How to Use Markup Factors
Here's what your bonus material looks like. It has all the things that you need to keep in mind for calculating your prices. So it starts out with a description of the product and then it has how much time does it take you to make that product. Now, when you look at that and you think 8x for eight hours, what, that's crazy, except that whether I make an 8x or 10 prints from a session, I have about eight hours of time invested in that product, by the time I'm done with phone calls, the session itself, editing, selling, re-touching, placing the order. The average portrait session for an efficient photographer takes at least eight hours. So, I put eight hours as my time cost for that 8x10 there. Then, we all agreed that they cost $ and (laughs) I'm gonna use a markup factor of five because I started my business with a markup factor of five and I've maintained that or higher. You can do it if you have confidence in your sales, I promise, nobody's even gonna question it if you have everythi...
ng else in place. So, I put a markup factor of five in there, so 10 times 5 equals $50. This is the minimum of what I have to charge. This is if we're going for cost based pricing. There's two other categories here that I added to your price calculator because what you actually choose to charge, you need to be aware of this, but you can finagle it however you need to do that, okay? Numbers, math always works the same way, but pricing has bendable numbers. So, I tried it out with my clients. I started with $50. The next client that called, oh, our 8x10's start at $65. No question. Oh, our 8x10's start at $85. Our 8x10's are 90. Our 8x10's are 100. Our 8x10's are 120. Whoa, back it back down. Okay? This was my sweet spot. If someone could call my business and I could say our portraits start at $99, I could get them to book a session. So, this is demand based pricing. This is cost based pricing. And you can shift things as you need to. So, and then of course, you need to know how much profit you have for every single product. So, here's the next thing you have to do in your business. We did a business plan. We decided what our products were and created the product guide. Now, you're going to create the pricing calculator, so every single size of every single product that you're going to offer needs to go in this chart, so that you can look at it at any given moment and say, oh, when I sell an 8x10, I make $90. As a business owner, it's your responsibility to know that. Imagine if you had to show up at a board of directors meeting and give them the, just the status of your business, something like that would be pretty important to know, right? (laughs) You are the board of directors, you need to see what that is like. So, here's what it looks like. So, if I'm talking about a 20x20 acrylic with hardware, this is how much time is invested in that. This is how much it cost me. I used a markup factor. I have to charge at least 595, but then I'm gonna bump it up as much as I can until my client say no more. So, I think I can actually charge $900 for that product, a 20x20 unique work of art. Go to a gallery, is that comparable to what's selling in your area for fine art? Of course it is. Alright, so if you look at this, though, here's something interesting. These are my actual numbers. This is based on Simply Color Labs' pricing structure, that's our lab. And so, I added it all up, now I want you to look, I have 720 here, 999, 1170, 1099. I lowered my price here, I raised it here, I raised it here, I lowered it here, and I lowered it here even more. What do you think I'm doing? Why would I do that? Does that make any sense at all? Think about it for a second. So, the reason that I did this is because I want to have round, consistent numbers here. I want my client to be able to look at my price list and have it immediately make sense to them, okay? So, I have regular round increments, going up in size, mmkay? As a business owner, I know which size my client is going to opt to purchase more often than not. So, if I have four sizes, I know that I am going to fall somewhere in here in my sales because people almost always buy in the middle, mmkay? The other thing that I know about my personal business is sometimes my clients really stretch to be able to afford some of this, I don't, not all my clients are wealthy. So, if they are stretching, they are gonna get the smallest size, and that I have my most percentage of profit, okay? So, all of these I have a pretty good range of profit, and in all honesty, the only difference in creating any of these products is which size I click on the order form, right? Doesn't take me any more time to create a 30x than it does a 20 inch portrait, right? So as long as I'm making these profits over here, it's okay with me for my business and it's compromise that I'm willing to make to have a nice, round, easy to understand numbers for my clients, mmkay? The other thing that I know about my lab is that they run sales pretty regularly, they often have 20, 30, 40% off of a product, so I think I told you earlier that I have a turnaround time of 4-6 weeks, right, for my products. I can wait, in that time, my lab will run a sale on my products and I can order the bigger guys at a discounted rate. Cuz I've built that into the process of my business. Okay?
So, do you not associate a cost with your time, to creative value with that, I see that it was in your calculation, but it wasn't in your end number?
Absolutely, and in fact, target sale is how I compensate for that time, so that's what I'm getting ready to talk about next. Wonderful segue. But I think there was one more question that I'll answer before that.
Do you give information to your client about what companies you use to--
Never, that's my job as a professional, it's nothing they need to worry about.
Do they ever ask you?
Okay. Good to know.
Not one time.