Have you ever wondered exactly how to determine your prices as a creative entrepreneur? Do you know if you’re charging the appropriate amount for your services and/or products? If you have pricing questions, this episode of Priority Pursuit is for you!
Chris Deckard of Velvet Lotus Photography is a Lafayette, Indiana photographer who photographs diverse subjects. He shoots high school and university seniors, families, weddings, and commercial photography. And, on top of all of this, he mentors and offers workshops to other photographers.
When Chris isn’t behind a camera or computer, he can be found cooking, sipping on a nice bourbon, or spending time with his three children and his dog, Sophie.
With over a decade’s worth of photography and business experience, Chris has designed a pricing formula that moves the need in his business. And, Chris’s formula can be used by any creative entrepreneur to determine what they should be charging—not just photographers.
If you want to know exactly how to determine your prices as a creative entrepreneur, you’re going to want to listen to (or read) this episode of Priority Pursuit!
Determining your prices starts with defining your cost of doing business (CODB).
As a creative entrepreneur, determining the appropriate prices for your services and/or products is essential to not only keeping your business running, but also helping it grow. This sounds pretty straightforward, but how exactly do you go about determining your prices?
According to Chris, determining your prices begins with understanding your cost of doing business (CODB), which can be defined as: the cost of everything it costs to run your business from equipment, computers, studio space, insurance, emergency situations, taxes, and any other business expenses.
That CODB definition seems simple enough, but Chris adds that creative entrepreneurs tend to limit the cost of doing business to just business expenses and forget to factor in that they need to get paid for the work they do. Because, according to Chris, you are a cost of doing business and limiting this definition to just covering your business expenses keeps your business running, but it doesn’t help move your business or even allow you to support yourself or family.
How do you determine your cost of doing business?
Thankfully, determining your CODB is the easy part, because all you need is a piece of paper or a spreadsheet and to likely open your bank account so you can see where your money has been going.
Chris suggests writing down all your costs of doing business on paper (or in a spreadsheet) so that you can scratch things off or add to your list while you’re working through it. Your list should outline your expenses per month and per year and include both regular expenses (e.g. software subscriptions) and savings for future purchases or upgrades to equipment (e.g. a new computer every three years).
Making this list will help you see what your current business expenses are and may even help you identify unnecessary expenses or ways you can save money. For example, Chris suggests reviewing your subscriptions and/or payments for services and deciding whether monthly or yearly payments are more cost effective and looking to see if you have subscriptions on auto renewal that could be canceled.
For future purchases or upgrades, Chris adds that if you have a computer that costs $3,000 and you plan to upgrade every three years, then part of your cost of doing business is knowing that you need to make $1000 a year to cover that. Then, you take that amount and divide it by the number of months you’re working and you know what you need to take in monthly to cover that cost.
Now, this process or step isn’t just for photographers. Maybe you’re an artist who needs to cover the cost of supplies (canvases, paints, etc.) and will eventually need a studio. Or, perhaps you’re a writer who needs to factor in the costs of upgrading your tools or taking interviewees out for coffee. Regardless of what kind of creative entrepreneur you are, when your expenses and needs are clearly laid out in front of you, you’ll have a better idea of what you’re currently spending and what you need to include to cover future expenses.
Don’t forget to account for taxes.
Ah, yes. Taxes. We do have to mention those for just a moment, because taxes are a CODB that can’t be left out.
Chris uses a conservative approach when determining how much to set aside for taxes and shares that he sets aside between 30-35%. Chris shares that this approach doesn’t work for everyone and you have to determine what fits your business. If you’re unsure of what you should be budgeting for taxes, you can ask your CPA, reach out to a tax attorney, or even contact the IRS directly to ask for help in determining that amount.
How do you determine what to pay yourself?
Okay, that all sounds easy enough—writing down every cost associated with doing business and maybe turning off a few auto renewal subscriptions. But, in order to determine your prices as a creative entrepreneur, you also need to determine what you’re going to pay yourself.
According to Chris, first, you need to accept that you are a cost of doing business, and you, your effort, your skills, and your talents are worth being compensated for. Afterall, as a creative entrepreneur, you’re taking a big financial risk to run your own business, and what you pay yourself should reflect the degree of that risk, as well as the time and effort you’re putting into running your own business
Now, that’s the mental side of determining what to pay yourself. On the practical or literal side, Chris suggests totaling up your personal budget as well. In other words, you need to make another list or spreadsheet that lists all of your (if you’re single) or your family’s expenses. This list should include things like, health insurance, retirement, vacations, and maybe even a future home purchase. Basically, you need to determine your budget or your cost of living. And, whatever that number is, that is what you should be paying yourself (if not more).
It’s important to note here, that if you have a spouse and a dual income household, these expenses won’t be solely your responsibility. In case of emergencies or life-changing circumstances, Chris contends that estimating for more than necessary is wise. But, if you’re a dual income household, know you aren’t alone.
Knowing your business and personal costs allows you to pay yourself in a way that reflects what you do, meets your and/or family’s needs, and keeps you from just breaking even. Because, friend, here’s the thing: just because you love what you do as a creative entrepreneur, that is not your compensation.
How can creative entrepreneurs determine what to charge for both services & products?
Now that you know your cost of doing business and your living expenses, determining your specific prices for your services and/or products is simple math. Before you cringe at the thought of doing math, hang with me; this isn’t as complicated as it sounds.
First, add your CODB to what you need to pay yourself (your living expenses). This number is how much money you need to bring in annually—your annual revenue. (You can also divide this number by 12 if you’d rather think in months.)
Then, divide your annual revenue by the number of jobs you want to take or products you want to sell per year. That number is how much you should be charging. In other words, to determine your pricing, you need to take:
(CODB+Your Living Expenses) / The Number of Jobs You Want to Take or Products You Want to Sell Per Year
To make this process more straightforward, Chris offers these formulas for determining your prices for both services and products:
How to Calculate the Cost of Services
The amount you need to bring in divided by how many jobs you want to do per month or per year (whichever math you prefer) and then pricing accordingly (e.g. If you’re a wedding photographer wanting to shoot 20 weddings per year, and you need to make $100,000, you need to charge $5,000 per wedding).
How to Calculate the Cost of Products
In general, with products, retailers recommend determining the product cost and then multiplying the cost by 2.5 to 3 times to determine the marked up price. If you’re a retailer, this formula might work well for you.
However, if you’re an artist, this formula doesn’t work well, because you aren’t reselling a pre-made product; you’re creating a product to be sold.
For example, if you’re a photographer, an 8×10 print might cost you $10, and if you multiply by 2.5, you’ll only make $25. And, this cost does not reflect the time it took to create that print (e.g. driving to and from the shoot location, doing the actual shoot, and editing photos etc.).
Artists, as you create your pricing for products, make sure that you are also accounting for your time and skills.
Side Note: Chris is an IPS photographer, meaning that rather than charging high numbers for session fees and delivering digital images, his clients purchase prints after their shoots. As a result, his income is largely based on product sales or his finished artwork.
See. The math wasn’t that bad, and regardless of what products or services you offer, you can use these formulas so that you know exactly how to determine your prices as a creative entrepreneur.
What if you determine your prices, & the numbers scare you?
Chances are, you’re going to do the math and see numbers that make you uneasy. However, according to Chris, you need to remember that as a creative entrepreneur, you’re doing work that you love; however, it’s hard work, and you’re taking a huge, brave risk by choosing to run your own business. And, you and your family deserve to be compensated for this risk and your hard work.
Chris argues that it’s okay to be scared by the numbers you get. It’s a lot to take in, and there are many costs associated with running your own business. But, determining your pricing comes back to remembering that you’re worth it. And there are practical changes you can make if you’re scared by the numbers you get, such as charging more for the services and/products you’re currently offering and/or you can begin taking on more work.
Friend, you’re offering a one-of-a-kind experience—whether service or product based—to your ideal clients, and your work is worth paying for.
So, if you’re ready (and even if you aren’t), grab that piece of paper or open a new spreadsheet. Determine your cost of doing business, your personal expenses, and do the math to determine what you should be charging so that your business can grow and so that you can support yourself and/or your family well.
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Links & Resources Mentioned in This Episode
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