If you go down to the Ecclesall woods today … you would never have guessed that it was invaded last weekend by a hoard of Folksy sellers, staff and speakers. Not only was the Folksy summer school weekend event on 10th and 11th August sold out but all the talks were packed out and the one to ones were full. This was a bunch of creative entrepreneurs who were very focused on growing their businesses.
My role in all this was to talk about money and pricing in particular. As a result of all the one to ones I decided to ditch the carefully prepared presentation and instead look at how you go from setting some broad financial goals for your business to setting the prices for individual products and how these things connect to using the numbers and data in your financial records to inform how you adjust prices over time.
I won’t re-present the whole thing here as Folksy will be releasing a video of each talk shortly. But let’s go through a few highlights.
Revenue or sales targets – ask yourself how much you would like to earn from your business in the next year. You need a broad goal to aim for and from there you can start thinking about when the major sales months are for your type of business and how seasonal it is likely to be.
Small, medium and large sales – now that you have some sales targets the next question is what might the orders be that will get you to these targets. What would constitute a small sale? How many items might be included in a medium or a large sale? The purpose of this is to help you think about how products might be bundled and to get you looking for the differences in types of customers and their ordering habits. How do you get people to go from placing small to medium or medium to large? What affects how frequently they order?
A bit of steady – life is less stressful if you have some steady income rather than the roller coaster that is boom and bust. Where might your steady income come from? Is it particular products or customers? In a perfect world perhaps 40-50% of your turnover will come from these regular sales.
Sweet spot pricing – any sailors among you will be familiar with the idea of the sweet spot in a sail which is where it is working optimally and giving you the greatest speed possible for the conditions. What I mean in this context is that there will be one or two key products which sell very well, are fairly low cost to produce and thus nicely profitable. These products are not just great for your customers but also a key contributor to your ‘bit of steady’. Keep a look out in your sales for these sorts of products and make sure you display them prominently and promote them accordingly.
Range pricing – there are many approaches to pricing. If you really want to get your head around this topic (and many other small business money topics) we suggest you sign yourself up for Money for Creative People. For now let’s just have a wee look at range pricing and what we mean by it. The basic principle is that it is not just about setting a price for each product but considering the role it plays on your overall range. For example jewellers will often produce one or two showy catwalk pieces that tell the whole story of a range. They will also produce lots of smaller pieces such as earrings and cuff links that only contain part of the story but are easier to wear. The former is necessary to excite and interest the customer but most people will buy the latter. With that in mind you need to price the smaller products so that they cover some of the cost of making the bigger ones.
Pricing flexibility – prices need not be set in stone. You will learn a lot for trying things out, running offers, seeing if you sell more if you drop the price or make notably more profit if you put prices up. The ‘elasticity of demand’ which is the maths that explains the price sensitivity of your customers. It is worth starting to understand how elastic the demand for your products and services is and a key part of this is your pricing.
Learning from your numbers – the point of keeping your financial records up to date is not just so you can feed information to the tax man. You need to do it so that you have the information to hand to start answering the questions and challenges outlined above. After all you wouldn’t drive a car whilst wearing a blindfold now would you?
MyCake Bookkeeping Toolkit special offer
£15 off MyCake bookkeeping & benchmarking toolkit for Folksy Summer School Weekend attendees
OFFER ENDS Monday 19 August 2013
Sign up as a new user* via this simple online form: http://www.primenumbers.co.uk/benchmark/register.asp?type=mycakeClassic
*Please quote the discount code: FOLK15 to purchase your 12 month licence to MyCake at the bargain price of £194.99 inc VAT.
This is a huge saving of over £50.00 when you compare a subscription to MyCake with other online bookkeeping solutions or even the cost of a bookkeeper’s fees! And the MyCake interface has been lovingly designed with creatives in mind.
We have loads of tips and advice on money matters online just take a look at some of the resources we have available here: https://www.mycake.org/documents.aspx
And in our blog posts http://www.mycakefinancialmanagement.co.uk/blog/
We have also developed a range of resources with coaching consultancy Lateral Action such as:
Free money tips for creative people: http://lateralaction.com/moneytips/
The Money for Creative People Pack by Sarah Thelwall and Mark McGuiness which includes The SMARTSTART Guide to Pricing (retail price: $39.95) – a 74-page guide and 40-minute audio seminar that will teach you how to set prices that are both profitable and competitive