This week we are starting to think about money…
How much money we will need to earn to live the life we want, how much we need to charge/ how many sales are need to achieve this. Looking into business models and revenue streams and the ever complex topic of pricing your work.
financial planning for your future
Financial planning involves evaluating your current and future financial state. Considering your business and life vision from previous weeks to work out how much money you need to earn to live the life you want and how you plan to earn this money. Creating a financial plan helps you see the big picture and set long and short-term life goals, a crucial step in mapping out your financial future. When you have a financial plan, it's easier to make financial decisions and stay on track to meet your goals.
pricing your work
Pricing your work is difficult. There are no right or wrong answers. The price you can charge is set by the people who buy it and what they are willing to pay. There are many differing opinions on value, especially if you are producing work for a luxury market. Previous weeks exercises will have helped you refine your product and target audience. Look at your target audience and remember you may be aiming your product or service at people with higher disposable income who will value your product and creative work. You will also need to research material costs, production costs, market value, distribution costs and running costs.
getting started
Your pricing model is based on what you do and how you do it. This is traditional formula when pricing a product or piece of work
Pricing of piece example:
Direct material costs = £10
+ your time (hourly rate multiplied by the time it took you to make the piece) = £100 (£20 per hour x 5)
+% of your annual overhead costs = £15
+% profit = £50
The total accumulative cost = £175
x 2 which equals the retail mark-up = £350 recommended retail price
working out your overheads
These are costs associated to your business but not direct to one product or piece of work
Administration costs – the time you spend doing research, correspondence, working on logistics
Fixed costs – insurance, electricity, rent
Marketing costs – website, exhibiting, showing at fairs, paid adverts, printed resources, campaigns
working out your hourly rate
This is based on how much time you can dedicate to your business and in principal how much you need to earn from your business
How much time can you dedicate to your creative business per week on average? Hours. Days?
How much do you need to earn from your creative business? If you have a part time job to support your practice, then your approach would differ from someone aiming to earn a full-time salary from their practice.
Do you earn solely from creating? Or are there other areas you can generate money?
What is the standard hourly rate in your industry?
Other costs to consider when pricing your work include
Material cost - If producing a physical product how much do your materials cost? This will be your base cost on top of which you add your fees and other costs.
Benchmarking - Research into the markets you are aiming to sell your work and do your prices compare well, are they competitive? To have a clear idea about pricing your work, you also need to know what comparable creatives or creative businesses are doing. Your peers could be considered as comparable to you right now; creatives or creative businesses who are at a similar place in their career to you and whose medium is comparable to yours (i.e. if you paint oil on large canvases do not compare yourself to an illustrator or film-maker)
Your Value as a Creative - This is a complex issue, but if you are running a service business or are an artist in addition to your costing for making work, another notion to consider when you are pricing your work is your own perceived value as a creative. This ‘value’, difficult to pin-down and unique to each creative, is increased by milestones such as:
Years of practice
Professional accomplishments and reputation – previous sales, publications, sitting on awards panels, exhibitions, talks, interviews, residencies, press, publicity, awards etc
Profile of the partners and organisations you work with
The quality and complexity of your work
Include Profit - Include profit, no matter how small the percentage. The profit you earn is the money you can put back into your business, build up and invest in new equipment, training or simply contribution to your time off.
Days Off - When working out how many days you can dedicate to your business, base this on 48 weeks a year not 52, as you need to factor in time off for holiday or illness.
sources & more info
business models
In addition to pricing your work, your business model will impact your future financial plans.
What Is a Business Model?
A business model is an outline of how a company plans to make money with its product and customer base in a specific market. At its core, a business model explains four things:
What product or service a company will sell
How it intends to market that product or service
What kind of expenses it will face
How it expects to turn a profit
Because there are so many types of businesses out there, business models are constantly changing.
Four Traditional Types of Business Models
B2C – Business to consumer
B2C businesses sell to their end-user. The B2C model is the most common business model, including anything you buy including services so there are many variations and different approaches.
B2B – Business to business
In a B2B business model, a business sells its product or service to another business.
C2B – Consumer to business
C2B businesses allow individuals to sell goods and services to companies.
In this business model consumers have the power to name their price or have businesses directly compete to meet their needs.
C2C – Consumer to consumer
A C2C business connects consumers to exchange goods and services and typically make their money by charging transaction or listing fees for example eBay
MONEY PLANNING EXERCISE
This exercise will help you work out plan for your financial future by working out how much money do you need to earn to live the life we want, how much we need to charge/ how many sales are need to achieve this
pricing your work exercise
This exercise will give you some guidelines to help you on your journey to pricing your work.
choosing a business model exercise
This exercise will help you to choose a business model for your creative business.
week 7 book
In this week’s book It Doesn’t Have to be Crazy at Work the authors of the New York Times bestseller Rework broadly reject the prevailing notion that long hours, aggressive hustle, and "whatever it takes" are required to run a successful business today. This book gives a refreshing take on how the world of work can be.
week 7 podcast
Secret Leaders shares intimate conversations with the world’s most influential business people to uncover the key turning points, biggest challenges and most valuable life-lessons from their remarkable journeys.