen design will be paid – the other two will not. Or you may be hired by a client and be asked to create three different designs for them to choose from. But you will only be paid for one.
You Can Say No and You Can Counter-Offer
Remember, you don’t need to take every job that comes your way. If the price isn’t right, you can say no – politely but firmly. Leave the door open to work together in the future.
You can also counter-offer or respond with the amount you need to charge in order to work with them. Very often there is wiggle room on the client’s side. And if there isn’t this time there might be next time – especially if they know what they need to budget for to work with you.
However you respond, be polite. Do not take to social media to shame or call out the business – even in “private” Facebook groups or website forums. You never know who is watching or listening and making note.
And to wrap up, one piece of advice that we’ve received in our careers is that if you’re asked for a price and the client says yes before you’ve barely finished your sentence, you’re probably not charging enough!
Resources Mentioned In This Episode
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