Establishing Your Price Part 2:
©2005-2009 Julian Franklin
NOTE: This article originally ran in "The Linking Ring", the trade journal for The International Brotherhood of Magicians (the largest magic fraternity in the world).
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 PricingCost 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 PricingDemand 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. In our productions company we've found public libraries in our area prefer Tues, Wed, and Thurs. for summer reading programs and avoid Mondays and Fridays. So for a while I considered lowering our fee if the libraries 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 party magic shows 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 PricingCompetition 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 performers (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 of their competitors 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.
[NOTE: for more on establishing a price based on being the low-cost leader, check out this article I wrote for my e-newsletter in May of 2008 all about Low-Ball Pricing]
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 or product 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 PricingGoal 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.
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Julian Franklin is one of America's leading marketing consultants, a top behavior modification specialist, and author who develops creative ways to stimulate growth in your business. He has authored more than 20 books on human behavior, marketing, professional development, and personal accomplishment. He is frequently invited to speak on these topics as well. For more information, including the opportunity to subscribe to his free monthly e-newsletter, you can visit www.JulianSpeaks.com