Three Pricing Methods
This is a meaty one. We've got a lot to talk about here. I'm gonna give you all three pricing methods which, once understood, you're gonna use to arrive at your own price because, again, I can't get give you an exact amount, you're all in different locations, you're all are offering different products, different services, different experiences. One solution doesn't fit any of you, to be honest. So, we're gonna give you a framework, okay? Let's start with three pricing methods and the first thing is, again, I'm gonna keep reiterating this, to understand your competitors because there was work that needed to be done earlier where if it's not done now, we can't continue. Go do it. Go do it! So, we are trying to look right now at direct competitors in your quality range. That's huge because you wouldn't be comparing apples to apples otherwise, right? So, look at direct competitors offering the same product, that offer the same level of quality, those are the ones we care about. What are th...
eir starting and average rates? Those should be pretty easy to find, little bit of research, possibly a Facebook group or two posting and getting information. It's information that's readily available regardless of the arena that you're in. Three pricing methods, here's where I want you all to start. Start with cost method pricing. Adapt it to demand based on your competitor analysis. Over time aim for luxury. Demand is gonna be something that you adjust with growth. That could vary for every single one of you. Three months in some of you might be booked to capacity. Six months in some of you might be booked to capacity. It might take some of a year to get to that place. But this is that place that you adjust once you start getting to a range of clients that, okay I got a healthy amount of people coming in, let's bring the price up because I can't handle that much more, okay? We adjusted demand. Cost basis is to get us clients now. If you're asking how do I get people now? We're gonna go based on that and I'm gonna give you two approaches where you don't have to hurt your own brand perception by starting with a low price for some and by posting a relatively higher price for others. We'll talk about it. Luxury is what's gonna come with time. This is that elusive $10,000, you know, booking to go and shoot, I don't know, Barack Obama's dog that nobody ever gets but... Does Barack Obama have a dog?
He'd pay $10,000 to have his dogs take a picture. Like, he would. But that's that high end shoot, right? That's where we all aim for. You can get there eventually. There's no one magic bullet that's gonna take you there other than just time and the developing of your product. Let's start with cost method pricing and for those that are in the workbook, this is Workbook 06, Pricing. We're gonna discuss what it is. I've given you guys a template. The template has just ideas of what potential costs might be to give you an idea of where to start. What is, cost method pricing, is simple. You determine the costs that are going into the shoot. These are hard costs. These are out-of-pocket costs that you're spending to actually go shoot. You think your camera's part of that? Oh yeah. Oh yeah. You know, you buy your camera and then for some reason we don't actually apply the cost of it to each shoot that we take it on. In accounting, it's called depreciation, okay? You depreciate the asset over it's lifespan. Which means how many of you are buying a new camera once every three years? Raise your hand. Once every two years, raise your hand. Once every five years, raise your hand. Okay, so somewhere between three and five years is the lifespan of your cameras, your lenses, all the equipment that you're using. Which means that you would say, Okay, if I do 30 shoots a year, and I'm gonna use my camera for five years. That's 150 shoots. I'm gonna take my equipment and divide it by 150, that is the cost that you apply to every single shoot. That's an out-of-pocket cost. Make sense? 'Cause we generally never think about out-of-pocket like the gas that I'm using, food that I need to buy, props, that kind of stuff that I need for the shoot but we don't think about the gear that we've already once purchase because we already purchased it. But it's part of your cost. Set your desired hourly wage. This is how much you're worth, right? Give me an idea.
40 bucks an hour.
70 bucks an hour.
70 bucks an hour. Give me a hundred. Who got a hundred? A hundred bucks an hour. A hundred bucks an hour. Everybody? Julie's at a hundred bucks an hour, all right. 200 bucks... Okay, you set your hourly wage of what you'd like to walk away with. Haldis?
So, I'm a product manager for a large telecommunications company. And I'm fairly successful at what I do but I'm new to photography and trying to transition into a different world, essentially. Would you set our hourly wage at what you're currently making with a large corporation or try to --
I would say that's a great starting place.
Yeah, if you're evaluating it on a time-for-time basis, I would say that's a really great starting place.
Because if it's, that's where you can evaluate that if you're making a lot less in photography, do you truly love it enough to stick with it until you're making more but knowing that you're not getting the same return on your time is important. But it's a great place to start. Shannon, right?
Yes, Shannon. Do you include your post production hours and everything that goes into the shoot in your hourly wage or just strictly the shoot itself?
Great question. What do you think, logically?
Yes, everything. Include your post production. Include everything that you would to do get to that final product. Mark, right?
Yes. You charge them at the same rate all the time. I mean, like charge 150 an hour to shoot and a hundred an hour to edit. Do you, Different tasks, do you rate them differently?
We do have, like, in studio, we do have like editing time where somebody wants to edit, someone else is doing it but, yeah, we do have, like, editing hours versus that kind of stuff. It's not openly facing and right now what we're trying to figure out is we're trying to figure out what is the cost of the product that you're delivering? So, custom stuff, you would build in the cost that you would charge for those different things. So, if you would charge a hundred bucks an hour for editing and you'd used two editing hours and you charge 150 for shooting and you'd use four editing hours, yes, you'd factor those into the cost.
What if you're at the stage where you actually don't know how many a project might take?
You should shoot a few and start getting a gauge, that's where, see this is where I could tell you based on my experience, if I do a three hour engagement shoot, it takes me roughly two hours to edit that shoot. That should have absolutely no meaning to you because, well, you don't even know if you're shooting engagements and if you are shooting engagements, how accurate are you out of the camera? And are you doing presets? Are you doing Photoshop on everything? You don't know if the product is similar to me and that's why I'm not gonna give you a number. I'm gonna say go back to your ideal product, that base minimum product, do it a few times and then see. We've got a lot of, This is great! (audience laughs) I love this. Julie?
Do you also include time for marketing and visiting, attracting new clients?
Not into your package price. Not into figuring out the cost of a package. You can, that's a client acquisition cost which eventually you can build into it. The purpose of cost method, I honestly don't want you guys doing cost method pricing passed your first year. It has nothing to do with business passed your first year. This has to do with setting a baseline number where you can just get people in the door. I'm looking for you guys to say, 800 bucks for a wedding, 1200 bucks for a wedding, 600 bucks for a wedding. That's what we're gonna get to with cost method and where are we competing when go back to Porters, what are we trying to do with that? We're competing in that cost focused area simply to get some people coming through. How do we get the first sets of clients coming through, okay? Was that area sustainable? No, it's not sustainable which is why we're not gonna stay there for long. We're just gonna start there. Add a margin to it. So, on top of the hours that you just put in you're gonna add a healthy margin. Somewhere between 20 to 30% is a decent margin since you already have your hourly wage built into it. That margin is what is essentially covering marketing costs and things like that. It's a guestimate right now, okay? And the goal of cost method is to undercut. This is where your competitor analysis is gonna come into play where you just looked at your quality, your competitors and their price and you said, right now I just need people in the door and my goal is to actually undercut. That sounds brutal to hear, right? Your goal is to undercut somebody else but that's a temporary strategy simply to get you working. I need to get you guys some business first.
So, if you start at lower price and you retain a customer how easy is it going to be to raise your prices over time to equal your competition?
I love that question. So, it really depends on your perception of it because if you're in the thousand dollar price point, a $500 increase from three months down the road that's a bite that most of those existing clients could chew off but you can quickly price yourself out of business if you go a thousand to 3,000 in one jump. So, what we're gonna do is start with incremental changes frequently and small changes over time. Generally over three months. So, you're looking to adjust three months, three months, three months until two years in, your pricing model has little to do with cost, it's all to do with demand and you're approaching seeing that luxury end. Once you're at that place, you're gonna go to, like, adjusting every six months, adjusting every year. But frequent adjustments at the beginning. Make them small. Don't price yourself out of your existing network. Cool? Okay, so I have a little example here. And these are just things I'm gonna throw up on here. I just wanna get to a base number. So, if my gear cost me $5,000 each year and I would depreciate that to $250 per shoot, and then my mileage is $27 based on IRS rates, and then for booking the client it's $100. This is that, kind of, the time that your putting in in booking and marketing. Then prepping my gear is another hour, that's $25. I did this at a base rate of 25 bucks per hour. Driving to the shoot is another two hours, three hours of shooting, four hours of post production. So, basically each one of these is 37.50, this is all in the workbook by the way. So, just pull out the workbook and it's already done for you. I just wanna put something on this board. So this gets me to $614. Those are, including my wages, that's my cost. And then this is what we add the margin to. Maybe it puts you at 800 bucks for a shoot. That's what we're trying to land at. And let's say your direct competitors in your target market are offering $1200, oops, okay? We can come in anywhere underneath that and be a value to our clients, correct? We're just not gonna stay there long. Okay. I'm gonna put that down. Cost method make sense? Let's go to demand. This is where you set your desired capacity now. So now you've got 10, 15 shoots coming in and you say that I'd look to shoot 20 total shoots per year, you set your desired capacity, you raise prices without pricing out and you adjust as needed. The goal is to match the demand and approximate your competition now. Okay? Then, I want you to transition to this. So, this is... Many of you are gonna be in this place right now. If you already have clients coming in, you're in this place right now. If you don't have clients coming in, start with cost method because that's what we're gonna do. I'm gonna show you, like, classified listings to get people in the door for 400 bucks, 500 bucks, 800 bucks and it's gonna have nothing to do with the price that you show on your website. This is just to get those first few clients coming into the door. And we're not gonna tarnish our brand perception on the website by showing a website price lower than what we wanna be charging. So, the website price is gonna stay a little bit higher, the classified listing price is gonna stay lower. We won't tarnish because we're not gonna tie that name back directly. So when people see the price point over here there's no name on it until they click through and they see it. But we keep them separated so that way when someone Google's it, they don't find, oh you're charging this over here and you're charging this over here. That will tarnish you brand name. So, this is where I want you guys to be in. This is the fun part. Okay, I'm gonna turn this just a little bit. So I can stand here and see you guys. So, we're just gonna create a graph. We'll go... We're gonna be working mostly over here and basically what we're gonna have is on the Y axis we have our quality level, right? On this axis we have our price point. And you're gonna map out those competitors that, based on height you're gonna go up in quality. I hope that none of you are competing down here. Like, let's just not compete over in this range. You're going from good to best, okay? We're not competing in the craptastic arena. Okay, so, along the good, you have these ranges and you're gonna give it numbers if you need to. If you wanna go and get down into it, give your competitors numbers or whatever it might be and plot them. So you're gonna say this person is at 4K and they're exceptional, their work is great. There's another person in that arena at 4.2. There's another person in this arena at 4.5. There's another person in the same quality range, and you're gonna plot these out onto this map right here in different areas where they all fall in place. Where do you want to not be? Circle the big clusters and stay away from those. All you have to do is, if you offer this quality, you adjust back to 3.9. You just stay right outside the box. Does that make sense? So, this area is the area of heavy competition. This is the area we want to avoid. Avoid. You could go up here, couldn't you? With the 10K. There's not that many people up there. That's what you're aiming at. You're looking to map out this strategic environment and if your quality level is that good and there's nobody, there's like two other people competing up here, that's a great place to position yourself especially if you already have people coming in. Is that a different way of pricing than maybe we've thought about it before? So, this is where you're gonna do your pricing analysis. Put this thing together. Map out your business environment, where your competitors are, map out your danger zone, stay outside of that area. And as long as your offering a similar quality at a price point outside of that arena, you're good to go. Luxury method. This is down the road. This is, it has to do with quality but the quality's implied at this point just like a Bentley, with a Mercedes Benz, with a Louis Vuitton bag, with every other luxury item, a Tesla, Apple computers. Quality's implied. You don't need to talk about it but it's assumed that you got it. Made sense? More importantly is the brand perception than quality. Because at that range, at this luxury price point, are all of your competitors offering a pretty good product? Yeah. They're all right up there. There's gonna be difference in style but they're all doing something really great. So this is about perception and what you do is you set a symbolic or perceived price. Do you guys know what that means? A perceived price, like a symbolic price? Give me guesses. Anybody have any guesses on that?
Maybe it's you look at something, you look at what they offer and all of sudden in your mind you say, God, that's gotta be expensive. That's really good value. It's not gonna be cheap but it's fine.
Yeah, it's that exact thing reversed. Gosh, dang, that's freakin' expensive, it must be good.
It's that exact thing. You look at the price point and you're like, damn, for that price, that's gotta be good. And don't tell me you don't do that. If there's a sushi place down the road that charges four bucks a roll and there's one place that charges 30 bucks a roll, for your anniversary you wanna go to the place that charged 30 bucks a roll even if you've never been to both. Like, you've never been to either of these places. Your mind automatically assumes that the higher priced one's gonna be better. So this is a symbolic or perceived price. It has nothing to do with your competition. In fact, the goal is to be greater than the competition. My goal is, if you wanna come and book me, you're gonna spend more than anybody else. Because when they leave my studio I will convey the fact that what they're getting is better. So you will spend more. But that price is gonna set the tone right up front. This is a place we're gonna get to. We limit the number of bookings. So I tell my clients that I take on a maximum of 20 client commissions per year which is true. I'll take on a max of 20 weddings. And we adjust as needed. Would I take on 21 or 22 if they came along? Sure. Would I tell my clients I'm fully booked when I hit 20? Absolutely. I'm fully booked for 2018, cool. That doesn't mean that I can't take an additional client it means that I wanna create scarcity so that they understand the value of this product. And the product is you. This is why we talked about that early in the previous segments. What is the product your selling is you. You're the ultimate limited resource and we have to convey that in the way that you price and the way that you talk if you ever wanna get to this place of luxury. So, is it possible to jump straight to a pricing, luxury pricing model? No. It's gonna happen with time. It's Tonya?
Tonya. So, when in that conversation with your luxury clients do you actually talk about pricing?
That's a great question. We mentioned this earlier, after the value has been established. And when we get to the sale side, we're gonna talk about how that's the biggest mistake people are gonna make, talking about price before value's been established. Which means to all of you, all of you, anybody sending out list, holy shite, stop doing that. Stop sending out price lists. Unless you've had an in depth conversation with them and that client understands the value of what you're offering. Otherwise you've just allowed your client to compare you to a competitor on the single basis of price alone and would you ever compare yourself to your competitor based on price alone? But you just taught your client to. You're all nodding because we all have done this. It's not, don't feel bad about it. We've literally all done this. And it's something that we talk to our sales people about non-stop. You know what the only time, the only time you send out a price list without properly establishing value, do you know what that is? When you just don't really care. The client is so far below what you're looking for that you don't wanna invest time there, you're just giving him a basic set of information to walk away from it. And if they come back and buy it, okay, great. But you're not expecting it. You're expecting him to walk away. That's like they come into the door saying, I wanna buy, I wanna invest in Pye Jirsa to be my photographer but I have a thousand dollar budget. Cool, here's our price list. A thousand dollars it too far of a jump to make, I can get you from six to 10, I can get you from four to eight but a thousand to 10 times more than what you originally expected, that's a leap that 1% of people will be able to make. Don't put your time on it. Send the price sheet out. That's it, be done with it. Everyone else is sending out price sheets expecting your clients to call you, that's the rude awakening. They won't. So, questions on pricing methods. Everybody should have a concrete framework right now where you can think to every single competitor you should have a number in your head right now of where you can go. If not, go back, do your competitor analysis, put it down on paper and it'll give you a complete guide of where you need to be. Julie.
So, would you recommend to have a session fee plus collections or just, have like, one price including the session and prints?
So, give me, the arena's boudoir, right, because you are a boudoir photographer. So, my question to you is, what are the local competitors doing in your quality? Like, do they have session fees with a la carte? Like, what are they doing? 'Cause when I looked at, when we went to add newborn into our price line-up and into line and roots, we simply looked at what the competitors were doing. And it was 199 to 249 session fee, 10 images included, on average and it gave us an exactly listing of what we should do. So, we had two options. We could say that we're all inclusive and we charge 895 all inclusive or we can charge slightly less for the session fee and do a similar kind of pattern of what they're doing. There's no right or wrong to it but you have to realize, though, if you're doing something different from your competitors, you have to, have to educate them before they see that price. Because if I say 795, mine's all inclusive, retouch and digitals, I hate that word, retouch and artwork are included and theirs is 249, 10 images included, a la carte for everything else, before I send that out to somebody, I'm gonna have the conversation that that, look you're gonna see a lot of different prices, let me give you a quick idea. This is an all inclusive price, which includes everything our gonna get in this package, which is this. Most everybody else, it's a session fee and you can see that on their prices as a session fee. That way way when they go back to compare they're comparing apples to apples. So, if you choose a different pricing model, you have to educate before they see it.