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Thread: [Tips] How Much To Charge For...?

  1. #1
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    Exclamation [Tips] How Much To Charge For...?

    Introduction

    DISCLAIMER: I am NOT a certified economist and I WILL NOT be held liable for any actions or omissions that you made based on these postings.


    Hi everyone, I have seen so many threads started to ask how much do I charge for this and that. As such, I decide to compile some information that has been shared as well as some of my own knowledge. Anyway, it is time I contribute something back into the forum that has fueled my passion for photography.

    These are universal tips that apply to all types of photography services and can also be adapted for other industries. I do not hold a PhD in Economics so the terms and descriptions are expressed mostly in layman language. If anyone knows the exact terms or spots a mistake or have more to add, please feel free to add to it. I am after all not an economist and do not hold the exclusive authorship of this document.

    BASIC CONCEPT

    1. Cost of Goods/Services - This is an important figure that you must derive early. It is simply the total cost of providing the goods/services.

    Per Unit Cost of Goods/Services = (Total Variable Costs Per Unit) + (Total Fixed Costs / Sales Volume)

    2. Fixed Costs - This is a general term for costs that are usually fixed regardless of the number of goods/services that you have sold or planning to sell. Fixed costs are also known as Overheads. Example of photo-specific fixed costs are your camera, flash, rechargable batteries, tripod, etc
    Note: Some fixed costs are not really fixed but increase on a tier basis.

    3. Variable Costs - This is a general term for costs that will increase/decrease according to the number of goods/services sold, regardless of whether it is proportional or not. Example of photo-specific variable costs are your disposable batteries, transportation costs, hourly opportunity costs, etc

    4. Opportunity Costs - This is a general term for the supposedly lost opportunity to earn money if you did not choose to provide your goods/services. For this time round, we will make it simpler by using an hourly rate or daily rate whichever suits your goods/services delivery method. If you are lost for what to count as an opportunity costs, you probably do not have much oppportunities for you yet. However, a good gauge will be what is an acceptable hourly rate you will expect to be paid if you are working instead of doing this business. This cost can be considered as a variable cost or fixed cost depending on the granularity of the costs.

    5. Equipment Depreciation - This is a general term for describing the supposedly decreasing value/worth of your equipment over its estimated lifespan. Though not recognised by the tax authorities, it is an accepted accounting term. There are complex methods of calculating equipment depreciation but for simplicity sake, we will take the straight line depreciation where we take the total cost of the equipment divided by the number of days/months/years whichever rate that suits your business best. This is usually a fixed cost unless you can relate the equipment depreciation with the mileage (usage) of the equipment per job.
    Last edited by godzilla60; 23rd September 2009 at 01:53 PM.
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  2. #2
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    Default Re: [Tips] How Much To Charge For...?

    PRICING STRATEGIES

    1. Introduction - There are many pricing strategies taught in school and some entrepreneurs swear by a certain golden formula. However, you may want to consider the right pricing strategy for the market that you are planning to enter. Nothing beats market survey to really give you a good guesstimate.

    2. Mark-up Method - This is a common and simplistic method to price your services/products. You need to know the profit that you want to generate (usually in terms of % or $) from each sale. So a simple formula will be:
    Per Unit Price = Per Unit Cost of Services Or Goods x (Mark-up % + 100%)
    or
    Per Unit Price = Per Unit Cost of Services Or Goods + Per Unit Mark-up $

    Your profit per unit should therefore be equivalent to your per unit mark-up in an idealistic world. However, there are other incidental costs that you may not be able to categorise or include easily in the fixed or variable costing. There are also costs such as new equipment purchase and unexpected expenditure along the way. Such costs will therefore eat away at your per unit mark-up unless you are quick enough to adjust your pricing accordingly. You may however have to explain the fluctuations of your pricings.

    3. Positioning Pricing Method - This is a more complex method to price your services/products. It involves a lot of research into the segment that you are targeting and requires you to know the spending power of your clients or the market pricing of your services/products. Your choice in setting the final price per unit may be limited by one or more of the following considerations:
    • Pricing Range A Client Will Pay For Similar Product/Service
    • Client's Perception Of The Additional Value Of Your Product/Service
    • Exclusivity Of Your Product/Service
    • Branding Value Of Your Product/Service
    • Marketing Strategy Of Your Product/Service


    Your pricing will be subjected to moving market sentiments as well as pricing strategies of your competitors. As such, you will find that sometimes the profit margin may not be sufficient to cover your costs or may not justify the work completed. However, this method is successfully used by companies who are able to keep costs low and/or maintain exclusive value to their products or services.

    - to be edited further..
    Last edited by godzilla60; 23rd September 2009 at 01:24 PM.
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  3. #3
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    Default Re: [Tips] How Much To Charge For...?

    F.A.Q

    Q: Am I charging too high or too low?
    A: I have heard of photographers offering jobs or services that are really really low as well as photographers charging by the thousands per hour. There are many more photographers charging somewhere in between. To really answer this question, one must know the objective of one's chosen pricing strategy. You are only charging too low or too high if you are unable to meet the objective of your chosen pricing strategy.
    Note: if you do know the objective of your chosen pricing strategy, it is hard to gauge. Profitability is not the only measure of whether you are charging the right amount.

    Q: Someone is charging way too low for the same product/services the market is providing. Will it affect my survivability?
    A: Generally, this someone will exert a downward pressure on the overall prices of the product or services. However, this is not all there is to this picture. It can work to your gain or your demise depending on your reaction to such pricing strategy. A low pricing by a competitor may just be a temporary measure to break into the market and secure a market share or it can be that the competitor has found a way to do things more efficiently, effectively and most importantly, cheaply. Ostracizing the competitor who charges too low or engaging in similar price wars without re-evaluating your product/service value will not benefit you.

    Q: What are my options if someone is charging way too low for the same product/services the market is providing?
    Evaluate why the competitor can offer such prices and what are his/her objectives. Then calmly re-evaluate your product/service portfolio and work processes before deciding on any of these possible actions:
    • Wait Out The Initial Siege - If the prices are ridiculously low and your work processes are really really super-efficient, prepare to wait out the initial siege on your market share. Chances are that if you have done your homework, the competitor will have to retreat from such aggressive moves because he/she may not survive (unless he/she has a huge war chest). Also, the publicity and awareness to the products/services that you offered generated by this siege may be good for you in getting new clients to try out such products/services.
    • Value-Add - Maintain the prices that you charge but add in value or exclusivity to it. Then go on a marketing offensive to change clients' perception on why the prices that you charge are reasonable (or if you are really good at persuading - cheap) for the value or exclusivity that only your products/services possess. If your products or services are targeted at the premium market, this is probably the option that you want to take to remind them why they are paying so much.
    • Price War - Engage in aggressive discounts and/or promotions to maintain your market share. Trim the fats and inefficiencies of your work processes and reduce the costs of your products/services. Be prepared for the long haul if this is your chosen response. This may be the only option left if you are targeting for the same market segment as the competitor.
    Last edited by godzilla60; 23rd September 2009 at 01:49 PM.
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    Default Re: [Tips] How Much To Charge For...?

    Reserved - do update this thread if you have anything to add or points to dispute so we can all learn. thanks.
    Last edited by godzilla60; 23rd September 2009 at 01:53 PM.
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  5. #5
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    Default Re: [Tips] How Much To Charge For...?

    Anyone got anything to add to this article?
    G

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