Many business owners have a pricing formula they follow to make sure their business is cash flow positive. Some multiply their cost by 2.5 to come up with a price. This formula doesn’t work well if you’re a creative entrepreneur who should be taking into consideration more variables than just cost. Besides product cost, do consider perceived value, brand, circumstances, originality, scarcity, and other factors which you often can’t put a price on.
As a creative, you often should ask yourself how much the client is willing to pay for your work. Taking a painter as an example, it’s not the cost of paints, brushes, and canvas that should determine the price. It’s the perceived value, which is influenced by his brand, originality, perceived quality, and beauty.
There’s a famous story in The Tipping Point by Malcolm Gladwell where he talks about a turquoise jewelry collection displayed in the window. The pieces were not selling until a new sales assistant raised their prices by mistake. Customers started buying the pieces because they trusted the high priced jewelry was of superior quality. When pieces were priced low, they wondered if the jewelry had real stones in it.1
Few would opt in for a doctor offering low-priced services. We associate high-priced shoes with comfort and style. We are willing to pay premium for quality products that promise to solve our problems.
It’s important to know where your products belong. Being able to identify the price of other competing products, as well as your competitive advantage, is key to choosing the correct price and calculating profit. Your products won’t exist in isolation, and the more you’re informed about their entourage, the better. Entrepreneurs should not get discouraged by the multitude of products in their category and customers’ comparison shopping. They should treat it as a sign that there’s a demand and should focus on developing their unique value proposition, areas where their products are better than others in the market. If you notice a void in a marketplace, it may be an opportunity, but more often it’s because there’s no demand for it.
Products that can provide more value are now expected. Customers are no longer searching only for convenience or competitive pricing. They now want products or services that can expand them, stretch their potential, and bring true joy. They are now expecting add-ons, sometimes intangible ones. They want to be surprised and taken care of. Upselling and offering a full solution has never been easier. They want quality and are willing to pay for it.
Often creatives have a hard time putting a price tag on what they make. To make it easier, here is what you should take into consideration:
The easiest way to control the high demand for your products is to increase your prices—not everyone wants to implement a new strategy to manage growth successfully.
My first website was made by a couple of creatives who did a beautiful job designing, but this is not what has inspired me to mention them in this book. They had a problem which I noticed a lot of creatives deal with: they had a hard time asking to be compensated for their work. I remember they split my payment into a few installments and they wouldn’t remind me to make a payment when I was late. One day I did get a reminder email from a different email address. I found out they had created an alter ego so that they don’t feel awkward asking for what they are owed.
Since then I have encountered other creatives who have had a hard time discussing pricing. When asked, they would apologetically quote a price and add right away, without being asked, that they were open to negotiating. They lacked confidence in their products, themselves, and their business. I once knew a creative who was so petrified letting his client know how much his services were, that he postponed this conversation until the very end and created an uncomfortable situation. The client was caught by surprise by the price not only because he was not prepared for it, but also because he didn’t know until the very end how much he owed. Being open about pricing and sharing it with confidence will put both parties at ease and make the transaction seamless.
I’ve seen creatives offering discounts without being asked. Grant Cardone in Sell or Be Sold says that usually the seller is the most concerned about the discount.2 In most cases, a customer is ready to pay a fair price for the services he gets. A few years ago, I worked with a design team and after having completed a few extensive projects, they said they could offer me a $500 discount. The first reaction that came to my mind was “Why?” I was happy with the result and was ready to pay for the projects. I gladly accepted the discount, of course, but they could have charged me the previously agreed upon price. The fact that creatives offer discounts without being asked for them still surprises me. We’ll explore low value work and discounts later in this chapter.
When I speak to fellow creatives, they often bring up the common issue of unsteady income. Some say that they get a large payment and it makes them feel reassured about their craft, but the problem is that they don’t know when the next large payment is coming.
As a creative, you have to decide if you want to be employed and keep getting assigned projects, or if you want to be a creative entrepreneur. There’s a big difference, because if you’re employed you receive a salary and do the work for others. If you are a business owner, your revenue strictly depends on you and your work. Assuming you chose the latter, you need to be constantly on the lookout for what’s next. There are going to be times when you won’t be starting a new project right after you finished the previous one. You’ll have to be agile and take the work when it comes. You may have to work on a few projects at the same time and then have a week off. You won’t be able to choose which week until you get really established in the business.
For more than a decade, I have been very busy toward the end of the year. From store owners to last minute gift buyers, most of my customers want their orders fast and in December. I can’t tell them to wait until January. I need to take advantage and adjust to the nature of the business I had started. I’m still busy on December 24th! As overwhelmed as I am in December, I still reach out for more business opportunities, knowing that this is the prime time for my business. Would I like my busiest month to be January instead of December? Absolutely—every year I miss most of the holiday parties and get-togethers, but I know that this is the price I have to pay to live the designed life I created.
Here are things to do to avoid unsteady income problems:
Successful business owners are constantly thinking about creative methods to make money. They don’t rest on their laurels; they know not to take their careers for granted. They read, take courses, and get inspired to create another system or income-producing opportunity for their business. They reach out and stay connected. They have a plan that keeps changing depending on circumstances.
If your creative business emerges from a hobby, it’s easy to lose yourself in your passion and forget to charge for your hours worked. Even if you love what you do and your work doesn’t seem like work, you still have to get paid in order for your business to be sustainable. If you transition from a hobby to a business, you have to change your habits, systems, and expectations. There’s not a better feeling in the world than profiting from your passions, but only if you are smart about it.
You are not a hobbyist anymore; your business went beyond making products for family and friends. You now own a business and you need to be compensated for your work. As a hobbyist, you used to decide what pieces to make, but as a business owner, you’ll be responding to customers’ demand. You may end up making 50 pieces of the same design and dealing with fulfillment deadlines and payment terms.
Do your due diligence; your research should show you how you should position your products and how to price them. Being tempted to undercut the market prices by not paying yourself is not a sustainable strategy, and your low prices may not be seen as a competitive advantage. Customers seeing your low prices may assume you’re providing poor quality products, unless you have a good reason for your low prices.
If you are involved in the production of products, you should be compensated for the hours spent making things. Having a thin profit margin and not paying yourself is a recipe for a business failure. The prices you charge for your labor should depend on the end result: your products and how much your customers are willing to pay for them. They will be the judge of your talent and expertise. Someone with no formal apprenticeship or education may offer pieces that are seen as more commercially valuable than work made by an artist with a formal education. Readers don’t check if an author has an MFA; art connoisseurs won’t buy a painting because the creative got a formal degree. It’s all about the final products and how valuable they seem to the potential clients. The value behind the products is based on how fitting the pieces are in customers’ lives.
However, there are creatives who set their prices based on the degree or years of experience. In some fields, it is easier to use this measure because it offers clear benchmarks. At hair salons, professionals often get compensated based on their experience. A haircut with a senior stylist is priced higher than a service with an apprentice. If you are unsure how to price your labor, start by increasing your hourly prices according to your years of experience. Your customers will guide your pricing. If your compensation as a creative is not what satisfies you, you can always refine your business model and change it into a more fitting strategy. Your business is like an ever morphing creature and you are its master.
Graphic designer Nicky Laatz, who became known for her bestselling fonts, reached an important milestone selling on Creative Market, a community where photographers, graphic designers, and other creatives post their work for sale. Nicky has sold $1 million worth of fonts. Nicky transitioned from contract work and started prioritizing online sales after realizing it was a better fit for her lifestyle.3 Rounds of iterations and pressure of deadlines were stressful and joy depleting. In the Creative Market video where fellow creatives congratulate her on having reached a million dollar mark, Nicky is glowing; she gets emotional. She found the space to thrive in on her own terms, being surrounded by a supportive community.
Selling online is one of the most desired business strategies among business owners. It amplifies the feeling of entrepreneurial freedom and working on your own terms. We have to respect the rules we created, such as prompt shipping and answering customers’ questions, but many online business decisions are up to us. We decide what we want to put up for sale and in what quantity. Online business can give us tremendous satisfaction. Isn’t checking your email in the morning and seeing orders placed when you were sleeping like winning a small daily lottery? Getting paid when you sleep is a dream of many. Taking these online orders out of context and disregarding idea generation, site building, product promotion, we can actually make money while we sleep.
In 2013, Corey O’Loughlin and Nina Vitalino launched their online store Prep Obsessed. Against the common advice not to run a business on a domain that you don’t own, the duo decided to focus their efforts on growing their Facebook business page and driving their sales mainly via Facebook. They did it very successfully by investing $40 a day on Facebook ads targeting women age 20–50 who are interested in fashion, home, and garden and who are fans of Tory Burch and Lilly Pulitzer. Within four years, Corey and Nina grew their Facebook fan base to 300,000. Because they targeted the right niche instead of the number of likes, Prep Obsessed amassed a large group of fans who are very engaged. Even though Facebook changed the rules of content visibility on business pages and it’s now more difficult to get noticed, Prep Obsessed figured out a way to thrive by providing relevant content. Sharing multiple daily posts, the site uses Soldsie to make the posts easy to shop from. Viewers see suggested items that are styled and displayed with prices. One click will take us to the checkout page without leaving Facebook. These shopable posts, offering well-curated items at reasonable prices, win us over and entice our urge to impulse shop. Prep Obsessed Facebook fans are also encouraged to vote on what type of items they’d like to see more of by reacting with an appropriate emoji. Fans’ choices of whether they’d like to see more little black dress styles, comfy casual, or casual daytime will be visible and accounted for when the team of Prep Obsessed places the orders at their suppliers at trade shows.4 Including customers in the decision-making process as well as making their shopping experience easy is the key to creating a powerful brand backed by an army of devoted and supportive fans who spread the word.
As a creative, you should be always thinking of adding another stream of income and refining the ones you already have. Even if your business is thriving now, do think of another stream of income as a security net. You can be inspired by reading success stories of entrepreneurs who do something that you are drawn to. Suggest meetings, get a mentor, and think what you can offer to generate an additional stream of income. Consider starting a venture on a side. Creating another stream of income is not only financially beneficial but this slight diversion from what we do may be growth conducive. If your current business reached a comfortable level, you can treat creating another stream of income as your sandbox. You can keep experimenting and discovering what you love doing without the pressure of having to succeed. You can start a hobby and transform it into a side hustle, which may stay as your additional source of income or become your next career.
You don’t have to start another business to create multiple streams of income. Consider spreading deeper instead of wider. If you provide services, think of the ways to offer complementing products. Write a manual. Film a course teaching someone the basics or specific skills. Any accomplished creative can write and sell an ebook revealing trade secrets, and make quite a bit of income from this venture. There are many of us who are willing to pay to find out about successful strategies of our dream careers. For example, a $19 or $29 ebook that teaches efficient ways of starting a successful podcast is an effective way to discover if this is the direction we want to pursue. Writing a how-to ebook could create an additional income stream for the creative and can provide value for the reader, who could gain clarity about the potential path to pursue.
Thanks to having multiple streams of income, you’ll be running your business with confidence. It’s comparable with the security of a steady paycheck. You will be less likely to run into financial difficulties if you have the security of receiving income from multiple sources.
When you examine the handbag industry, you’ll notice that people often do not pay attention to product quality or attributes. If we feel that the product will make our life better or provide a true solution, we’re ready to spend as much money as needed on it. People are less price sensitive than we think. We often spend more than we can afford, but this overspending makes us feel really good. We feel like we invested instead of spent. Such investment provides two benefits: immediate gratification—we feel great about buying, wearing, and owning something now—and long term benefit—we feel the purchase will serve us in the future. We’re talked into buying an expensive pair of shoes and explained that we’re making an investment. We like that. Intelligent people invest. Customers like feeling intelligent.
We also love bragging that we bought something at a discount more than we like bragging that we paid a high price for something. Having paid less than something is worth makes us feel savvy and smart to be able to find a bargain. Customers love feeling smart.
The strongest feeling of all is feeling accomplished, feeling of having checked something off the list. If we truly show someone that her problem will be solved or that she’ll feel better and her life will get better, we’ll make the sale regardless of how much we’re asking for. The problem-solving reasoning can be very convoluted. We can convince a customer to buy a dress because it’ll accentuate her waist, which will make her look great on a date. She’ll feel confident, she’ll be funny, she’ll get asked out on future dates, and find a loving partner. How much is finding a loving partner worth? Definitely worth the premium price of a dress and she may even add some accessories—a belt and a perfect pair of shoes. Getting all three will make her feel much better than buying just a dress; she’ll feel that she made a larger investment into what is important to her—increasing her chances of finding a life partner. Usually our customers don’t have a problem with pricing, but often it’s the sellers who think they do.
I met a couple who owned a jewelry business at one of the retail shows. They had a beautiful selection of sterling silver earrings. They were importing them from Thailand and because they felt it was easy to do what they do, they decided to sell the earrings at wholesale prices displaying them at $12 and $15. New entrepreneurs often don’t count all of their expenses, justifying that what they did wasn’t work. The same held true for this young couple, who doubled the cost of the earrings, not accounting for the time they spent in Thailand and neither for the cost of traveling. They made a typical beginner’s mistake of not counting expenses out of guilt that the trip to Thailand wasn’t work. Setting such a low markup was putting their business at risk of running into cash flow problems, and their low prices were making their customers doubt whether the earrings were silver.
Tim Ferriss adopts a free or ultra premium approach. He has been generously sharing a lot of valuable info on his blog and podcast, saving his readers time and money. He also shares his efficiency hacks in his books. However, for speaking events he organizes, Tim charges premium.5
There’s a reason we pay $5 for coffee and $2 for a bottle of water. We attend expensive conferences, go to nice places for dinner, and invest in appropriate attire. Sometimes we like splurging because, as we often justify, “We work hard for it.” If we come to your store, don’t take the pleasure away from us by lowering the price we were ready to pay. Let us invest.
As I previously mentioned, creatives often offer discounts without being asked for them. Customers are ready to pay a full price to support our business, and it makes them feel good. By offering them a discount, we deprive them of this satisfaction. In most cases, adding value works better than offering a discount; it makes the client feel special, and usually our cost of a freebie is inferior to the possible money forgone by selling at a lower cost.
When a customer asks for a volume discount, suggest adding value instead. I use this technique all the time and it works really well. For example, if someone buys 10 necklaces for all her friends and asks for a volume discount, I offer to give her the 11th one free. Hearing “free” does magic and is usually a stronger incentive than a discount.
Here are three instances when you should highly consider offering a discount:
Depending on your cost and business structure, it’s not always wise to offer a discount, even if you’re asked for it. If the cost cut doesn’t fit in your financial model, you’d better refuse it. If you see price aversion being a pattern, let this inspire you to make some structural changes in your business.
Know that as a business owner, you don’t always have to say yes to customer demands. You can refuse selling your products at lower prices and if you own a service business, you can say no to low value work. Accepting projects, which may stretch you too thin and distract you from your core competency, may steer you away from the life you want to design. Be firm and stay on your dream track.
I don’t accept custom jewelry designs and I don’t repair jewelry made by other designers. This is not the direction I wanted to focus on and I stayed firm with my decision by referring custom work to other designers who do that. You may think of it as of a missed opportunity, but to me, focusing on my specialty and staying on track of what I want to do is most important.
What do Channel, Gucci, Tesla, and Starbucks have in common? They are all considered premium brands. For “premium” status to happen, a brand needs to show it by setting high prices that have to be accepted by customers willing to pay them. We pay premium to drink better wine, get a better education, and wear more fashionable clothes. Usually there’s nothing that signifies premium besides the creator announcing it by setting premium prices. Here are some characteristics of premium:
What products do you buy premium? Where do you try to save money?
When was the last time you bought something considered a “great buy”? Why was it a good purchase?
When should you consider offering a discount?