The Art of Setting Price – Part 3

In part 2 of this series, we talked about finalizing the prices you will charge based on the data you’d collected,  and how to communicate those prices to your customers.   There are some customers who will accept the prices you give them without an issue, thinking they’re fair,  there will be some customers who think they’re getting a bargain,  and there will be some who will always want to argue the price or who will press for something extra.  How you deal with the latter group may be the difference between a business that makes a profit and one that soon sinks out of sight.

So,  how do you deal with those people who want to argue or negotiate price?  One way is through education.   A lot of people don’t know what goes into making a shirt or a transfer or a hat.  Show them the process.  Show them the machines you use to do the work.  Talk about the supplies you buy,  the webinars you watch and the seminars you’ve paid to attend.   Let your customers know that you’ve invested a lot of time and effort into being good at what you do.   People are always more comfortable about and more willing to compensate experts for their time and expertise.

Another technique is to try to get to the “why” of their objection to your price.  Are they operating on a budget that may be unrealistic?  Do they not understand what goes into making the goods they want to buy?  Did they find someone down the street that offered to do it for cheaper?   If you can find out why they’re objecting you can address the issue and possibly change their minds.   Or, perhaps,  find out that it isn’t worth changing their mind and the job in question is one that should go to the cheaper guy down the street.   At least if you have all the details,  you can make an informed decision.

“The guy down the street will do it cheaper” tactic (at times it might be the “guy online”, but you get the idea) is often a common method of pursuing a lower price.  When this is used on you,  probably the first question to ask is “why didn’t you go with the guy down the street then?”,  in a non-confrontational way.  Usually,  if a customer is coming to you after having been quoted a lower price elsewhere they either have some reservations about the other shop,  or they’re hoping they can spin you a tale that will make you lower your price.   Getting the details will usually tell you which option it is and point you to the route that may get you the price you want to charge.

Another thing that decoration shops may often encounter is the person or group who wants a print job to be donated,  or who wants to pay for the job in “exposure”.  There are times when jobs of this sort can be beneficial,  but make sure to examine each job of this type carefully before you say yes.  Who will be seeing the work you’re doing,  and is this your customer base?  How many people will be exposed to your work?  What would be the cost of the work if it were paid for, and how does the value of what ever is being offered instead of money measure up?  Will this job generate goodwill among people who could potentially be customers or who could direct customers to you later?  Not all barter or “exposure” jobs are necessarily bad,  but it always pays to do the analysis and be very clear on what you can expect to get before you agree to any such deal.

Finally,  don’t forget your secret weapon when it comes to standing firm in price negotiations,  the absolute rock bottom price you calculated earlier.  If you have that price calculated for every product,  then you know how much room you have to negotiate,  and the floor beyond which you cannot go.

 

The Art of Setting Price – Part 2

In the first part of this series,  we talked about how to gather the data you need to determine what price you should charge.  In the second part we’ll talk about how to finalize your pricing and how to communicate that pricing to your customers.  Although the data collection process, as detailed in part one,  can take time,  it’s actually probably the easier part of setting price.   Now comes the hard part,  setting your prices and sticking to them.

Once you’ve crunched the numbers on what you need to make and assigned tentative prices for your products,  you can compare those with your market research data.  Sometimes you’ll find that you can charge more than you thought you could and still be competitive.   Other times you’ll find that the prices may need to be adjusted downward slightly.  The hope is that the highs and the lows will balance.

After the final adjustments are done,  do one more set of calculations.  There are two parts to this final bout of arithmetic.  One part is to figure out if you can afford to and want to do quantity discounts and what those discounts will be.  This set of calculations should also include what your minimum order quantity will be.  For some people,  it’s the minimum number of a product they need to make their minimum profit requirement.   Other people may have very low minimums to try and differentiate themselves. Some shops will have set minimums and quantity discounts that are stated prominently in their pricing literature.   Others may not advertise these minimums and discounts,  but every shop should know what they are. The time to make pricing decisions is not when someone is standing in front of you asking.  Those decisions should be made when there’s no pressure and you can keep your income goals clearly in front of you.

The second set of calculations to be done deals with your absolute lowest price.  This is the rock bottom minimum you can charge and still make at least a small amount of profit.  The hope is you will always be able to charge more than this number,  but you should always know what your lowest price is and stick to it.  Again, the time to make this decision is not when a potential customer is arguing with you,  or when someone offers a huge job that is terribly tempting.  Know your lowest price before you get into these situations,  and make sure you don’t go below that price,  no matter what the incentive.

Now that you’ve done this last set of calculations,  you should have a final price for each product you offer,  along with quantity discounts,  if you intend to offer those,  and a rock bottom minimum price below which you will not go.  All this information now needs to be communicated to your customers.  If you’re selling online, pricing information can be communicated in each product listing.   If you’re running a brick and mortar shop,  printed pricing can be offered with order forms.   As a general rule,  it’s a good idea not to make any mention of your rock bottom minimums in the pricing you release to the public.   After all,  it’s never a good sales tactic to let your customer know the minimum payment you’re prepared to accept.

Your pricing is now set, and you’re on to the really difficult part,  holding firm on those prices.  We’ll discuss that in part 3. 

The Art of Setting Price – Part 1

Setting prices on your work is hard,  particularly if it’s creative work, anyone who has ever had to price something out knows that.  It’s tough to figure out what’s fair,  and what’s necessary,  and what’s going to make the product sell.  Sometimes it’s seems like it would be easier to allow the customer to tell you what they want to pay,  but that method can often lead to a nice home in a box under a bridge.  Often people set prices lower than they should because they think their work is “only a hobby” or “I couldn’t possibly charge that much!”.  There are a ton of reasons why setting prices is complicated,  and sometimes frustrating and occasionally scary.   There are also some things you can do to make the whole process a little bit easier.

The first thing you need to do is the math,  which isn’t always fun,  but is a necessary first step.  What you’re figuring out is how much you need to make, so there are lots of numbers to gather and compute.  Take into account the following:

  • What do you need to live – this means what do you need for food, shelter, clothing, transportation,  various insurances like auto and health.  How much do you want to have in the bank to cover emergencies? In other words,  what sort of wage do you need to pay yourself in order to live with at least a basic level of comfort and security?
  • What do you need to keep your business running – What’s the cost of your rent or mortgage? What about electricity and heat?  What will you need to pay for business insurance? How much is marketing and sales going to cost you? If you have employees,  they show up here too,  including things like their health insurance. Basically,  what do you need to make your business go?
  • What supplies do you need and how much – How often do you order supplies? What percentage do you keep on hand for unexpected orders and overage or mistakes?  How far out is your production calendar booked,  and what supplies in what amounts are you forecasted to need? Do you have terms?  Do you charge orders to a credit card?  When do your bills come due?

Once you’ve done your calculations break the number down in whatever way you like.   You could come up with a monthly figure,  a weekly figure,  a daily figure or an hourly figure.  What you’re looking for is some number and some period that can be a benchmark for how much your business needs to bring in.

Now that you have a number,  the next thing to do is divide that number by all the products you offer.   Obviously,  different products will have different price points,  and some products will account for more of your revenue than others.   The goal is to put a tentative price on each product you offer,  based on the percentage each product will contribute to the total revenue you need to make.

Once each product has a tentative price,  the next thing to do is the research.  This is where you get online,  talk to friendly competitors,  ask people in Facebook groups or on forums,  and generally gather as much information as you can on pricing in the product categories you’ll be offering.  Obviously, this research should be tailored to your market.   If you have a brick and mortar store and you’ll be selling in one city,  concentrate on pricing there.   If you’ll be selling only online,  look at who your competitors are in that space.   It isn’t enough to gather numbers,  those numbers have to be specific to the products you want to sell and the markets you’ll be selling in.   Be sure to compare apples to apples.

The goal of the research is to gather data on at what prices people in the same sort of business as you are selling the same or similar products.  Again,  it’s necessary to make sure the information you’re gathering is covering the same market and the same products as what you’ll be offering.  It’s no good doing price research on Maserati when you’re actually selling a Pinto.  Be as accurate as possible,  as this research will play a big part in setting the final price you charge.

This is part one of our series on setting pricing.  In part two,  we’ll discuss what happens after the data gathering process.