Pricing is one of the hardest tasks for any creative entrepreneur. Set it too high, and your customers go for a cheaper product; set it too low, and you can’t grow your business. It’s a rock & a hard place, and there’s no “right” answer. While I can’t give you a clear-cut formula for setting your pricing strategy, I can lay out the elements you should be taking into consideration with regard to pricing vs. what doesn’t matter. From there, you can start plugging in your own numbers & create a pricing strategy that’s reasonable and gives you a healthy return.
First, let’s talk about what should not be included in your pricing strategy. I think pricing is so challenging because we’re asked to put a dollar amount on something we made. It’s ours from conception to finished product, and we’re emotionally connected to it. That personal connection can sometimes make it hard to set the price right—it can be a real ego boost to sell lots of pieces to people who love your work, but what happens when things go the other way? It can hurt. That’s why I think we find the pricing conversation so difficult to have—there’s a lot at stake for our self-worth as well as our business models. However, you have to step outside of yourself and take emotion out of the equation in order to set a good pricing strategy. Look at your product through the eyes of a customer. What price would you pay? What makes the item valuable?
Another bad habit I always hear about in pricing conversations is undercutting. It is never a good strategy to simply set your prices a few dollars lower than your competitors and assume the sales will happen because you’re the cheapest. Why? I’ll give you two reasons: 1. You’re undermining your own brand value and 2. What happens when undercutting becomes everyone’s strategy? Prices keep going down to stay competitive and nobody makes money. Not good.
So, what should we do to set good prices? There are 3 major elements that comprise a solid pricing strategy:
I’m sure you all have a good handle on the materials side of things, but do you currently calculate how long it takes you to create a specific piece and incorporate that into the price? Do you have an “hourly rate” set for yourself that can help you gauge how much you’re getting back for the creation time you’re investing?
You should most certainly look at similar products, sellers, and brands when setting your prices. Look at the differences between your product & theirs, how much they’ve sold, and any commentary on their product. Also look for promotions & deals they might be offering—all good clues to let you know what works & what doesn’t.
This one is SO important & something we talk about on Method & Madness all the time. What can you do to make your product stand apart from the others & let your customer perceive that they’re getting a lot for their money? Simple things like your product photography, the product descriptions, and the way you package & ship your product all add value. Extras like personalization, next-day shipping, and excellent customer service make your customers believe you’re worth spending money on. Think about a company like Zappos—they’ve built a strong business based on excellent customer service and the fact that the shoes you ordered Thursday show up at your door on Friday—instant gratification.
These elements will all work together to help you create a pricing strategy that works for you; you’ll not only be able to set prices you’re confident in, but you’ll be setting your business up for continued growth.
**Want to get more involved in the pricing conversation? We recently talked about pricing over at Method & Madness during a week of The Down & Dirty Project. We’d love to get your take on pricing methods that have worked for you!
Megan Gallagher is a small-business strategist working with creative indiepreneurs at Method & Madness. She talks business development, creative vision, and indie lifestyle through one-on-one strategy sessions, e-guides, and theMethod & Madness blog.
Main image courtesy of jordan_lloyd