MyCake’s 3 Top Tips on where to start with your Pricing Strategy

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Have a read of Sarah’s recent post on Pricing from the Folksy blog

 

Sarah Thelwall founder of Mycake.org the online toolkit offering creative entrepreneurs a helping hand with their finances, shares a few top tips before her Folksy Summer School pricing session on Sunday 11 August 2013.

Let’s cut straight to it. Your pricing strategy should not be based on having the lowest price in the market place. This is especially pertinent to the craft industry and the often handmade work of designer makers. Affordable to the right customer of course but for the business you are in, customers value quality and originality and prices should reflect this. Also you want to build a sustainable business, make a profit and enjoy combining work with your passion.

Top tip 1 – what do you need to earn?

So from the start you need to know what money you need to survive on. Perhaps a handful of you have sat down to work out your personal budget.

You can calculate your survival income using a simple list in an excel spreadsheet or an online calculation tool. There are a great number of resources and start-up advice for small creative businesses online such as the finance worksheet in Cockpit Arts ‘Making It’ toolkit.

This is a valuable exercise to do and to review also at key stages of your business and if there are changes to your needs.

Top tip 2 – what do you need to charge per hour?

The next important thing is for you to calculate your hourly rate so that you have a cost for your time working in and on your business. It surprises us no end how many designer makers only cost up their products rather than their labour and slowly set themselves a dangerous precedent of working for free!

We have a little DIY video all about how much you might need to charge per hour to get that golden figure for your hourly rate.

Top tip 3 – what are your direct costs for each product?

That hopefully takes care of you, your expertise, and potentially any of your staff, in the equation of your pricing strategy. Next to tackle are the costs of supply and of making using the materials themselves and any tools you have invested in. Do you have a comprehensive list of your direct costs in the making process? This list should include everything from the cost of ordering materials and having them delivered to the cost of the packaging that completes the product so its ready to sell.

MyCake works with many small creative businesses to support them in managing their finances more effectively.

We help entrepreneurs, like you, who have developed a creative product or service become better acquainted with the ways in which money flows into and out of your business and how your actions cause these ebbs and flows. By understanding the connection between your actions and the flow of cash through your business you’ll be in a better position to adjust the way you do things … so if it feels like a rollercoaster at the moment you’ll be pleased to know that you have the power to change this!

Through a better understanding of the connection between your actions and your finances you’ll grow your knowledge of what impacts how you price your products and services. Wouldn’t it be great to feel confident in your prices? How would it feel to know that you’ve taken into account all the costs of production and valued your time highly enough that, provided you meet your sales goals, you’ll see enough profit to both develop the business and pay you a wage. Whilst lack of cash flow can kill a business quickly poor profitability can kill a business slowly and painfully and the stress on the business takes a heavy toll on the entrepreneur. Great profitability on the other hand not only allows you to revel in your successes but means that you have enough funds to invest in your latest ideas and bring these to fruition as well. So profit means sustenance and freedom for you and your business.

Planning a budget for the coming year is a great way to set goals for your business, keeping your MyCake account up to date helps you see how you are progressing towards these goals and will help you see what’s driving your over or under-achievement i.e. whilst it’s great to achieve more sales than you’ve expected if you put your costs through the roof in the process you’ll feel that you deserve champagne but can only afford beans on toast.

Come and hear more at Sarah Thelwall’s talk on Pricing on Sunday 11th August at the Folksy Summer School weekend plus meet with Sarah for a one to one chat about how you approach pricing and managing your finances in your business – sign up for a one to one on the day.

Get Tickets for the Folksy Summer School weekend: http://summerschool.folksy.com/#tickets

Articles from the MyCake Archive on Pricing:

The Pricing Decision: 2. Price and the Market

The Pricing Decision: 3. Price and Perceived Value

The Pricing Decision: 4. Price and Goals

Pricing, Value and Goals – an interview with Jacob van der Beugel

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