Establishing Your Price Part 2:
Pricing Methods
by Julian Franklin
How much should you charge for your services?
This is one of the most common and perplexing problems
for those entering the field professionally or semi-professionally and continues
to be a source of reckoning and second-guessing even for established pros.
In another article I cover the various pricing policies that can provide the
tactical and even strategic tools of business growth. Here we will focus
on some methods that can provide a framework or guideline for establishing
your price once you have a strategy and pricing policy in mind.
There are four basic types of pricing methods: cost-oriented
pricing, demand-oriented pricing, competition-oriented pricing, and goal-oriented
pricing with several methods available in each type group. I will try
to fully explain these four method types but I do not claim or even attempt
to make this list exhaustive. It should however, prove to be useful
for those struggling or even curious about pricing issues.
Cost Oriented
Cost oriented pricing tends to be more popular in retail
industries as opposed to service industries since the pricing is based on
the cost of the goods or services. Most often a performers costs are
limited to minutia like mouth coils, lemons, hat tears, flash paper, wireless
microphone batteries, cleaning of costumes and other, relatively inexpensive
items. However, it is important to remember these costs as you establish
your price.
Cost-Plus Pricing is, intuitively enough, cost plus a
certain amount. Maybe it is cost plus $275 for example. If your
costs include assistants and hotel accommodations this might be a workable
method for you.
Markup is cost plus a certain percentage. In many
retail businesses the markup has to be at least 50% (that means 50% of the
price the consumer pays is markup over cost) or the retailer won’t carry the
product. That is, a retailer often assumes they must be able to double
their money or it isn’t worth carrying. This markup percentage is so
widespread that it is often called “Keystone Pricing”.
Demand Oriented
Demand oriented pricing might suggest lower prices for
less in-demand times or shows, and a higher fee for busier times. Many
magicians raise their fees for evening shows in the month of December, often
doubling their standard fee. I found public libraries in my area prefer
Tues, Wed, and Thurs. for summer reading programs and avoid Mondays and Fridays.
So for a while I considered lowering my fee if they would book on a Monday
or Friday (until I learned that Child Care Facilities PREFER Mondays and Fridays
and just filled those days with a different client type!). Birthday
parties are more popular on Saturday than on Sunday or Friday afternoon.
January is traditionally slow for many performers and this may be a time to
have lower rates. Of course, this can result in some difficulty explaining
two-price policy to repeat customers who want to book you in the slower periods.
On the other side of the same coin, demand oriented pricing
may encourage you to raise your fee by simply recognizing the value of your
service to the client and their resultant demand for your service. A
good trade show magician may be able to generate $100,000 to $1 million or
more of new business at a trade show for a particular company. Many
trade show exhibitors spend tens of thousands of dollars exhibiting at a given
trade show and they don’t want to risk hiring someone who won’t produce results
as the cost could be much greater than the magician’s fee. The magician's
fee might represent only a very small fraction of the total spent on the
show, but it could drastically increase or decrease the effectiveness of
the entire show. This is why GOOD trade show magicians are able to
command high prices while those less skilled or without a reputation might
have difficulty finding work at any fee.
Competition Oriented
It is important to know what your competitors are charging.
Your customers will check out the prices of your competitors, you should
do so as well - and do so often as their pricing policies will change.
Many times performer (and business people in general) choose to stick with
the "standard" fee and hope for the best. Other times they charge slightly
less than the average in the hopes of making up for the difference in volume.
This pricing method is very popular with those new to the field and even more
UN-popular with many established performers. Charging just a little
less than the going rate is often call “undercutting” the market and is looked
down on by many.
The truth is, there is nothing illegal or immoral about
establishing your price below the average rate. There are some economic
considerations you should take into account, but (and I’m sure I’ll get some
e-mails about this) there is nothing morally or ethically wrong with setting
your prices low.
The down side of being the cheapest in a given market
is that if you create a position of being the least expensive, you will have
a hard time taking your clients with you when you want to move to the next
financial level. You will lose out on a great deal of repeat business
when you make your price change, if you ever do. Also know there will
always be someone who is willing to work for less than you and you may find
the tables turned when someone comes in behind you with a fee $10 less than
you. Remember, if they come to you for price, they’ll leave you for
price.
Competition Oriented pricing methods don’t always involve
being cheaper than the pack. It is a very viable and effective strategy
to price your shows 20% higher than the average. This is a large enough
percentage to catch attention and make you stand out, but not so large that
it rules you out of the game. In order for this higher priced strategy
to work, however, your show must warrant the higher fee.
In addition you must be able to effectively explain to
your prospects WHY your show is worth more. If your prospects don’t
know why, you will lose out to the cheaper competitor who may have a program
that looks the same as yours. There is a phenomenon called “Threshold
of Difference” that explains why consumers are willing to pay more to you
than to your competition, but it involves being able to demonstrate additional
value received, either real or perceived.
A classic example of validating higher prices was a television
ad that ran in the late 1970s for a chain of convenience stores. A woman
was heard saying “I went to the Stop & Go and bought a loaf of bread
and a gallon of milk and do you know how much I saved? (dramatic pause as
a scene is shown in a traditional grocery store with long check out lines)
I saved 45 minutes!”. The added value that warrants higher prices is
the convenience and speed of checking out. What do you offer your customers
and clients? How can you convey that to them when they call and ask
your price?
Goal Oriented
If you have a specific income goal you can calculate
a general idea about what you need to charge in order to attain that goal.
For example, if you want to earn $100,000 in 12 months from your performing,
you need to earn an average of $8,333 per month. That’s $2,083 per week
or about $400 per day assuming you will have at least a few days off.
How many shows can you realistically and consistently book and do in a day
to earn $400?
A variation of Goal Oriented pricing is done by performers
who have a day job and perform more as a hobby. I have heard some in
this position mention that because they have a full-time job (or retirement
income) that they don’t have to charge as much and can afford to do shows
very inexpensively or for free. Their goal is performance time as opposed
to an income goal.
Conversely, when I was making the transition from part-time
pro to full-time pro I established my price based on the fact that I had a
“regular” job. I figured that I was making a certain amount of money
for each day I was at work. If I had to miss work to do a show I would
miss out on that money. In other words, that was what my time was worth
as a minimum. I then went on to realize that if I traded a sick
day at work with a day working a show, I still wasn’t any better off.
I got paid one place but not at the other.
Therefore I determined that I needed to make at least
twice as much as I would have at work to compensate me for the missed pay
as well as for the sick day I had to use. I then added on a little bit
more to account for wear and tear on props and vehicle and the little things
that get consumed in a show (Remember Cost-Plus pricing?). This new
price became my standard, to which I had to develop a show that warranted
that rather hefty fee and brush up on the sales skills needed to be able to
market the show.
Obviously there is no right or wrong answer when it comes
to pricing. Most of us will use a combination of methods when determining
our price and may then alter that price as part of a strategy for establishing,
increasing, or expanding our business. Considerable thanks goes to Kenneth
Frehm, a professional retail consultant, in his help with this article series.
Kenneth is also a magician and member of Ring 74 of The International Brotherhood
of Magicians.
Julian Franklin is a marketing consultant, behavior modification specialist,
and author who develops creative ways to stimulate growth in your business.
For more information, including the opportunity to subscribe to his free montly
e-newsletter, you can visit www.JulianSpeaks.com