If our creative enterprises are to continue doing great work over the long term, they need to be financially sustainable.
That means we need to combine our vision, values and objectives on the one hand, with a financially robust business model on the other.
The right decisions about pricing are crucial if our creative businesses and creative hubs are to survive and thrive financially, so we can continue to do great work.
The Pricing Dilemma
Some creative entrepreneurs tell me that they have a dilemma. They feel they have to choose between ‘selling cheap’ or ‘selling out’. In other words, they see only two options. One is to drop their prices to compete in the market, but make little or no profit. The other is to make money, but at the expense of changing their product or in some way ‘selling out’ their principles.
From my experience as a business coach, this often indicates that they are trying to sell to the wrong market. Not all customers are good customers! The solution is to change the focus of their marketing, at a strategic level. That means selling to a different market, which might not be quite so local or convenient.
So financial sustainability is connected to pricing, which is connected to strategic marketing.
My book ‘Chase One Rabbit: Strategic Marketing for Business Success. 63 Tips, Techniques and Tales for Creative Entrepreneurs’ is all about strategic marketing and has a section dedicated to pricing.
When making decisions about prices, we should look at pricing from two angles:
- Pricing in relation to the costs of producing a product or delivering a service.
- Pricing in relation to the customers’ perception of value.
(There’s also a third dimension to pricing policy, connected to selling or licensing our intellectual property, but that’s for another time…)
Pricing in relation to the costs of producing a product or delivering a service.
Calculating prices in relation to costs must include ALL the costs involved, including the cost of your time and all overheads.
The easy part is calculating the direct costs. These are obvious, especially when selling goods, for example the raw materials.
We also need to factor in the cost of our time. The time of employees is expressed in salary costs. But business owners often don’t measure their own time. So we need to measure the time spent on creating products or delivering services. Also, time spent on administration, marketing, accounting etc needs to be factored in to the calculations.
Thirdly, there are the overheads of the business. For more established enterprises, these are quite clear. Office rent, transport, broadband, computers etc. Startups and early stage businesses often work from home at the beginning, which makes things less clear. Some business costs are apparently ‘free’. For example, working from a spare bedroom, using the family computer and a personal mobile phone without the business paying for them. This can distort our view of what it’s really costing to run the business. And it allows us to believe we are profitable when in reality we are subsidising our own creative enterprises.
So it’s important to include ALL the costs of running the business, so that we can calculate prices that make economic sense.
This complete calculation gives us the minimum price at which we can sell, in order to avoid losses and break even.
But that is not the answer to the pricing question. It’s just a base line or starting point.
Pricing in relation to the customers’ perception of value.
Next we need to look at pricing from our customers’ point of view.
This leads to ‘value-based’ pricing.
Understanding customer perspectives is a fascinating and sometimes surprising aspect of marketing.
Sometimes we don’t fully understand what the customer is REALLY buying.
We need to ask the question: ‘What are you selling REALLY‘.
Often, the customer is buying not only the obvious product or service but also something intangible.
For example a feel-good factor; status; an experience; or membership of a community.
Prices should reflect what the customer gets out of it, not what we put into it.
So we need to fully understand what customers value.
Then we have to focus on those customers who most appreciate the quality and value our products and services.
Also, before any sale, your prices makes a statement about quality and where you fit in the market hierarchy.
I love the Stella Artois advertising slogan: “Reassuringly Expensive”.
By raising prices, some customers will run away. But they were never going to be good customers anyway.
On the other hand, higher prices will attract the right kind of customers.
In conclusion, pricing is a complex but vitally important matter for any creative business.
It connects the economics of a business with its perception in the marketplace and is a vital ingredient in successful strategic marketing.
It is only if we can make our businesses financially enduring, by charging proper prices, that we can survive, prosper, and make a better world.
My online toolkit “How to Increase Prices” has much more information about pricing.
The video-based toolkit (or ‘course’) has 16 sections, with 9 videos, plus articles, downloads and action points.
Full details of the toolkit are online here.
The full price is 49 GBP. However I have 10 free access (100% discount) coupons to give to creative entrepreneurs who want to explore Pricing in more detail. Contact me by email to request a 100% discount coupon.
Below is the short introductory video of the online toolkit ‘How to Increase Prices’.
David Parrish empowers creative entrepreneurs to achieve greater success, both creatively and commercially.
He is a specialist creative industries business coach, speaker, trainer and writer. He works worldwide, online and offline.