Thursday, 28 August 2008

Pricing, 1 - Establishing the Cost

Pricing your work is necessary to get a fair return for your effort and make a living.

Establishing the Cost

The first step is to calculate the amount it costs to run your business. Prepare a summary of annual outgoings including:
  • Studio/workspace
  • Administration costs
  • Equipment & loans
  • Stock
  • Marketing materials
  • Advertising
  • Cost of living & expenses
  • Income tax & social security payments
  • Insurance for public liability, materials, equipment, and employment
  • Depreciation (cost to replace things you are reliant on)
  • Investment for future lifestyle
  • Add in the things that make life worth living.
The value you put on some of the things above may be “zero”, but still need to be considered. These are considered the overheads.

2. Step two is to calculate the time available to make your work over a year. Start with 365 days and then subtract the weekends, holidays, administration time, and allow a contingency for sickness, etc. When you first start in business you are likely to spend 40% of your time on  administration, but you should get more efficient and this time will reduce to around 30%.

Then do the calculation:

Overheads & personal salary divided by days available to work.

This enables you to fix a price for your time and gives you a daily rate from which you can calculate an hourly rate.

3. Step three is to estimate how long it takes you to do anything - preparation time, research, selling, marketing, packaging etc.

Add together the cost of materials and charge for the time it takes to make. This enables you to calculate a price. Then look at how much the market will pay for your type of work.

Even if you know the market will not stand the full price, you should still do the calculations to find out the price that you should be trying to achieve. All these calculations need regular reviewing.

More information is available from craftscotland.

Pricing, pt2
Pricing, pt3
Pricing, pt4
Pricing, pt5

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