What’s wrong with Market Based Pricing?

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…

Picture me 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.

that's messed up

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.

Business Mistakes to Avoid as a Small Creative Business Owner

When starting your creative business, you’re bound to make several mistakes. However, reading common mistakes other small business owners have experienced can help you prevent yourself from making the same mistakes. Whether you’re starting a floral design, photography or event planning business avoiding these common mistakes is crucial to your success.

  1. Undercharging for Your Services. When you first start, you may need to provide free or reduced rates on your services, but you should make sure you are charging enough for your services over the long-term. Research other businesses in the area to see make sure the cost you’re charging is not too low for your industry.To understand the costs associated with your business, create a spreadsheet so you know how much you need to make to cover your expenses and bills. If you have a client who demands additional items while you’re working with them, you may need to customize your pricing and ask for more money.
  2. Not Marketing Your Business. Think of your small business as a brand. Any good brand needs to have a high-quality logo, flyers, business cards and a website. Each of these items will help you become better at marketing your business. Without a proper marketing strategy, it will be hard to attract new customers. Use your personal network, business cards, website or social media to increase the visibility of your brand. Through multiple strategies and platforms, you can increase the number of people who hear about your business.
  3. Slow Response Times. Potential clients want to know you can respond in a timely manner. If they’re contacting multiple companies in your industry, they may be more likely to choose the business that responds first. By answering promptly, you show that you’re dependable.
  4. Not Using Contracts. Not having a contract that spells out the terms of the job you’re performing has many risks. Having a contract will allow you to set the expectations of your client and help you determine the correct pricing for the types of services they expect. If the client asks for additional services after the contract is signed, it will be easier to ask for money to accommodate the tasks outside the scope of the job. Talk to a lawyer to get advice about creating a proper contract.
  5. Not Having a Niche. When you own a photography, floral or hair stylist business, it is essential to make yourself stand out from your competitors. Take time to think about what makes your business unique. Once you determine your niche, you can use that as a unique selling proposition in your marketing materials to draw customers to your business.
  6. Inefficient Workflow. When you’re running a small business, it’s essential to maintain an efficient workflow. Take time to create an organized system that will help you manage all your tasks. Manage client expectations by telling them the expected completion date a few days after you think you can complete it. Doing so will allow you to remain efficient and provide flexibility within your schedule if something else comes up.Another way to manage your workflow is by using a business management system that helps you organize your calendar, schedule emails and much more.

Help Improve Your Small Creative Business

If you need help improving your workflow and managing your business, Táve is a management software app that is customizable to your business. Many individuals in industries like photography, entertainment and event planning have used this software to stay organized and manage their small business efficiently. To learn more about this management software, contact us today or sign up for a free 30-day trial.

,

European Union’s General Data Protection Regulation (GDPR) and Compliance

Tave GDPR

We’re announcing updates to our privacy policy. These changes reflect the high privacy standards established by the General Data Protection Regulation (GDPR) recently passed by the European Union.

The privacy law becomes enforceable May 25, 2018.

Read more

How to Make Money Through a Photo Booth Business

Are you considering going into the photo booth business? If so, congratulations! It’s a fun and interesting way to make money. Like any business, however, it isn’t without its quirks. As an entrepreneur in this field, it will be up to you to learn about this business and learn how to navigate the ups and downs and unique elements of it.

Read more

5 Essential Tax Time Tips For Wedding Photographers

Somewhere around the first of the year, many wedding photographers and other creative entrepreneurs begin to feel a nagging, anxious feeling deep inside. No, it’s not the result of one too many holiday parties, but the dreaded “T” word … taxes.

Read more

7 Tips to Help You Survive & Thrive Your First Year As a Creative Small Business

Tave is the CRM of choice for creative small business owners - especially those just starting out!

Starting a new business is exciting, invigorating, exhilarating — and also kind of terrifying. After all, following your dreams isn’t easy. It takes a special person to take a chance on becoming your own boss, whether you are offering videography services for weddings, becoming a freelance hair and makeup consultant, or opening your own floral business. Luckily, there are things you can do to help your creative business succeed.

Read more

8 New Year’s Resolutions for Wedding Photographers

The New Year is fast approaching, and it’s time to make your resolutions. But instead of resolving to lose weight in the coming year or go quit smoking, why not focus your resolutions on managing your wedding photography business? Now is the perfect time to set goals for the coming year and map out ways to achieve them.

Read more

When to Say ‘No’ to a Potential Client

You’ve worked hard to build your business. You’ve promoted yourself and networked. You’ve shown you can handle the demands and pressure of jobs big and small. You’ve done everything you can to grow your client list.

It may sound weird to hear us say this, but sometimes you’re going to have to turn down some of that business.

Read more

Wedding Photographers & Second Shooters: Great Work Means A Great Relationship

A great relationship is the hallmark of great second shooters & lead photographers.

 

Being a wedding photographer, you’re almost guaranteed to have some incredibly unique experiences.

It’s one of those jobs where there’s always a certain amount of unpredictability, as you never know what exactly will happen on the day of the wedding. The weddings might be quirky, the happy couples might be extremely picky about their photographs or some of the tipsy relatives could have a few too many ideas about your photos.

With so many wild cards to deal with on the day of the wedding, you want to have at least a few things you can count on to be predictable and dependable.

Read more