There are lots of expenses that are easily overlooked when calculating overhead. In the Foundations for Artful Success program I provide the students with a comprehensive list of accounts they should be tracking/documenting and 8 proven leading art industry formulas to calculate their pricing.
I think it shocks and surprises artists, even those that have been in practice for over 20 years, to see exactly what needs to go into your calculations. Things you have been missing.
Do you know all of your overhead costs, your supply costs, your losses, your exact inventory that goes into every single piece? If not, I can assure you that you are pricing your work incorrectly and most likely not making a profit.
It seems every place I go (forums, websites, facebook) pricing is the hot topic but after my exhaustive search (and having paid for countless classes, books and e-books on the topic) and in-the-trenches experience, I can say none of them properly cover the issue fully.
Like with time (actual labor costs), artists don't always account for their time fully and don't "include" many of their labor tasks as part of doing business. This is the same for the expenses and overhead that goes into selling their work.
Consequently if you sell your work without properly planning to make a profit, after covering *all* of your time and costs that go into the work, you will never sustain a long career or have any sort of way to retire or survive during lean times. This is why many of these pricing formulas, and perhaps yours, is not serving you best.
A basic Profit and Loss Statement, or financial physical of your business, consists of:
Sales – Cost of Goods = Gross Profit – expenses (overhead + labor + supplies) – losses = Net Profit
Net Profit is essential as it allows you to grow your business. It is your savings account for a rainy day or your investment toward your retirement. If you are not showing a profit each year, an accumulation of available funds after all is said and done, you are not making a profit. After 5 years, the IRS legally defines your "business" then as a hobby.
If you have another job or other income supporting you, and you are not making a profit after all calculations, but allowing other income or job to cover those business costs, it's still a hobby.
How important is it to you that your art practice make a profit?
Pricing: 4 Mistake to Avoid
Know Your Overhead and Cost of Goods
Did you know that you should have roughly 30+ accounts that you are accounting for not including your cost of goods?
Do you know the exact costs of goods in that piece down to the last crimp bead or ounce of glaze used?
When you ship out your item did you account for all the packaging costs, to include everything including the tape?
Does your labor costs include bookkeeping, shipping, emails regarding the order, etc?
It’s important not to estimate your overhead costs but to know exactly what is included, how to account for it all and then to figure out how much overhead needs to be part of each piece you make.
How do you divide up that cost? How do you allocate it to the piece?
Don’t Your Price Your Work Too Low
You assume that because someone sells similar earrings for $15 you should also. So you don’t bother to find out your true costs. Or perhaps you just “want to make back your supplies so you can continue to create.”
This is surely a fast track to the end of your career as an artist. Plus you are actually making it harder for all other artists to make a living selling their work.
How much do you value the work you do?
The price of your work should reflect your skills, your experience, the demand for your work (which results from your branding and marketing efforts), and provide you with profit.
Think Ahead to All the Possibilities and Opportunities
You decide to price your work for retail because you feel that after your pricing your can’t mark it up keystone to retail. So in effect your wholesale is your retail.
You work for years to perfect your technique, to build your brand through hours of advertising and marketing and when your big opportunity comes (a gallery wants you, a wholesale art catalog wants you, a big show wants you) you can’t give them 50% of the cost of your work.
Are you doing yourself a disservice not to be pricing your work to include a markup for true retail from the start?
Plan to Make a Profit
Planning ahead to include a profit in your work is planning for the future! Would you take a job anywhere else where you knew it could not possibly meet your expenses of living? What would be the point unless you were going to have several jobs to meet that requirement.
I think artists need to take a hard look at their pricing. Stop competing with third-world production priced-work and build their businesses so that they are charging enough to make a profit.
There will be lean times, times that you get sick, that your body and mind needs rejuvenation and time off. You must plan for profit so that you can grow your business and meet those “rainy days”.
Again, there is no real secret but there are formulas based on material cost. It’s all math. However after you have properly calculate the price you will make an adjustment for “what the market will bear.”
Don’t think too negatively about this as you set the tone and demand for your work. There are many artists that can command $1500 for a ring made with next to no precious materials. This is because they have spent time developing and marketing their brand. They make work that is based on scarcity and a psychological strategy of worth.
You must decide where your brand lies. Is it a high-end brand, mid-range or are you going to compete with 2 million plus artists on Etsy and the local big box retailer. It’s completely up to you how you place yourself in the market place.
Just remember as a low-cost provider you will always be struggling unless you can turn your production over to a non-US based supplying situation where you are having your work assembled there and you are simply the designer.
We cover in Foundations for Artful Success many ways to establish multiple streams of income for your business so that you can create work that does allow you to price it to make a profit. It’s about the foundations… clarity, the branding, productivity, and more. It’s also about establishing a more efficient studio, finding better techniques that are efficient, more economized ways of using materials, etc.
These are all things you will need to evaluate when you arrive upon your “real” (fully actualized) pricing. This is what all good businesses find themselves doing after their initial calculations. This is why optimization of factory practices came about. To figure out how to make things efficiently and with the lowest costs to make the most profit.
Artist’s work is no different… you are a business. Perhaps not a factory, but you too must learn the most efficient use of your resources and cash flow. Profit is essential to growing your business.
How’s your rainy day account look?