We recently asked Courtney Zerizef of Homeroom what she thought about how to price your products and services. This is what she had to say…
Pictureme about 5 years ago. I was about a year into my photography business. I had been shooting for friends and family for whatever they wanted to pay me (if at all). I finally realized that if I wanted to actually pocket some money, have a vacation fund, or shift into full-time professional photographer, I needed to have a standard price for each photography service that I offered.
That sounds great, but I seriously had
NO CLUE where to start.
As with most newbs I turned to Google. I searched and searched, investigate websites, tried to find comparable competition, and then priced myself somewhere in that very wide range. In other words, I did some light market research and then I guessed. Thinking about it makes me want to reach through that wrinkle in time and slap some sense into my younger, naïve self.
It’s hard to place too much blame though. I now work with a lot of other creatives who start with this same pricing method. It seems to make sense to do the same work that your potential clients are doing and place yourself in an appealing position. And while market analysis is an important first step in determining price, it is just that, the first of many steps.
This week, we’re diving in deep to uncover some problems with market-based pricing for freelancer or small creative businesses:
(1) You have no idea how financially successful your competition is in reality. We live in a social media-enhanced day and age. We’ve all seen those INSTAGRAM vs REALITY posts. It’s the same thing with pricing. By only doing a market analysis, you’re only looking at the “Instagram” of a business’ financial sustainability. Reality likely looks very different. They may have another income, aren’t able to pay themselves, are booking an amount of jobs that isn’t sustainable for you, or they are drowning in debt. Conversely, they may be killing it and pocketing 100K after taxes. Their pricing may be set in exactly the right place for them and their business model. My point is that without being able to peek behind the curtain, you have no idea if their pricing is successful or not.
(2) Likely the most important reason to continue beyond market analysis is that EVERY BUSINESS IS DIFFERENT. When it comes to pricing, you can be Walmart or West Elm (or somewhere in between) –– and while I have my own ethical issues with Walmart, I’m not using them in a pejorative sense for this example. I just like alliterations. Ha.
Both Walmart and West Elm sell couches. From the outside they both potentially look like similar products, but they have two very different prices. Walmart uses a volume based pricing model. In order to cut their pricing, they also need to cut their costs as much as possible. Because their margins are so small, they need to make up for it in bulk. West Elm sells value. Their price reflects the quality of material and time that goes into making each product. Their margins need to be much higher because they are selling far less volume and need to make more per product to cover their overhead expenses. Those big, beautiful window displays ain’t cheap.
If, as a creative freelancer, you’re only looking at the market average to price yourself, you’re not taking into account your business’ unique expenses. Do you have an assistant, and/or a studio? Are you using higher quality material? What’s the cost of living in your area? What about your gear? Studio photographers have different expenses than solely natural light photographers. And wedding photographers need that long lens, yo!
(3)Lastly, service based businesses are LIMITED IN GROWTH. If you are a solo- freelance business, and you are a living, breathing human, you’re going to have certain limitations:
– Your experience only extends as far as what skills you’ve been able to acquire.
– Your access to various resources is limited to your own network.
– Time is not something we can control. If I ever find Zack Morris’ virtual time remote, I’ll let you know. Until then, time is a precious resource.
What does this have to do with pricing? Well, if you’re in a product-based business, as you scale and grow your business, you’re likely able to lower your expense to revenue ratio. Apple can make two iPhones in about the same time and for about the same price as they make one. They’ve scaled and systematized. As creative freelancers, we’re limited to human capacity. Shooting two weddings takes exactly twice as much time and twice as much cost as shooting one wedding. And since we are real, living humans, and/or we’re outsourcing to real, living humans, we have less flexibility to lower price to meet a market demand or to match competition.
While I can say this all now after spending two plus years studying business strategy, if I were reading this post five years ago, I would have left with sweaty palms and an anxiety ridden sense of feeling overwhelmed about pricing. If that’s you, don’t worry. Market-based pricing doesn’t make sense in the current climate of the creative industry, but there is hope! Next week, we’re going to take another deep dive. We’re going to go take some time to talk about pricing strategy that works for service based creative businesses, so stay tuned!
As the founder of Homeroom, Courtney works with creatives all over the country to help them build a sustainable business.
Breaking the association between ARTIST and STARVING, that’s Homeroom’s sole mission. After running her own photography business for half a decade, Courtney decided to hit the books and get her MBA, and that’s where Homeroom was born. Homeroom (and Courtney) are based out of Portland, OR, but offer workshops and one-on-one consultation for creatives all over the country. Bridging the gap between the business world and the creative industry; with each service, they not only provide unparalleled content, but they also make sure each attendee is able to tailor that content to their own unique business.