Monday, April 27, 2009

Pricing Challenges

I recently had the good fortune to be invited to speak to the Vermont Craft Council. I taught two classes; one about using the Internet for publicity and promotion, and the other about pricing. I was frankly a little surprised by the invitation, but also flattered.

But, I also wondered what I had to say about pricing. I struggle with pricing....like nearly everyone I know. I have yet to meet the crafts person who declares, "I love to price my work!"

It is a task that is put off to the last moment for many of us, or agonized over for too long. As I prepared for this presentation, I reviewed some of my earlier posts about pricing, and in particular the ones about pricing the pear. I had learned a great deal in the process of writing those posts, and once again, I found preparing to teach a class brought forth new understanding.

First off, I recalled that I have always hated pricing. When I was selling oxygen, nitrogen and other industrial gases, I hated pricing. It was nearly always a challenge even then to come up with the right price in competitive bids. When I was a product manager in several companies, and I had to review price deviations with sales people, it was always a stressful process. When I had a business making window treatments, I really felt challenged by coming up with the right price. So, why should this be any different?

If anything there is the added challenge that we are pricing something that we have made with our hands and often our hearts. A piece of us goes off with each piece. How can we value that?

Then there is the challenge of trying to figure out how much will someone else pay for this item? Can we cover our costs...if we even know what they are?

As I reviewed my presentation with my husband, we began to talk about the many factors that go into pricing. That was when I realized how I had always hated pricing. But I also began to see a new challenge that exists in the world of an artrepreneur. The marketplace is dysfunctional. Both the buyers and sellers can play a role in that dysfunction.

Let's look at the sellers first, since this is the easiest...but not easy!....to control. As I reviewed the past posts on pricing, and the many ideas I gathered from readers about how they approach pricing it was clear that not all sellers are pricing in a way that will create a sustainable business. In order to continue to be in business for five years, ten years, or more, a seller must consider all their costs of being in business...not just their cost of materials. Or maybe the labor. If a seller is selling their work in the retail market at wholesale prices, they are doing themselves, and the market, a great disservice.

We need to price our work with the idea of sustainability. That means our overhead, selling expenses, and a profit that can be reinvested into the business in new equipment or other capital purchases, are incorporated into the price, along with labor and materials.

What if you think, "Oh, I don't want to do that. I just want to have fun making things and make enough money to buy materials."?

Okay. What about your cost of display equipment...even just a table....or packaging? Are you including those? Are you declaring your income and expenses with the IRS? Can you honestly say you are in business if you are not pricing your work like it is anything more than a hobby?

Maybe you have moved past that. You can comfortably say that is not me. I don't do that anymore. I price my work so that I can make a fair wage, and a fair return on my investment in my business. But then you go to a show, and you find yourself surrounded by people who are pricing it as a hobbyist. Do you think the customer can understand the difference in pricing, and why the higher price is actually more rational? Does the average consumer at a local craft fair care if you are in business next year? How can you keep your head when everyone around you is losing theirs?

This is where I began to realize part of my underlying motivation to move up to higher quality shows, or to wholesale. The markets are more rational. You are more likely to compete against artists who understand the cost of being in business. They are in it for the long haul. Likewise, the consumer is likely to be more educated as well. They are willing to pay a fair price for handcrafted work. They want you to be around in five years, so that as a collector or as a shop owner they can continue to purchase from you. They understand that you do not need to price the work so that every single person who wants to own it can afford it. You are one person. There is only so much that you can produce.

I am not dissing the local craft shows, or the on-line shops full of dysfunctional pricing. I am just describing the landscape. I did a terrific little show last year at some local art studios. There were people there who had fair prices. And there were plenty with just crazy pricing. But, I did not allow the people who have are pricing too low make me question my own pricing strategy. And I had a great show.

There are also times that you can reasonably lower prices. If you have old inventory that you want to clear out. Or if you have seconds that are saleable. Go ahead and discount those items and convert them into cash.

If you hate to price your work, you are not alone.

If you think it is way too hard, you are right.

But just because other people around you are losing their heads, doesn't mean that you need to lose yours. Hold on tight. Breath deeply. Know what your true costs are, and know what a fair price is.

You may find that a fair price for an item is just not saleable. You may need to redesign the product, resource your supplies, or perhaps even come up with a new idea all together. But continuing to produce it, and sell it for less that is reasonable for the costs you have...that is just crazy. And you know that.

Sustainability. That is the word to hold onto. We want a sustainable planet. And we want an sustainable business. Neither is easily achieved. But both are well worth the effort.