2 Different Ways to Price Your Work
Okay let’s get things straight from the beginning - nowhere in here will I tell you what to charge for anything! There are so many different factors that go into pricing, and I don’t know all of those factors for you - if you’re looking for actual numbers, there’s my friend Becca’s pricing course for Calligraphers/Letterers and to my friend Victoria’s pricing course for Stationery Designers.
Today, I’m just going to explain 2 theories behind pricing, and pros and cons of each. You probably haven’t thought through your pricing in a while (if ever) so this will give you a basis for how to get started.
Bottom - Up
This first method we’re going to call Bottom-Up and it’s probably your most typical pricing structure. The basic calculation is that you add up all your business expenses for a certain project, add in the markup you want to make, and charge that amount for the project. This can, of course, get much more complex. One big thing in a creative business is to ensure you cover your time - multiply the hours spent by your hourly rate, and include that as a project expense. You also want to make sure you’re covering all the time that you’re handling admin, marketing, and other tasks that you don’t directly bill for. You have to bill for those hours on the jobs that you do directly bill for so that you’re not only getting paid for half of your time. Make sure you also count for taxes, which will be around 20-30% of your income. Typical markup in the stationery world is around 2.5-3x the cost of goods.
This method has some serious Pros, and that’s why it’s been used for so long. Let’s discuss!
You cover all of your time and expenses. That’s awesome. It means you most likely won’t go broke investing in your business.
The more people spend, the more you make. Typically. Booking bigger and bigger jobs is the way to make money here.
To grow or give yourself a raise with this method is fairly simple - you up your hourly rate, and/or start out-sourcing tasks for less than your hourly rate so that you can take on more work, and profit on the outsourced work.
You have set margins in this method, so you always know how much you’ve made on an individual project.
The sky is pretty much the limit with this method. The more work you complete the more you get paid.
And of course, it has some cons. The main one being that your actual income by job fluctuates, even though your margins do not. Small jobs won’t get you paid as much, so they may become annoying. Just make sure you account for any admin or setup that occurs and charge the same amount for that on a small job as you would on a large job, so you don’t start hating the small jobs. You could also limit your job size with a minimum order or set packages, if that makes sense for your business.
Top - Down
What we’re going to call the Top-Down method of pricing is basically the opposite of Bottom-Up. It’s where you start with how much you want to make in a year, and divide that out by the number of jobs you have. Then, you just make sure you make that amount of profit on each job. What this usually looks like is charging the job expenses at cost with no markup, and a flat fee for working with you (say, in my case, a design fee).
The pros in this case are convincing too:
First off, you know exactly how much you’re gonna make in a year. That’s cool as heck, especially as an entrepreneur
You’re also not relying on clients to buy expensive things to make money, so you don’t ever have to attempt to upsell - and frankly, you likely want smaller jobs that are simpler because you make the same amount either way.
Your value is clearly defined - I love this idea of “You’re paying $xxxx dollars just to work with me”. It removes any thoughts of upcharging or marking up products for your gain, and places all the value on your expertise and skills directly.
Giving yourself a raise or growing with this method means upping your starting value, or if you decide to take on an extra job one month, you get a little bonus for working harder.
Okay, this all seems great, but there are of course some negatives to the Top-Down method too. First of all, you have to be good enough to estimate how many jobs you’ll get in a year, and you have to actually get those jobs. This is great if you’re well established. Maybe a little less great if you’re just starting out. You also will have a ton of fluctuation in your expenses vs. your profits (aka, your margins). This isn’t necessarily terrible if your overall business expenses stay the same for different projects, but stable margins can be helpful for future investments. Your clients with larger, more expensive jobs will be getting an awesome deal, comparatively, whereas your clients who want less expensive pieces won’t be getting as good of deal. And of course, charging a high buy-in point relies on your individual value being significant enough that people will pay that higher buy-in for the privilege of working with you. Again, this may work better the more established you are.
So, have we made you re-think how you handle your pricing? I actually use a combination of both, which works well for me. I have a medium-high design fee that applies to all custom jobs, and then production fees with a little markup that apply to all jobs. So Semi-Custom pricing is the same as custom pricing, except for that custom design fee. This keeps things simple for me if someone’s deciding between the two. I make my set design fee on every custom job, which serves as a “minimum” of sorts, but then the production markup allows me to make more or less depending on the job’s size. It’s kind of a mix of both worlds, whereas if I were only a custom designer, I’d likely switch to the Top-Down pricing at this point.
Like I said before, there are a lot of factors that go into pricing, and you have to find what works for you - the only MUST - do is to cover your time, expenses and, of course, taxes.
Let us know your thoughts and questions, which pricing method you prefer, in the comments below!