Last summer, when I was in the UK, I stumbled across a cute little cafe/gallery. I was admiring some of the work on the wall and a woman turned to me and said: “Guess how much he is charging for that?” She nodded at a large canvas with a printed black and white photo on it.
It wasn’t really my kind of thing, I had no idea what it would go for, so I guessed five hundred pounds. She snorted and told me it wasn’t worth that and that the artist was charging four thousand.
She then went on to complain that she spent hours on her oil paintings but couldn’t get buyers even though she was only charging thirty pounds.
We ended up having quite the conversation, I believe the photographer was completely in his right to charge what he did, and obviously, people will pay because all but one of his pieces were sold whereas, as lovely as her work was, she was very much in the “starving artist” mindset. The longer I talked to her the more I realised that she had no idea on how to price her product.
She was as equally skilled in her craft as the photographer but wasn’t pricing her product properly at all and when I asked, she had no idea who her ideal avatar was. I bet my bottom dollar that the photographer knew exactly who his ideal client was! She was also missing out on even the fundamentals of pricing, apart from her paints and canvas she didn’t include anything else in her costs.
After our chat, I left her deep in thought, we never exchanged details but I do hope she raised her prices and started charging what she is worth and including all the hidden costs!
In a roundabout way, this brings me to something I have noticed the last couple of weeks. There are a lot of people complaining about the use of services and having to pay for them. Things like using Etsy, and the fees that they charge; PayPal, a lot of complaints that PayPal is more expensive than other services (it’s not) and pieces of software or plugins.
Now I understand where this is coming from because I started out bootstrapping with absolutely no money and having to scrape and scrimp to be able to put anything out there. But on the other hand, I’ve always believed that these services are actually saving me money in the long run. Plus a true bootstrapper knows where and how to save a buck or two!
Let’s take PayPal for example, to set up a system that is secure for your customers and the same level of convenience would cost you a small fortune.
You know, you need all the encryption and everything that goes with setting up a secure payment system. With PayPal, they’ve got you covered with that as they have a secure TRUSTED system. If I am offered Paypal or some kind of payment system I have never heard of, then I am going PayPal all the way.
And not only that, with PayPal, you’re also paying for convenience. There are numerous times when I have seen something as I’ve been surfing online and bought it because they have a PayPal button. I can just click and pay and that’s it. Whereas if I had to get up and go find my credit card I wouldn’t have bought it.
So not only are you paying for all the encryption and safety features that PayPal provides you’re also paying for the convenience for your customers and at the end of the day, that is going to boost your sales because believe me if there’s a choice of using PayPal or my credit card I always go for PayPal, I very rarely get my credit card out!
What about Etsy?
Again, if you were to set up your own store, then it would cost you the hosting, you’d have to pay for your domain name, you would need to pay or build a website, branding, graphics, SEO, plus any plugins, backups, shopping cart features etc.
And then there is traffic. You’re going to be paying for traffic either with time or money, whereas Etsy has the traffic already and they’ve dealt with all the whole website shenanigans, all you need to do is actually list your thing for sale. Obviously driving your own traffic to your own store is on top but it’s much easier to do when you are driving it to a big, trusted site like Etsy.
So Etsy is providing a service that is saving you both time and money and at the end of the day, they employ people, people they have to pay to actually do the job of running the site and business. And their costs are going to be so much higher when you consider the size of the company.
It’s a business and so I really can’t come to grips with people complaining about the price of a 20 cent listing and whatever percentage that they take of each sale when they are providing such a great service and saving you a shitload of money. For a one-woman-show to be able to create the same amount of traffic with customers who trust the site as Etsy generates, you would have to spend a lot of money on ads!
Things like plugins and software and other digital services.
People often complain about these costing money, often they have a free service but then you pay if you want something more advanced or you want a better service or whatever. Anything from tools for making infographics like Visme or extensions for your web browser that make your life easier.
And it’s the same thing. Somebody is making this plugin or software. Somebody sitting there coding it, somebody’s got to put food on their table and it takes them time and effort to do it, so you shouldn’t expect it to be free and if you’re expecting everything to be free, then you can’t complain when your customers don’t want to pay for your thing!
How To Deal With The Fees…
What do we do when we have all these things to pay for? Well, when you price your product these fees should be built into the end price. Whatever it is that you make or sell or whatever service it is that you have, all these factors should be built in.
When calculating your pricing obviously you’ve got your initial costs for your materials and your labour. It’s amazing how many people don’t include labour. If you are one of those who doesn’t charge for YOUR time, it’s about time to change that! Your time, skills and expertise are all worth money and you should be charging for it. Own it!
Also, your costs should include things like your utilities, your electricity, water, whatever you use to create your thing and your internet service, telephone, any software that you use. A percentage of should be included in your costs and if you’re not doing that then your pricing is going to be completely off.
This is a basic rule of thumb for physical products, find your production cost and then double it, this will be your wholesale price. Then double it again, this will be your retail cost.
Now, this is where it gets tricky because you will see people that are charging way-way less and then you feel like you have to price your product the same as your competition, but the thing is they are doing themselves and yourself a disservice by underselling themselves. Or your competition is a Chinese manufacturer, churning out a similar machine made product at a much lower quality. They are not the businesses you should be comparing yourself to.
Let’s take handbags as an example. You can pick up a cheap handbag, probably made in a sweatshop somewhere for $10 or you can go to Coach and buy a premium leather bag for $3000.
There are people who will always go for the $10 bag and there is a percentage of the population that will always go for the $3000 branded bag. Then there are all the others who fall somewhere in between.
Your job is to know your customer avatar inside out so that you know where on the pricing scale you and your product fits. If your product costs more than the cheap Chinese knock-offs then you want to position yourself as an artisan making handcrafted goods, your ideal customer is not the penny pincher who goes for the cheapest listing out there. Your ideal customer is one that believes in supporting artists and is willing to pay for better quality and a handmade finished item.
Ahhh but Jo, what about pricing your product when it’s digital?
As you know a lot of my goods are digital but there is still an initial outlay. Time to make it, editing, graphics, PayPal fees, hosting fees etc. But the beauty of a digital product is that once it is made, you don’t have to do it again! – this is why I am such a big fan! But the same exists with a digital product as with a physical one.
There are people that sell ebooks for $5, there are also people who sell their ebook at $99
Some would argue that $99 is overpriced where some would argue that $5 is underpriced so again you need to find that happy medium for your avatar.
What happens when the marketplace decides the price?
There are going to be times when the market is going to be the deciding factor, for example, digital sewing patterns rarely go above $15, I charge $12 for mine. But because it is digital, it didn’t take long to recoup my costs for each pattern. So I would suggest knowing how many you need to sell to break-even.
Physical products are going to be more difficult, it might mean hunting for lower-priced materials to use or finding a way to increase production time. Or maybe, switch things up and put a new twist on what you make so that it differs from the standard items in your industry and then… you can charge more!
Your Kaizen Action Step…
Check your pricing. Are you including everything that you use, including your own skills and time when pricing your product? Is it time to raise your prices?
Do you know your avatar inside and out? In the Kaizen Revolution (my membership for entrepreneur moms), we spend a good chunk of time nailing this because it is the foundation of your business.
Now I want To hear from you! Do you believe you have your pricing nailed or are you going to go and tweak it? No product yet? Try out the Passive Income Generator (fondly known as PIG) to find a product that fits your skills, passions and qualifications.