What to Charge for Your Products
There are two types of pricing that you can use as you're thinking about your business. There's cost based pricing, which is the easiest one to figure out. And it's based on the cost of running your business. And so, when we looked at those numbers earlier, those percentages, those were cost based numbers. And it had to do with how much you were spending to operate your business, how much you were spending to produce your product, and how much you are paying yourself. Those were the three factors. So, cost based pricing says, the higher your expenses, the more you have to charge. Okay? So if you are an equipment junkie, and you have to buy the latest and the greatest, and the best and all of that, you're gonna have higher costs, so you have to charge more for your product. If you're super frugal, and you make do with what you have, and you don't have a commercial location, and you are really watching every penny that's going out the door, you can charge less and still be profitable. Ok...
ay? So some things to think about. So, the cost of sale. That was the percentage that we saw earlier in the business planning segment. The percentage of your overall income dedicated to creating your products. So that's that albums, frames, prints, shipping, packaging, those kind of things go into your cost of sale. And for photography, it should be 20 to 30 percent. So, for photography, your percentage should be 20 to 30 percent. And what that means, that gives you something called a markup factor. And so, if you have a 30 percent cost of sale, that means you take however much your product costs you to make, and you multiply it by 3.3. So, if you want to have a 25 percent cost of sale, which is the recommended number that we talked about earlier, you have to multiply by four. If you are an equipment junkie, you have to multiply by five, because you have more expenses than the average studio. Okay? So we're gonna be talking about a range of numbers, you should choose which number best applies to your business. The neat thing is, is you can shift these around as you need to. So if you're really nervous about charging a lot, you can start at 3.3. And as you gain more experience in selling in your business, you could bump it up to four, or five, or seven, or 10. These are recommendations. It's your business, you can do whatever you want, but don't mark it up less than 3.3. Okay, that's the minimum. Alright, so. Here's how it works with markup factors in photography. You add up the total cost of the product, and you multiply it by whatever your markup factor is. So, when you're thinking about the total cost of a product, you need to think about the total cost of the product. So if you're talking about an eight by 10, you have the print, but then you might mount it and add a finish to it, so that it looks different than what you get at Walgreens. And, then you might put it in a really nice package. And if that's what you hand to your client, that cost of that product is 10 dollars, and not two dollars for the print. So it's the total cost. I always try to do happy numbers, so you have easy math to do in your head. So, we're gonna just assume that that eight by 10 costs 10 dollars. And then you choose your appropriate markup factor over here. If you're starting out and nervous, you could use 3.3. The benchmark recommendation is four. I always say start at five, because why not? Right? (laughs) So, that's how you figure that out. So what would that eight by 10 look like? It's 10 dollar cost. If you multiply by 3.3, you have to charge 33 dollars for that eight by 10. Okay? Higher markup factor, you could charge 40, or you could charge 50. These are the decisions that you make, as a business owner. Do you have a good reason for charging more than this 33 dollars? And what might that be? Are you offering something that's extraordinary? Are you offering something that they can't get anywhere else? Are you offering them the emotional experience of a lifetime? When they look at that image every day, they're like, man that was the best 40 dollars I ever spent. Okay? Think out all that as you're deciding which markup factor to use in your products. Okay? So that's cost based pricing. One option. The second option is demand based pricing, and if you can get to demand based pricing, you are set, okay? So, this is charge as much as the market will bear. And, so if you have a big demand for what you do, you can charge more money, regardless of how much it cost you to create. If there are fewer people offering what you offer, you can charge more for what you're creating. And, if you have a greater perceived value. If people think that you're more valuable, you can charge more. Think about purses, for example. You can go to a store, and get a three dollar purse that carries your money just fine. And your phone, and your keys. It has it all in one little three dollar package. Or you could go to a store and buy a 3,000 dollar purse, that also carries your money, your keys, and your phone. Is there a 2,997 dollar difference in quality between the three dollar purse and the 3,000 dollar purse? You think they made it out of diamonds, or something gold that's that valuable to justify that? No. Why can they do that? Why do people buy 3,000 dollar purses? It's a status thing. It's to walk around and say, "Hey, I can afford a 3,000 dollar purse." Right? So, there is a greater perceived value. It gives emotional satisfaction to walk around with that purse. There are fewer people that are doing it. There's way more people that are making the three dollar purse. Okay? The demand, there's enough demand, so that they sell as many as they need, right? Okay, so now, I want to talk to you about what that potential is. I have some numbers that are gonna knock your socks off. Are you ready? Okay. So I want you to think about a bottle of whiskey, and what the value is. You ready? You got a number in your head? Okay. Now think about an expensive whiskey. How much is it worth? One bottle. What's your best guess. I'm gonna tell you. There is a type of whiskey, where there are only 11 bottles in the world. It was bottled in 1955. And it sells for 95,000 dollars a bottle. Okay? Is that anywhere near the number you were thinking about? No, right? Maybe you're a whiskey connoisseur and you knew, I don't know. But, when I read that I was like, wow, 100,000 dollars for one bottle, that you drink, that vanishes eventually, right? That's shocking to me. And there is a fish. The bluefin otoru sashimi. You wanna guess how much one fish is worth out of the ocean? 1.6 million dollars, per fish. And, why is that? It's because there aren't very many of them, and they're super hard to catch. And people have a perceived value that it's worth eating. Okay, is this putting a little perspective in the difference between a 33 dollar eight by and a 50 dollar eight by 10? Let's talk, I've got a couple more. You wanna know what the most expensive burger is? This is a hamburger. (laughter) 300 dollars. It's in New York City, it comes with a gold plated toothpick. I don't even know if you get to keep the toothpick, who knows? (laughter) So, think about this. There are people that spend 300 dollars on a burger. If they really appreciate burgers, might be worth it. Okay. One more thing. Most expensive pair of Levis? Just put a number in your head, take a guess. Levis, they're called spin jeans. They're by Damian Hearst. They're selling for 27,000 dollars a pair. And they're beautiful. You should look online. (laughter) They have beautiful paint on them. They're not to be worn. They're a work of art. 27,000 dollars. I want you guys to take in those numbers. These are things that we all have had experience with, okay? These are normal products that are charged exorbitant rates for, and people are willing to pay because they see value in it. That's really important. Because what we're talking about, in this class, is you are taking an instant, a memory, of someone and their family, or a beautiful location, or creating a feel for a brand for a commercial client. These are things that never will exist again. It's a moment in time that's gone forever. No one can recreate that moment on earth. What you're doing is important, and it's valuable. So when you think about these numbers, and you're deciding whether you're gonna multiply by 3.3, or five, or seven, keep those numbers in mind. You may not have clients that can afford prices like that. But if everything that you do communicates the value of what you're doing, and you talk to people in those terms, this is the last opportunity that you're gonna have for that particular smile. Or that particular moment, or experience, or sunset, or whatever it is. That's valuable. It's a one of a kind product. There's nothing else out there available. So, few providers, greater demand, greater perceived value. If you talk in those terms, you can charge whatever you want. If you talk like everybody else, you're gonna have to compete on price. Okay. So let's talk about how you're going to figure this out. Because at the end of the day, you have to put a number on all of these products, and say this is what it's worth, and hope that people see value in it. So, when we're talking about prints, and cards, and wall art, and albums, and all the things that we looked at in the last segment, you're gonna make a choice. You're gonna either go to cost based pricing, and you're gonna multiply by our markup factor, or you're going to come to demand based pricing, and you say, "I think this is worth X." Okay? So, this is a big question, and it's kind of overwhelming for somebody thinking about starting a business. So here's what I recommend. I think you start at cost based pricing, and I would start at four, and use that as your markup factor. If you're super scared about sales, go to through 3.3, but really in the grand scheme of things we're talking about a few dollars. Go for four. Then, as you get established in your business, and you know what people really want, what they want more than anything else. What they're like, ah my husband's gonna kill me if I buy that, but I'm gonna get it anyway. That product, that's the one you shift to demand based pricing. And you keep bumping it up, and you keep bumping it up, and you keep bumping it up until people say, "Whoa, I'm not interested in that anymore." And then you bump it just a little bit back down. Okay? Remember how I told you that pricing is creative, and it's exciting, and challenging, and fun? This is where it's fun. Because you interact with your consumer, and you try things, and you experiment with things, and you see what they are willing to do. You see where the perceived value is. And it's okay, because you're not starting out with 100,000 dollars of debt for equipment that you can't afford right now. You're starting out little. You can take some bigger risks. You can try it. See what your clients say, and then you can adjust it again. When Peter was doing our sales, when we first started our business, I changed our prices after every session, which made him insane. But, it was an experiment, and that's how we figured out what worked, and what didn't work. And so you have the opportunity to try that. You're at the beginning of a journey. And so try it, experiment, play around with it, get creative, see what happens. Okay. So, here are a couple of other things to think about. Prints. When I say the word print, it can have a lot of different meanings. When I think of prints, I think of things that I can get at the mall, that are very reasonably priced, right? I think, my personal perception of that is 30 dollars or less. That's what I've heard over and over and over again as a consumer. When I say wall art, my brain says, "Hm, what the heck is wall art?" It could be a lot of different things. It could be something I buy at a gallery. It could be something I buy at Hobby Lobby. It could be anything, who knows, right? So this one, I personally don't have a huge perception of what that should be. So, if you start talking about wall art and decor, in the same context with your consumer, you can raise the value of it, just by talking in those terms. All of a sudden you're talking about furniture, and what that is, versus prints that I can get at the mall. Okay? See the difference? So I would say prints have to be more cost based. I would say wall art is more demand based. Especially if you can communicate that this is a limited, one of a kind product that you are providing. Okay? Cards, when I think of greeting cards or holiday cards, or wedding announcements, or any of that, I have a price associated with my head. I buy cards, I buy birthday cards, I buy thank you cards. So, this is something that I think skews more towards the cost based pricing, right? People can buy those online, they can research it easily and associate a number with it. So these two on the top, I would say cost based pricing. Wall art, I would say you could nudge more towards demand based pricing. Albums are kind of a gray area in between. People can buy albums that they have the pleasure of designing themselves, of their vacation photos online. Right? So, albums could be cost based. If you are showing similar albums to what they can get online. However, if you're showing hand crafted, original albums, like what I showed you earlier, then they skew more towards demand based pricing, and you can use a higher markup factor. Okay? Does that help you see how you can use both models to establish a well rounded pricing product structure? Alright. Ah, this one, again. Digital files. (laughs) This is the king of both categories. So, digital files, the product everybody wants and nobody wants to pay for. You can skew this either way. You need to have a good answer for the people that are calling and asking how much they are. For me, it's 199 dollars. But, when that's the only product that I'm selling to my commercial clients, I have that included in my day rate, because I know that's what they want. So then I shift it back over to demand based pricing, because if they want my digital images, then it's gonna fall into my day rate, and I get paid for that appropriately. Okay? So, either way you push this, know that people are gonna question your prices on it, and either lump it in with something else, or have a good answer for what you're going to charge, and say it with authority. When somebody calls me and says, "How much are your digital files?" 199 dollars, what did you have in mind for the portrait session? Say it like you mean it, and nobody's gonna say, "Really?" Right? When you say something with authority, it is what it is, and nobody's gonna say, "Oh, well could you do it for me for 99 dollars?" Right, if you're getting that, that's because you're not saying it like you mean it.