Pricing to Support Your Craft
- [Megan] I want to talk about pricing to support your craft. Because you can't get through a Megan Auman class without talking about pricing. Sorry, guys. Can't happen. And especially if you're at the early stages of your business, this is so essential. So regardless of what stage you're at in your craft or your audience growth, you need to get your prices right. You need to set yourself up for success. There are problems that occur when your prices are too low. First of all, if sales take off...this is finally my nod to your...everybody's fear of success problems, right? If sales take off, and your prices are too low, you get turned into a human factory. Literally, where all you're doing is making things. And you have no time to hone your craft or look at the big picture of your business. My guess is that a lot of you with these fear of success problems have prices that are too low. And this really puts you in a cycle that is difficult to escape from. And I figure Tiffany wouldn't be...
so mad at me about talking about her in this context, because she's talked about it here on CreativeLive before. So, Tiffany Whipps is a perfect example of this. She started from the same place you guys are. She started making a thing, and she put it on Etsy. And her sales took off because she's really good at search. And if you don't believe me, you can buy this class, go back, watch her segment. She's really good at search. But, she was really under-priced. And so, literally, all she was doing, was like...with the feather hoop earrings, all she was doing was tying, tying, tying, tying. And then all she was doing here was hammer, hammer, hammer, hammer, all day long. She was like, "I'm making money, but I'm working a million hours a week to get it done." That's what happens when your prices are too low. It's really stressful. And, if you attract an audience at one price point, you'll need to basically start from scratch if you realize you need to increase your prices. So, especially if you're really far off, right? You bring people in...I'll pick on (inaudible) for a sec. You bring people in at this $40 price point. That's one kind of audience. And then you jump to $150. That's a different type of buyer. So now, you have to go back to the drawing board in terms of getting your audience there. And this can also be true if you're making the leap to a product line in a different price range. So, if you've been selling your audience $150 necklaces, and now you're trying to sell them $650 necklaces, that's something you have to work with as well. So, I want to talk about how to price to set your craft up for success. So first of all, we're going to use the basic pricing formula, to ensure you're making a profit from the beginning. That way, we know you're covered. But then, we're also going to set some value-based prices that reflect where you want to be. We're not just going to make sure you're covered, we're going to make sure you have room to grow into where you want your business to be. So, first off, let's just talk really quickly...and I know you guys have seen this slide before if you've watched any of my other classes. But, I know people don't follow it. So I'm going to show it again. I'm going to show it every day if I have to, right? So, just quick show of hands here in our studio audience, who is actually pricing their work using the basic pricing formula? So, Denise is... - [Woman 1] Starting there? - Yeah. I guess where you start, right. So you're making sure you're getting covered. - [Woman 2] (inaudible). - There's a lot of not hand raising happening here. So we're going to fix that. So your basic pricing formula is materials plus labor plus overhead plus profit. And that gets you to your wholesale price. The price you're selling to stores at. Or the cut your gallery is going to take. And then, that price times at least two, depending on your industry...I used a 2.2 mark-up because it's pretty standard in jewelry...that's your retail price. So, in that equation, we need to make sure that we're covering materials, and labor, and overhead, and profit. So the materials are the cost of anything that goes into your craft. The fabric, the thread. In my case, the metal. The stones. The...I don't even know what goes into your fancy things. I just know that only good stuff and not bad stuff does. But, so, whatever goes in there...and especially in someone like Denise's case, including your packaging. Right? So that goes into the material cost. Labor is your production time, times your hourly rate. So your production time, times however much you're paying yourself an hour. You don't get paid for everything you do. The only thing that you actually get paid for, is the time spent making your product. That's your billable hours. So your hourly rate has to reflect things like your marketing time, your audience growth strategy. So whatever you think you should be making an hour, double or triple that number. I can see there are some nervous faces here, right? So if you're like, "I need to make $20 an hour, to live my life where I live," use $40 or $60. Some nervous...there are some nervous giggles happening in our studio audience here, right? And then you multiply that times your production time. And, obviously, if you make things in batches, you measure the time for the whole batch, you divide it out piece by piece. Then your overhead is all the other costs of running your business. Tools, technology, utilities, all that other stuff. And then profit is your money to grow, right? There's that little extra on top, so that you can have the time for that creative play. You can build up the money to do the trade show. That's the money to grow. Now, for this exercise, we're going to some back-of-the-napkin calculations. We're just going to make sure you're in the ballpark. So we're just going to do a little fudging estimate right now for overhead and profit. Because my guess is that most of you probably aren't even really accurately accounting for your materials and your labor. So we're going to get those in, and then add a little extra for this. But when you're really, really ready to crunch the numbers, go into even more detail in my class, "Make a Living Selling What You Make." We do some serious math. Richelle was in that audience. We do some serious math in that class. - [Woman 3] Scary math. - [Denise] It's awesome. - It's not so scary, right? Thank you, Denise. It's awesome. - I (inaudible) so hard on that class. I think I watched all of them five times. - Yes. My goal. - I loved it. - Yeah. So, when you're ready to really do the serious math, this is the class I would recommend. This is really where we dive in and figure out all of those numbers. But, today at least I want to get you started. I just want to make sure we're headed in the right direction, so that you're not drastically off. So, the basic pricing formula gives you what I'm calling your bare minimum price. This is the least you should be charging for your products. Doesn't mean it's what you're going to end up charging. It just means, the least you're going to charge. So, an example of what that might look like. This is a necklace that I have in my line. So, I might say, "Okay. My materials are $4.70. My labor was $12. And I think that was figuring out time to make at a labor rate of about $60 an hour. It's a super-fast necklace to make. Threw in another $9 for overhead. A little bit for profit. I have no idea why I have such a weird number in there. I never do weird numbers like that. But, that's where it got me. So at the end of the day, I set this bare minimum price of wholesale of $35, retail of $79. This is, for the record, not the price of this piece. This is just literally using the formula to get me that bare minimum price. So then after you've calculated your bare minimum price, you're going to compare your BMP to brands or makers that are where you aspire to be. And this is where I got super- lucky in the development of my craft. In that when I was coming out of grad school, I was doing my first craft show. Showed you guys that picture of my booth a little earlier. And, my professor invited an alumni of our school over, Donna D'Aquino. And, always loved Donna's work and I really wanted her to respect me, and I...so she came to my studio, and I would show her something, and I would tell her the price. And she would make a face. And I'd be like, "Too high?" And she was like, "Too low!" And so, even though I had no idea that that formula existed, I at least started off with a price that was more aspirational, more towards where I wanted to be, because I literally had a person who, at the time, was where I wanted to be. I wanted to be Donna, rocking it at all these craft shows. And I had Donna yelling at me. Telling me, "This is where you need to be." So find someone you can aspire to. You can aspire to me, that's cool, right? You're like, "I want to be where Megan is." Look at my prices. If I can do it, you can do it. I had Donna yelling at me. I'll yell at you. This is how we all get our prices where we need to be, right? So, with that aspirational price...oh, that was how I got that profit number. I was deducting a little bit. So, in the new aspirational price, $185 retail, $85 wholesale. Look at how much more money I make. Isn't that nice? Gives me a lot more room in there. Yeah, nice. I like it, right? We all want the money. Come on. Let's be honest. All right. So, aspirational pricing means you might sell less in the beginning. But, it sets you up for success in the long run. And we're not going crazy aspirational with our prices. It's not like I'm like, "This is $1800." Right? That would be a little bit insane for a bronze necklace on a leather cord. So, they're aspirational, but they're not ridiculous, okay? But it sets you up for success in the long run. - [Richelle] So, your...the labor for that necklace was $12. Well, when I... This takes four hours to make. And my labor rate is $30 an hour. - Okay. - I don't know. That seems high to me. - So that means that you at least have to factor in $120 for labor. - Okay. - There's no way to...you can either make it faster, or you can charge that price. - I think I will get faster. - Right. - But that's the thing. It's something new, so I just feel like I can't charge that right off the bat. But is that just stupid? That's me, yeah. - Yes. - Okay. - Not stupid. It's just... You can factor in that you might get a little bit faster. But the truth is, if you can't make that money from it, then it's not worth it in the end, anyway. So you just set your prices where you need to go. And then, you work on developing that perceived value. And actually, there's a whole class that I did about that as well. So you set the price where you need to be, and then you work on bringing the brand up to support it. - Well, I think the...a hold up that I'm having right now is...I totally get perceived value, because I'm going to be charging $400 for this. And...but, I can nail these. I think I'm great at making these. Whereas I am good, but not quite great at doing this just yet. But maybe that's just the story I'm telling myself. - Yeah, that's the story you're telling yourself, because first of all, you have skills as a maker. It's not like you're starting from scratch. The other thing is, you're going to learn things. So even with my Contra collection, the first ones took me way longer, and stuff broke more. I had to fix a ring for somebody, because I like...something...a prong broke off. Now I know how to fix it in my process, so that it doesn't happen. But in the first batch, I didn't know. But I still charged where I needed to be, because I knew where I needed to be. And then you just fix it. Worst-case scenario, something comes back and you fix it. Right? And that's not shoddy craftsmanship, it's good customer service. - Yes. - Right? Okay. - I agree with that. Okay. - "Oh, I'm so sorry. Let me take that. Let me fix it." That's how you handle that. - Okay. Thank you. - Jordyn and Denise, I think, both had things, too. - [Jordyn] Oh, I just wanted to encourage you, just don't do it. Just don't charge lower when you start, because it's really hard in the beginning. And then you get angry people at you. But, yeah, just do what you need to do. And if the sales don't come in right away, at least you're marketing to the right people, right away. Instead of changing your market later on. Just, don't do it. - And I think, if you market that price, like Megan was saying, people will pay that much for that. If you get the right styling around it, and the brand reflects high end, where that needs to be. - I guess it's... - Look at Nordstrom. They sell stuff like that for $1000 or something. - Nineteen hundred dollar plastic (inaudible) necklace, that's (inaudible) market. That's my favorite example. - Yeah. It's crazy. - Yeah. It's literally like you just have to give yourself the pep talk. - Okay. - Okay? And, literally, I can say when I first started doing shows, and I set those prices where they needed to be, because all my mentors yelled at me, and these were the women I respected more than anything in my field, so I was not going to disappoint them. I was in my booth, and I was like, "Okay." But over time, you're like, "Okay. I got this." Like, "Okay. I got this." - (inaudible). - Right. But really, don't disappoint the people who are counting on you to do it right. Do not disappoint me, Richelle. Okay? - I swear. - Do not disappoint me. All right. And I think...Denise, you have a question? - Yeah. So, I struggle with the aspirational pricing. When it comes to my type of product, I don't see... People just don't pay more than... I can't even see someone paying more than $20, $25 for insect repellent, regardless of what quality ingredients are in it. You know what I mean? - Right. And so, aspirational pricing doesn't mean that everything has a price that people aspire to. It just means that you're looking at the comps that are out there, and... - And staying on the higher end of it? - And staying...and even just...right. It's staying on the higher end, or even just making sure that you're not severely under-priced. So if there's another brand that's doing natural stuff that you love, and you're like, "My brand could play in that sandbox," then price yourself to be in that sandbox. - Okay. - Make sense? All right. I want to talk a little bit online, and then I'll come back to you guys. I know you got...I know everyone has pricing questions. Okay. Okay. So, "I listened to you very well, and priced myself accordingly." Thank you. All right. "But now, people tell me that my pillowcases are too expensive. Handmade, organic cotton for $99. What should I do?" You should find new people. So the people who are telling you that are not your customer. So, you may need to do a little bit of tweaking. I don't know your brand, so I haven't seen your website, or the situations you're selling in. But you may need to think about doing a little bit of tweaking, to raise the perceived value. So, sometimes, literally, it's a change in packaging, it's a change in photography. Whatever it is. But, really, you need to find different people. Might be selling in different venues, might be targeting different markets. But you just have to find people who are willing to pay that. And people are always going to say something is expensive. People tell me that my work is expensive all the time. It's fine. They're not my people. So, your job is to find the right people. So when you're doing those audience growth strategies, whichever one you're focusing on, make sure that you're really cognizant of finding the people who can afford this. The other thing to remember, is that it's not about necessarily affordability. It's actually about prioritization. So, who are the people, that they will spend anything, because they want to make sure that what they lay their head on every night is not killing them, right? It's not killing them. It's not making them feel uncomfortable in any way. You need to find the people who...it's not that you have to find the richest people in the world. You just have to find the people who value spending their money on that. They're not the people going to Target and buying cheap pillowcases, right? Your customer and Denise's customer are probably the same people, right? They probably care about the same things. I want to put the good stuff on my body, then I don't want to go lay down on my crappy pillowcase, covered in pesticide cotton, right? So you can also look for related brands. Look for people who are willing to spend in those areas. But you definitely want to find the right people. All right. Next question. "Does this, the pricing formula, change if you are really just starting out? Can you slowly raise your prices every year as you develop as an artist?" Pay yourself right from the beginning. So the only thing that might change is, over time, you could give yourself a raise in the labor. As you get better, you could give yourself a raise. That doesn't mean that you have to start at $5 an hour. You still have to start at a living wage for where you live. And then you have to multiply it times two or three. Okay? If it really scares you, move somewhere cheaper. My wage does not have to be as high, because I live somewhere really cheap. Something to think about. There's nothing to do, but if all you want to do is be in your studio making things anyway, it doesn't matter. And, my mortgage is really low. So, the answer here is no. Set yourself up for success from the beginning. All right. Next question. So, "Where would you build in costs of attending courses, trade shows, upskilling, qualifications in your pricing? Would that be factored in labor or overhead?" Jo, that's a great question. That stuff goes into overhead. Right? So, overhead is all of those other costs associated with your business. And so, you can figure out how much you're spending on those a year, and divide it out that way. There's a couple of different ways to do it, and we go over those in a lot of detail in "Make a Living Selling What You Make." But, generally, those are all factored into overhead. Great question. So, Jake wants to know, "How do you determine the profit number you use in the calculation?" So there's a couple of different ways to do it. I do not like to add on a percentage of profit, because it's leaving money on the table. So usually what I do is I calculate my other three. I calculate my material, I calculate my labor, I calculate my overhead, and then I go on the marketplace and I start looking for my comps. I look to see what the potential price is. And then, I make sure that, at that price, I've got the profit built in. So instead of marking it up, I actually just make sure it's in there. Because I want to know what the highest price I can charge is. And if all I do is add 25%, it means I've left money on the table. So that's the way I do profit. It's a little bit vaguer than some people want. And some prices will have a higher profit margin than others. That's just the reality of the game. I make much higher profit margin on my earrings than I do on one of these necklaces. There's just a little more room to go up, and it's a lot less labor. But that's why I don't set by a percentage. I really look at the comps. I look at what the market can bear. And then I make sure that I'm making a profit within that price. Good question. All right. So, "How do you handle raising your prices when you already have established products in local stores, and with wholesale accounts?" Chelsea, this is a great question. And what I really recommend for this one is that you just set a deadline, and be really clear with your stores. So with stores, there's two really distinct buying seasons. There's the January-February trade show season, and there's the July-August trade show season. Which means those are really easy times to release a new line sheet. And then you just change your prices on your line sheet, and you let your stores know. So I usually like to do it once a year. Make a nice, clean break on January 1st. And then I just send the new line sheet to my stores, with a little heads-up, "Hey, just so you guys know, a couple of prices changed." If you want to be really nice to your stores, you can say, "Hey, prices are going up on January 1st, in case you want to get an order in now." But here's the thing with that. If you're raising your prices on January 1st...usually, I'm too busy in December to send out that email. I don't...I'm like, "I already have your order, I'm stressed out," right? So, stores are used to getting a price change on, say, January 1st. Or even July 1st, or August 1st, because that's the next trade show season. So just set that as your deadline and work up to that.