Way back when, this was a blog solely for photographers. There are multiple posts in the coffers about pricing. For a variety of reasons, (lack of confidence and business acumen to name two) pricing for creatives seems to be a minefield. I’ve educated creatives for over a decade and, regardless of the specialism, pricing is a consistent issue.
Business is about selling value. Sometimes it’s a physical product. I’m in love with the book The Personal MBA: Master the Art of Business. In it, you’ll find a description of 12 forms of value. Every business falls into one or more of these categories:
- Product – Create a single tangible item or entity, then sell and deliver it for more than what it cost to make.
- Service – Provide help or assistance then charge a fee for the benefits rendered.
- Shared Resource – Create a durable asset that can be used by many people, then charge for access.
- Subscription – Offer a benefit on an ongoing basis, and charge a recurring fee.
- Resale – Acquire an asset from a wholesaler, then sell that asset to a retail buyer at a higher price.
- Lease – Acquire an asset, then allow another person to use that asset for a pre-defined amount of time in exchange for a fee.
- Agency – Market and sell an asset or service you don’t own on behalf of a third party, then collect a percentage of the transaction price as a fee.
- Audience Aggregation – Get the attention of a group of people with certain characteristics, then sell access in the form of advertising to another business looking to reach that audience.
- Loan – Lend a certain amount of money, then collect payments over a pre-defined period of time equal to the original loan plus a pre-defined interest rate.
- Option – Offer the ability to take a pre-defined action for a fixed period of time in exchange for a fee. Think: cinema tickets, concerts, flights. You’re selling the option to appear at a certain place at a certain time to partake of a certain event. If you buy a cinema ticket and don’t show up, you haven’t lost anything, really, because you were merely buying the option to go sit in that seat if you wanted to.
- Insurance – Take on the risk of some specific bad thing happening to the policyholder in exchange for a pre-defined series of payments, then pay out claims only when the bad thing actually happens.
- Capital – Purchase an ownership stake in a business, then collect a corresponding portion of the profit as a one-time payout or ongoing dividend.
As a creative, I find that my business dealings in photography, video production, and ideas generation falls into most of the above forms of value in one way or another.
- Product – If you do sessions and then sell your work in person.
- Service – If you charge for the service and provide the digital output as included, you are offering this form of value.
- Shared Resource – If you create stock assets and people pay to license them (through Getty for instance).
- Subscription – If you sign clients up to monthly/annual retainers in order to access your services on contract.
- Lease – Do you rent your equipment to others?
- Agency – Creative agencies, etc
- Audience Aggregation – If you set yourself up as an industry expert and sell ad space on your blog or make money on endorsements based on the audience you have built.
- Option – This one was a new bit of knowledge when reading The Personal MBA. In my wedding photography/video business, for example, clients who pay to get their wedding into my books aren’t giving me a “deposit”. They’re paying a “booking fee” they are reserving the option of having my team on their day. If they cancel, they don’t get their money back. I have likely said no to any other work because that date was reserved for them. They are paying, not for my service, but for the option of having me and my team. Some subtle tweaks in wording on our for service contracts can protect us from loss of work and then refund requests.
- Capital – One can own a creative company without being a creative. Buy one and get experts to run it.
Understanding the form of value you are actually selling is an uber-important first step to knowing how to price your value. So if you skipped all of the above, go back and read it.
When I was advising photographers, I took an approach on pricing that raising your prices can be an excellent way of getting more business in. And that sales or discounts are pointless. It’s not that simple for the whole of the creative industries. As a producer making videos for businesses, the clients I work for have had experience buying services like mine long before they start working with me. There are standards and usual practices which we need to be aware of when pricing ourselves. For any newbie asking me how to set their freelance pricing, I say joining an industry union can be a helpful start. Charging standard union rates can take the guesswork out of what you should charge and the more creatives who do this, the more standardized pricing will become and choices for suppliers can be based on creative output and not numbers. However, at least knowing standard union rates in your sector can be helpful no matter how you want to set your prices. Because now, you will know what numbers you’re undercutting if this is your desired method for setting prices.
Day rates aren’t the only rates that can come as standard. If you intend on acting as an agent, there are common practices for up-charging on services you provide through your network of suppliers. One example I recently saw was:
- 10% If you make a call
- 20-25% If you handle contracts, bill the client and hand over to the supplier
- 50% If you manage relationships and otherwise manage/produce the project
- 100% If you can get away with it and it makes sense – I would recommend this in the instance that the client is so big that tiny numbers scare them and you need to charge over and above in order to make them comfortable that your output will be the quality they expect. Bid too low and lose the contract. Head games, I know…nonsensical…just sometimes works this way.
Now, there will be instances where you may feel it makes sense to charge less for a period (i.e. a sale) or raise your prices because you’re no longer portfolio building or other various reasons.
Before making any of these decisions flippantly, you must consider the following:
Don’t make decisions (like a sale) out of fear because things aren’t going too well with cash flow.
A term economists use to describe the effect price changes have on the demand of the product. Does demand for your wedding photography or corporate video services go up because you have a sale? If not, then you are experiencing low elasticity. Availability of substitute goods (are there plenty of other video production companies to choose from?) necessity of your service (some wedding magazines and blogs claim that hiring a friend to shoot your wedding is a great money-saving option. This affects the perceived necessity of your services as a wedding photographer) and brand loyalty will affect your price elasticity. Some of these can be overcome with marketing and great sales practices if you’re working directly with the person footing the bill (i.e. in wedding photography) however if dealing with a client who’s spending someone else’s money (B2B for instance, or working with a client who’s been given a predetermined budget by their managers) pricing will be less elastic. So as a video production company, lowering our pricing won’t lead to greater sales because our clients are always spending someone else’s money. But will raising prices go equally unnoticed? Keep this concept at the forefront of your mind when making decisions to alter your numbers. Read this for more on how price elasticity relates directly to creative industries.
Are there changes to be made in your business model which can increase your profitability without changing things for your clients? If you’re considering raising your prices because of low cash (or, conversely, having a sale), then consider what things you can do to increase your margins without increasing or decreasing your prices. If you’re a production house in danger of tanking, would it save the company to lose a few employees, turn those roles into ones you source through a pool of freelancers (even including the people you let go) and simply apply an upcharge of their day rates to the client. They will likely not notice a price difference and while you may feel that the overall profitability of each project is lower, you’re not paying to keep those people on board on the days when there’s nothing to do but smoke and drink coffee. So things should even out, giving you more drive to go out and get new business to keep those freelancers busy. Voila! You have now saved the business and not raised or lowered your prices. And when things even out in the wash, you may see more profit in the books.